Israeli High-tech Needs Multinational R&D

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In today’s globalized world, human capital closely resembles financial capital. Talented people can board a plane and simply move to another country, just as money can cross borders at the push of a button, moving from one account to another.

Any attempt to regulate or halt the natural migration of human capital is equivalent to stopping the flow of capital – a throwback to the late 1980s when economic policy was swayed by an insular fear over capital fleeing the country and foreign currency depleting. The fear of foreign research and development centers operating in Israel is comparable to the fear prevalent in the 80s, that leaving trade to the mercies of the market would deprive Israel of its assets.

Since the beginning of the 90s, when Israel’s foreign currency market was opened to the world, we’ve seen that switching to a market regime from one controlled by bureaucrats has been nothing but a blessing for the local economy. The flow of foreign investment into Israel exceeded the outflow of capital, and foreign currency reserves piled up. Israel’s economy competed well globally and developed capabilities it never had before.

Foreign research and development centers operating in Israel are the local high-tech industry’s greatest asset. Global technology giants like Google, Apple, Qualcomm, Broadcom, Microsoft, Oracle, Hewlett-Packard, IBM and others keep Israel at the forefront of global technology, while employing tens of thousands of local engineers.

The research and development done in Israel is groundbreaking, and has strategic value for global firms. But more importantly, it is vital for the long-term survival of local high-tech. At some point in their careers, most workers at these foreign R&D centers face the possibility of relocating abroad. The majority decide to remain in Israel, while others leave and  then return with years of experience. Only a few choose not to come back, and most of the know-how accumulated by the Israelis in these companies stays in Israel.

Government policy on foreign development centers needs to be based on their contribution to the economy and the workforce, not on archaic fears of a brain drain. These multinationals create more jobs than local high-tech companies, and their employees, who enjoy better conditions and job stability, pay more taxes on their wages. Rather than fearing them, we should encourage them.

Google Israel headquarters. Contracts are negotiated in Israel, but signed in Ireland.Credit: Eyal Toueg

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