Global best practices: Israel rises as a technology powerhouse

The first one hundred days of the Marcos administration came and went without fanfare.

There were wins worth mentioning; first among them is the Cabinet selection. Except for three political appointees whom I reckon may not be the best nor brightest, the rest of the Cabinet are technocrats who are at the top of their game. The second win is the 19-point legislative agenda, which is both timely and necessary. The third win is the adoption of a proactive foreign policy geared towards forging allies with like-minded countries. The fourth win is maintaining stability in the political and business environment.

But the work has barely begun. In fact, PBBM has yet to define his grand vision for the country. Is it to achieve food security? Is it rapid industrialization? Is it to be a knowledge-based economy? Effective leadership starts with a clear vision and a buy-in from the constituency. Without it, policies remain reactionary and adrift. I’d like to think that the delivery of PBBM’s vision is forthcoming. The 8-point socioeconomic plan is not a national vision.

Vision aside, the country faces many fundamental weaknesses that require the President’s urgent attention. Among them is our poor educational system; an economy that is perilously import dependent (due to a weak manufacturing base); an agricultural sector characterized by low outputs; an economy that is increasingly left behind in the innovation and technology race and a defense policy that is misaligned with the country’s threats.

However daunting our weaknesses may be, the Marcos administration need not reinvent the wheel in finding solutions. It can learn lessons and gain inspiration from countries that faced similar challenges.

This is the first of a series of case studies featuring countries that emerged stronger than ever on the back of well-considered policies. For this installment, let me recount the story of Israel and her rise from economic chaos to a technology powerhouse.

Israel has everything working against it. It is surrounded by hostile neighbors who wish for it not to exist. It has a small population and is bereft of natural resources.

In the early 1980’s, the Kibbutz crisis caused severe economic turmoil in Israel. Its agricultural economy was drowning in debt and the state was running out of cash. It resorted to printing money, which led to inflation as high as 500 percent. The Israeli people lived from hand to mouth.

Fast-forward to today and Israel has emerged as a technology superpower. More than 9,000 tech companies operate in Israel’s Silicon Wadi, including behemoths like Google. The country is the world’s epicenter for technology start-ups with two times more capital raised than the Unites States. It is a global leader in technologies relating to defense, health care, cyber security and finance, among others. It is among the five countries with the most technology patents.

Today, the average Israeli earns $54,700 a year, 14 times a typical Filipino. Its formula to success lay in five critical policies.

Policy 1, fiscal discipline. In 1985, the Israeli government consigned itself to shock therapy to put its finances in order. It stopped printing money, cut unnecessary spending, imposed wage caps and devalued the Israeli shekel. It was a bitter pill that made life even harder for the suffering population. But it bit the bullet.

Policy 2, investment in education. As government’s fiscal position improved, it appropriated the lion’s share of its resources to education. It focused on the sciences, technology, engineering and mathematics and built learning institutions throughout the country. An army of foreign consultants was imported to elevate learning curricula to the cutting edge.

Cooperation between businesses and the academe made all the difference. Israel has the highest number of spin-outs (businesses borne out of academic research) in the tech world.

Policy 3, the Yozma Program. In the early 90’s, the state appropriated $100 million as seed capital for venture capital firms (VCs). These VCs invested in start-ups and scale-ups. Government took a minority stake in its investments and left the VCs to raise the balance of capital. This way, the government would leave the bulk of profits in private hands. Its objective was to encourage technology entrepreneurship and to merely get its money back.

The VCs expected eight out of ten of its investments to fail. But it knew that those who succeeded will more than compensate for the losses through windfall export revenues, taxes, employment, etc.

The vibrant VC culture attracted entrepreneurs and tech specialist from far and wide. Not only did this young breed of tech specialists infuse new skills into the economy, their voracious appetite for goods and services added exuberance to consumer spending. Thousands of start-ups were established such that the number of VC firms rose from 20 to 500 in less than a decade. Many of these start-ups have matured to become industry leaders that contribute hundreds of billions to the Israeli economy.

Policy 4, reverse immigration. Israel attracted skilled professionals and people of Jewish ancestry back to the motherland through the Law of Return. It pursued a brain gain.

Policy 5, Investment in Defense. Israel spends 5 percent of its GDP on defense to enable it to protect itself without depending on others. This gives investors peace of mind despite the constant threat of war.

The Philippines, with its young English speaking population, can pole vault into the future as a technology and innovation hub. Unfortunately, we are stuck in the low value added services such as call centers and data inscription. The talent is there but government needs to create the ecosystem for technology entrepreneurs to thrive. Israel was right to invest in STEM Education, its Yozma program, reverse immigration and defense. Nothing stops the Marcos administration from doing the same.

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Email: [email protected]. Follow him on Twitter @aj_masigan