Taking Stock / Tech Without Subsidies

Money for technology, not for the religious.

Sound good? Sure, in the milieu of the technology companies and business leaders. If you put the technology sector on one side of the scale and the ultra-religious on the other, everybody knows who the bad guys are.

At present the technology leaders are waging an aggressive public relations war against the cuts to the budget of the Industry and Trade Ministry's chief scientist, the office that provides R&D grants to eligible technology companies. Hundreds of millions of dollars a year are provided in support of R&D.

Technology truly is one of the best things to happen to us in the last decade. It brought billions in foreign investment, accelerated Israel's entry into the global economy, improved its management culture and created jobs both directly and, mainly, indirectly.

Israel's macroeconomic policy must support the creation of infrastructure friendly to technology companies. Tech really is one of our few growth engines. Prof. Michael Porter, a world expert on relative advantages, ruled without hesitation that technology is the area we need to develop into our specialty.

Why is it so important?

But let's remember why we view technology as an engine of growth: because it is based on Israel's real relative advantage - our engineers, our entrepreneurs; because almost all investment in technology is foreign and is motivated by purely economic reasons; because in the last 10 years Israel developed whole industries to support technology, most notably the venture capital industry.

To sum up, we view technology as an independent, strong industry that does not need government protectionism, funding and guidance. All it needs is raw talent, initiative and management, not ties to government and the phone numbers of fixers who can arrange anything for a price.

But the technology leaders who preach that it's a growth engine want to change all that. They want to make it as needy as the religious. They want more and more government support for the big companies, they want to inflate the chief scientist's budget, which is their government body complete with fixers specializing in arranging for special grants.

Given the situation of Israel's technology industry today, the economic justification for the chief scientist's money is dubious. The government needs to provide support when there's a problem in the market, when the market won't take even economically justifiable risks. That may have been the situation fifteen years ago, or five.

But today things have changed. There is a lot of smart money in Israel willing to undertake risk for good projects. The venture capital is brimming with money looking for investments.

Deja vu

Remember, not long ago the venture capital leaders were waging a similar battle. They wanted public money to support the establishment of new funds. They claimed that because of Israel's security situation, foreign money would stop coming in.

So, on the one hand the venture capital funds rebuke the opponents complaining about their high management fees and the "American standards" they adopted over there in ritzy Herzliya, rightly saying that's the way things are done in the free market. But on the other they demand government money to finance their management fees.

A year down the line, the strong venture capital funds with solid contacts outside Israel, or funds that simply performed well, are raising money hand over fist for investment in technology. Their main problem is to find enough good projects for investment.

Don't forget that as a percentage of GDP, R&D spending in Israel is among the highest in the world. Ireland, a name everybody's bruiting about these days, has set itself a target as high as Israel's within 10 years.

Companies are financing it alone

A glance at the financial statements of the Israeli companies registered on Wall Street shows that all invest 10-20 percent of their turnover in R&D, irrespective of whether or not they receive support from the chief scientist. Why? Because they know it's financially wise, because investment in R&D is just like investment in marketing or in logistics. It is part of the cost of business in technology.

Moreover, the chief scientist's people are no better at locating worthy projects than the money in the market. Maybe they are worse.

And worse: much of the chief scientist's grants go to big, strong companies using the lame excuse that it will motivate them to leave their R&D in Israel, not send it to India.

Really. Will $200 million or even $300 million cause Israel's technology scene to be more attractive than India's? Will that amount stem the burgeoning trend around the whole world, of opening R&D facilities in India? Will that money buy Israel's competitive edge?

Companies will do their R&D in Israel if they think it has the best quality personnel, not because of a few piffling dollars a year.

If the technology leaders want to be treated as an engine of economic growth, if they want technology to be treated as an industry worthy of a supportive economic environment, they should stop adopting the bad habits of other industries, including of sectors they despise.