A Worrying Look at the Future of Israel Hi-Tech

Obsolescence, planned or otherwise, is a part of the computer industry. The minute a new processor or program is created (and certainly by the time you get to use it), it’s already “old hat,” since they’ve already started working on a new, improved version.

The same holds true for the computer industry; today’s hi-tech darling could be tomorrow’s old news, says Shlomo Gradman, organizer of the second annual Ra’anana Conference for National High Tech Policy (click on the English button at the top of the page). Israel is a premier location for hi-tech development today, second (if not first) to Silicon Valley. But where many see clear skies for Israel’s hi-tech future, Gradman sees a huge typhoon heading in from the east – courtesy of China and India – that may relegate Israel to a distance fourth banana status in terms of hi-tech development, a situation that would wreak havoc with the economy.

“It’s all in the numbers,” Gradman says. “Israel produces about 10,000 new engineers annually, while China and India graduate 850,000 between the two of them – half a million in China, and the rest in India. Add to that the newly revived economies in Eastern Europe, and Israel is looking at a lot of competition in the coming years for investment money for innovative development.”

In a sense, Gradman says, it’s Israel that is responsible for this new competition; developing countries looking at our predominance in hi-tech have come to realize that with education, infrastructure, and a little bit of luck, they, too, can develop a major export industry that brings first world wealth to a second or third world society – and they want in on a good thing. “We can’t afford to fall behind,” Gradman says. “Half of this country’s exports are in the area of hi-tech. Imagine what would happen to the economy if we lost that number of exports,” he says. The changes are already in the air, and if Israel doesn’t do something really soon – like right away – we could find ourselves on the international hi-tech unemployment line before we even realize what happened!

Preventing such a catastrophe is one of the major themes of the Raanana Conference, says Gradman; workshops will discuss issues such as setting strategic goals for Israel’s high tech industry, and developing new plans to improve education in science and technology and technology for Israeli students – to ensure that we’re using our human resources as efficiently as possible. “We have a major problem in this country when it comes to science and technology education,” Gradman says. “Only 8% of those graduating high school come out with five ‘points’ (yechidot) in their matriculation studies in math and science, essential building blocks for educating computer engineers. Already we’re short about 1,500 engineers a year. That gap is only going to get larger as the years go by, and there are plenty of competitors waiting in the wing to fill that gap,” Gradman says.

Like India and China, which many Israelis have not perceived as a major threat until now. Both countries are known for their cheap back-office programming sweatshops, where underpaid and undereducated workers build databases and write programs for Web applications – the kind of drudge stuff nobody really wants to do anyway, and certainly far from the world and Web changing innovation done here in Israel!

But that was then; now, India and China are ready to spread their hi-tech wings. “What’s stopped them in the past has been a lack of infrastructure, but as they get wealthier, they can afford more labs and development centers, making it more likely that investors will see them as development centers for innovative technology, and not just dumping grounds for back-office work.” Like Gradman says, it’s all in the numbers; Between the two of them, India and China are producing 100 time the engineers Israel is. “The odds are that out of such a large pool, some major innovations that attract available investment dollars and jobs are inevitable,” he says, pointing to studies at several U.S. universities which showed that students from Asia thrive and innovate when given the kind of labs and development centers available in the U.S. and Israel.

“Now is the time to set proper policies and strategies to prevent a calamity,” Gradman says – and that’s what the Raanana Conference is all about. Among the speakers at the conference will be heavyweights in the world of education, science, technology and politics – areas where officials will need to roll up their sleeves and get to work if we’re to stay on top of the hi-tech game. Scheduled speakers include Minister of Industry, Trade & Labor Eli Yishai, Education Minister Yuli Tamir, Finance Minister Roni Bar-on, Chief Scientist Dr. Eli Opper, representatives of some of the biggest hi-tech companies and venture capital firms active in Israel, Mayor of Raanana Nachum Hofri (whose city is a partial sponsor of the conference) – and President Shimon Peres.

With all that brain and political power, the Raanana Conference should be able to come up with some plan on how to keep Israel on top – and Gradman, who is also head of the Israel CEO Forum, has some ideas. “Education is of course a priority, and we have to make sure more of our kids are inspired to want to take on the burden of learning math and science.” To that end, Gradman says that a number of major hi-tech firms have adopted a plan innovated by Intel, called ‘Think Positive,’ where kids in cities around the country are able to work with Intel employees after school on science projects and assignments in math, physics, chemistry, etc.

“Intel does much of its important development in processors and wireless technology right here, and they, too are concerned at the dearth of engineers. They developed this to ensure that more students succeed in science, encouraging them to take five matriculation points in the hard sciences, and embark on careers that Israel has a real need for new personnel in.” Gradman says that companies like Nice, IBM, Kodak, Amdocs and others will be adopting the project in their own firms as well.

And improving the atmosphere of science education in schools isn’t beyond the budgetary abilities of the country; Israel spends more per capita on education than almost other country in the world, Gradman says. “It’s a question of reallocating what we have, as opposed to increasing the budget,” he says. Gradman is also reaching out to potential new immigrants; Jewish Agency head Ze’ev Bielski (one of the scheduled speakers) has initiated a new program called “Olim le’Hi-tech,” which aims to bring no fewer than 1,000 hi-tech engineer olim to Israel each year. Another area being explored is expanding retraining efforts for Israelis seeking new careers, under a program in which the Employment Service provides training and stipends for those receiving unemployment benefits.

Strategy is going to be just as important as education, Gradman says. “Right now we have no national policy on development; if the Chief Scientist and the VCs think you have a good idea, you can get funding.” Instead of trying to be all things to all people, Gradman says, Israel should concentrate on several key areas where we are already ahead, and build on that – making us predominant in those areas and preventing other countries from catching up any time soon. “For example, Israel is already the world innovator in environmental technology, such as water, agriculture, etc. Instead of competing in Web spaces trying to put out the next big social networking software, the country’s resources should be put into areas we have a chance of pulling ahead in,” he says.

That’s not to say that Web application development would be banned – just that ideas along the lines of the preferred strategy would get funding priority from the government. And instead of depending largely on foreign investors – who have their own agendas – to invest in development, Israeli hi-tech has several important funding resources it hasn’t drawn upon yet. “Our hi-tech industry needs about $2 billion a year in investment. The Chief Scientists invests about $350 million annually, with the balance coming from foreign Vcs,” Gradman says. But why look abroad when we have potential investors right here? “With pension reform, managers of pension and education funds are now free to invest in hi-tech, just as they invest in other industries – and these managers control about $200 billion.” Why not use our own resources to pursue a policy that will benefit the country in the long term? Good question, says Gradman – and that, among others, is one the for which the Raanana Conference will provide an answer.