The Limits Of Israeli High-Tech Success

The central urban areas of Israel are a proven Silicon Valley success in the Middle East. But the country must find ways to bring the high-tech industry to the north and south.

Intel and Google buildings in Haifa
Intel and Google buildings in Haifa
Esther Luzzatto

TEL AVIV — Over the past few weeks, Israel has witnessed some impressive "exits" of local software startups. The fact that the giants in the technology industry like Intel, IBM, Microsoft, Facebook and Google are building development centers in Israel, and are expanding their activity in the country, is proof of Israel’s status as a high-tech superpower and recognition of the quality of human capital.

Furthermore, the wealth earned in the exit sales is bound to be used to further develop the industry and expand investments throughout the country.

However, not everything is roses in the world of Israeli high-tech. The success that all are hailing has mainly come thanks to companies working in software, Internet and other digital applications. In these fields the development period is short, the amount of capital required for development is relatively small and the barriers to entry are low. In other fields, like sciences and medicine, the high-tech challenges are a lot more complex, the development time is a lot longer and the size of the investment and the risk required for the development of the invention is enormous.

There are various high-tech issues around technology that should worry Israelis, but one stands out most of all. The fruits of Israeli high-tech success reach only a very limited part of the population. Moreover, the so-called "Exits Industry" has created a new class of rich people, which has deepened inequalities in the Israeli society.

Wage disparities mix with social, geographical and demographic inequalities, and the situation could worsen if the divide grows between the center of the country and the periphery.

The high-tech community and the industries that come with it, (financing, credit, law, foreign trade, etc...) are all in Tel Aviv, and the rest is left with crumbs.

In order to assure that the fruits of success of the technology companies will extend out from the overprotective elite class, a new approach is needed. Legislation that encourages investment alone will not solve the problem. The government needs a new strategy specifically aimed at building the high-tech industry beyond Tel Aviv.

Southward bound

This could be done by giving perks to high-tech workers so they would follow the company, and go live in the periphery, including tax cuts, credits and grants. This would have just one goal: to encourage owners to move their company to the nation's peripheries by using salaries as a motivator.

Israel's Qiryat Gat industrial zone — Photo: Wikimedia Commons

Moving high-tech companies is not as complicated as moving factories; there aren’t any heavy materials or the need to establish infrastructures for an industrial zone. Most of the capital of these companies is human, there is only the need of office buildings, which often already exist and are just waiting to be occupied.

The moving of high-tech companies to more remote locations in Israel will be beneficial in several ways: it will create new economic centers that will draw a population with a higher purchasing power to cities far from the center. This will bring growth to these cities, and will lower local taxes.

In fact, there are already many young couples from a high socio-economic background who even without government incentives are moving to escape a rising cost of urban living, crowds and pollution in order to enjoy the lifestyle advantages in the Negev desert area in the south or the northern Galilee.

Indeed, the south of the country is already evolving as far as employment is concerned. The transferring of Israeli army bases to the Negev since 2011 will completely change the employment situation in the area by creating many new work opportunities in the domains of the most advanced technology.

The arrival of new citizens will force the government and the local cities to upgrade services, including housing, health, education and culture. Transportation is already undergoing a massive expansion in the south of Israel.

All of this might motivate more workers to follow the first flocks who moved to the south, which would help achieve the long-term objectives of the government to lower the inequalities between outlying regions and the center.

There is no doubt that high-tech will remain a crucial part of Israel's economic growth, but its fruits must be shared by every part of society — and every corner of the country.

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