Israel May Be Start-up Nation, but It's Low-tech Government

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The year 2013 is on track to set records for Israeli high-tech exits. Some of the more prominent companies sold this year include Waze, Trusteer and Intucell, alongside smaller companies such as Wix. The trend created a feeling of euphoria, fueling the local stock market and driving the total investment in Israeli high-tech to a high in the third quarter not seen since the dot-com days. It would seem that startup nation has never been better off.

But if we take a step back, we’d see that the tech world’s influence on our lives and the Israeli economy is shrinking. We occasionally benefit from the products developed by companies like Waze and Get Taxi, but beyond the high-tech bubble, most of the services we receive - particularly from the public sector - are far from innovative.

An attempt to compare bank fees, check train timetables or order from a local grocery chain over the Internet is enough to prove that startup nation barely uses the high-tech services it exports. According to OECD data, Internet access and technology use by households in Israel are below the average for developed nations.

While Israel may rank close to average in terms of innovation and online access to government services, the gap with the country’s stellar high-tech industry is striking. These figures are swayed by the high-tech industry, which helps hide the service sector’s lagging performance. A report published by the Haifa Technion’s Shmuel Neeman Institute this year found that while both Israel and Finland are global leaders in R&D spending, in Finland the investments are distributed relatively evenly, while in Israel they’re concentrated in computing and R&D companies.

A report complied by Mackenzie for Google two years ago helps explain the gap. Outside of high-tech companies, startups and international development centers, Israel lags when it comes to adopting new technologies and in business innovation, particularly when it comes to the service sector, particularly in the public sector. And it’s these areas that have the most direct impact on people’s lives.

Furthermore, the state offers negligible support for innovation in the service sector, according to the Neeman report. The lag in services and the public sector touch directly on a sore spot for Israel’s economy - labor productivity. The average Israeli worker is less productive per work-hour than their European counterpart, and earns less as well. Israeli productivity is well below the OECD average.

Only by adopting technologies that guarantee a competitive economy will Israel be able to address these challenges, says a report financed by Google and published in July by Trigger-Foresight, an Israeli consulting firm that is a part of Deloitte Brightman Almagor Zohar.

If Israel wants to use its significant technological advantage in order to ensure short- and long-term growth, it needs to start using this technology from the top down, the report’s authors write. “It’s hard to imagine a truly innovative country without a government that serves as an example for incorporating technology, both as a customer and as a supplier,” the report states. Developed nations that wish to do so set clear goals and develop national plans for implementation, and such programs need to be headed by a central party in the government.

Israel has many parties trying to implement such plans, which is a disadvantage, states the report.

The report sets clear goals that it urges Israel to adopt: adapting the education system to the 21st century, making all medical records digital and accessible to patients, increasing awareness of technological tools among small businesses, creating government-backed cloud computing services to promote their use in the public and private sectors and encouraging the adoption of technology in traditional industries. To meet these goals, the authors urges the government to create a single body with the authority to do so, particularly on behalf of the public service.

Over the past few years, countries around the world have set up bodies to bring the public sector up to speed, technology-wise. They improve worker output by making the public sector more efficient, by encouraging the adoption of new technologies and by creating non-governmental information centers to assist in this.

Countries including Australia, Canada and Germany have national computing programs that offer citizens a single government portal with access to all government services. In Israel, in comparison, citizens have to contact offices such as the National Insurance Institute, the Interior Ministry and the Transportation Ministry separately. Offering a single, unified portal improves services to citizens.

In February 2012, Carmel Avner was appointed to a new government position, that of chief information officer. The brand-new bureau she headed was tasked with making the government more efficient in the field of computing, improving cooperation in this field between ministries and other public bodies, and more generally improving services to citizens.

This September, Avner announced she was quitting. By making her bureau an advisory body devoid of operative authority, it was unable to advance its goals, she stated.

Avner noted that governments around the world lag when it comes to adopting technology, partially because they are bound by regulation. “These kind of broad processes necessitate deep conceptual changes,” she says, adding, “It’s hard to foment change.”

Over the past two and a half years, the government realized it cannot ignore technology, she says. Following this realization, it launched a bureau for cyber-defense, and is now working on a biometric database, she notes.

The quick adoption of technology in modern society is forcing the government to adopt, she states. One example is data. “Until now, the government considered ministry data to be a government asset,” she says. But in today’s world, this data is perceived as public property, she says.

The Interior Ministry in Jerusalem, September 2009Credit: Tess Scheflan

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