israel’s technology industry as
an economic Growth engine
How government-industry collaboration can have far-reaching economic influences.
OVer the PASt
40 years, Is- rael’s economy has trans- formed from being closed and poor into one that is open, developed, and driven forward by a high-tech sector that is
well regarded around the world. Much
of the credit for this can be attributed
to successive Israeli governments for
realizing that a civilian research and
development industry could become
an engine of economic growth, and
then implementing policies to create
it and ensure its expansion. However,
the government’s actions vis-à-vis the
high-tech sector—and by extension
the wider Israeli economy—stand at
a critical juncture. As strong as the
industry is, concerns exist about its
sustainability in the face of the global
economic slowdown and a weakening
of the structural components underpinning its success. The government,
as the achievements of its policies over
the last 40 years demonstrate, and particularly the previous 20, has the ability
to help surmount these challenges and
preserve Israel’s technological edge in
order to ensure renewed progress in
the decades to come.
PHO TOGRAPH BY ARDeN PeNNeLL
Israel has implemented numerous
initiatives and policies to leverage the
technology sector as a vehicle for economic growth, beginning in 1969 with
the establishment of the Office of the
Chief Scientist (OCS), which has become the main instrument for fostering innovation and manages several
microsoft Corporation’s israel Research and Development Center was inaugurated in 2006.
programs that offer grants and other
assistance to high-tech companies.
The state also provides tax breaks and
additional benefits to attract overseas
investment in technology firms and
encourage foreign companies to establish operations in Israel.
The success of government R&D
policy can be seen in a number of ways.
On a quantitative basis, Saul Lach of
the Hebrew University in Jerusalem
has demonstrated that the return to
the economy of state investment in
high-tech ranges from 473% to more
than 1,000%.a More broadly, the gov-
a The research was conducted by the research
firm Applied Economics (http://www.applied.
co.il) with Saul Lach’s academic supervision.
ernment achieved its goal of building
a robust high-tech sector. From a small
base even as late as 1993, there are now
approximately 4,000 high-tech companies, one of the highest concentrations
of such firms outside of Silicon Valley. These companies employ almost
250,000 staff, while the segment’s share
of business sector employment in 2007
was around 9%. An indicator of the
strength of the industry is the presence
of multinational corporations such as
Intel, IBM, Motorola, and Microsoft,
which provide experience to their staff
in managing on a wide scale, completing big projects, marketing, and dealing with large customer accounts.
The growth in the high-tech sector
accelerated after 1993 following the