The late Israeli Prime Minister, Golda Meir, once quipped that, “Moses dragged us for 40 years through the desert to bring us to the one place in the Middle East where there was no oil.” Apart from offshore natural gas fields discovered in 2000, Meir’s quip was accurate—no oil fields were ever discovered in Israel.
With a small population compared to its neighbours and bereft of major natural resources, Israelis had to look elsewhere to develop a strong economy. After all, fresh produce—no matter how delicious—can not keep a modern economy afloat. Especially one with a heavy military burden.
By the 1960s the Israeli economy began to find its stride as high-tech software firms began playing a larger role in the developed world’s economy. In 1961 Israel’s first high-tech company was founded, called ECI Telecom, followed by Tadiran, and Elron Electronic Industries.
How it all changed
Although Israel’s software market grew steadily throughout the 1980s, it really took off in the 1990s as educated immigrants from the former Soviet Union immigrated to Israel, boosting the high-tech workforce. The Oslo Peace Accords, although it did not ultimately settle the conflict between Israel and its neighbours, spurred investment into what began to be known as Israel’s “Silicon Wadi.”
Then, in 1998 an Israeli company revolutionized Internet communication with the launch of ICQ instant messaging program by Mirabilis. The free service was purchased by America Online for $407 million in cash only 18 months after it was established. By 2001, ICQ had over 100 million users worldwide. Mirabilis’ success triggered the dot-com boom in Israel. Thousands of start-up companies were established, venture capital raised by Israeli companies skyrocketed, and over 50 Israeli companies had public offerings on NASDAQ and other international stock markets.
The Human Factor
In retrospect, it should not be a surprise that Israel has such a robust high-tech sector. Israel might not be blessed with natural resources, but it is blessed with a highly educated population. What is more, many Israelis who go through mandatory military service often learn how to operate high-tech military equipment, which prepares them for the high-tech field. In fact, many ideas that later led to important software products were developed by graduates of Mamram, the Israeli computer corps.
Israel’s high-tech success has been largely buttressed by cultural factors. Israelis have chutzpah in abundance and are not afraid to think big and take risks. Intellectual curiosity and analysis are important aspects of Jewish culture, which in turn emphasizes the importance of education. The age-old reverence for education has resulted in a good public-school system and internationally renowned universities and institutes of science and technology.
Fighting for survival
Israel is one of the smallest countries in the world and is outmanned and outgunned by its Arab neighbors, which it has fought many wars in the past. To succeed on the battlefield, Israel has had to maintain a qualitative military edge over its enemies. In its early years Israel modified some of the military equipment it imported from abroad. But ultimately Israel’s qualitative edge was maintained by the quality of the military hardware it was able to purchase.
In the wake of the Six Day War in 1967, France’s Charles DeGaulle cut off the supply of spare parts for Israel’s French-made planes. DeGaulle’s military embargo—as well as embargos from other countries—turned out to be a blessing in disguise. It forced Israel to develop high-tech military industries of its own. Today, Israel is a leader in high-tech military technologies that are purchased by countries from around the world thanks to their effectiveness and affordability.
Government Support
Another factor in Israel’s high-tech prowess has been Israeli governmental support, which jumpstarted the industry. The creation of the Yozma program in 1993 is a good example. It is a fund of funds created to invest in local venture capital funds that channels money into new technology firms, also known as an incubator. Israel also invests heavily in R&D and is ranked second in the world in R&D expenditure per capital. Israel invests about 4.1% of its GDP into R&D, whereas the average in the Organization for Economic Cooperation and Development countries is 2%.
Today the Israeli government has over 25 incubators across the country, all privatized. These incubators offer government funding of up to 85% of early-stage projects costs for two years, essentially nurturing companies from seed to early-stage, thus minimizing the risk to the investor. More than 1,100 projects have so far resulted from the incubators with over 45% attracting additional investments from other investors.
At a glance:
In 2019, Israel was ranked the world’s fifth most innovative country by the Bloomberg Innovation Index.
Israel counts 140 scientists and technicians per 100,000 employees, one of the highest ratios in the world.
More than 3,850 start-ups have been established in Israel.
Israel's Weizmann Institute of Science and Technion – Israel Institute of Technology are ranked among the top 20 academic institutions in the world in computer science.
Israel has over 900 biotechnology and life sciences companies.
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