MK: Hi-Tech Needs Government’s Help Now

Despite popular opinion, Israelis are hardly contrarian; they actually go along with the flow. And with “the flow” nowadays trending to increased government interaction among previous bastions that were strictly the province of the private sector, Israel, too, is set to ratchet up activity in an area that, until now, the government had for the most part steered far away from – the hi-tech industry.

Of course, there’s a good reason for that, says Knesset Member Robert Ilatov of the Yisrael Beiteinu party. “Until now, the hi-tech industry was able to hold its own. But with the recent worldwide recession, investment money has almost dried up.” With hi-tech such an integral part of the economy – constituting as much as half of the country’s exports – the government really has no choice but to get involved, at least temporarily, in order to keep the industry alive to fight another day.

Of course, nothing comes for free – and with the government set to become an investor in Israeli hi-tech, entrepreneurs should prepare for at least some strings, if they take the cash, says Ilatov. “Obviously there must be a balance – a comfort level that both the government and private investors and owners will feel comfortable with.” But, he adds, “Like any other investor, the government has a right to ask for conditions from those who benefit from the taxpayer’s money,” he says.

There is a difference between the government and private investors, though; while an angel or VC looks at the bottom line, the government is likely to look at the “greater good” its money can bring about. “It’s not just about the developers and engineers,” Ilatov says. “For every worker in hi-tech there are six or seven supporting workers – the waitresses in the restaurants where they eat lunch, the cleaning staff who prepare the office for the workers, the taxi drivers who take the software people home at night.” If 7,000 hi-tech workers lost their jobs this year, that means some 50,000 other workers  are out of a job, too. Any help the government proffers to the hi-tech industry must go to help those support workers, as well as the elite tech workers, the MK says.

Clearly, Ilatov has done some thinking about the troubles Israel’s hi-tech industry faces – and he has decided to do something about it. Ilatov has established the Knesset’s first Hi-tech Lobby group, which he hopes will bring together government officials, leaders of varied hi-tech industries, university administrators, and members of Israel’s financial community, in order to give Israeli hi-tech a boost in the arm during troubled times.

The first meeting of the lobby saw well over 100 people get together at the Knesset to try and put together an agenda for a plan of action. Amazingly, this was the first time the Knesset saw such a comprehensive discussion of the problems and plusses of Israel’s hi-tech industry, Ilatov told me in an interview later. And, he added, by “hi-tech” he means all the advanced industries Israel is known for – computer networking and security, Web 2.0, biotech, medical devices, cleantech, etc. Representatives of those industries were present at the first lobby meeting, with speakers summing up what their businesses were facing as the recession continues.

Startups and established companies are, of course, just one aspect of the industry, he adds; it all starts in the universities, and maybe even earlier, at the high school level. So, there were also a number of top university officials at the meeting as well, discussing the difficulties faced by computer and science departments in the schools. Fact: The student to lecturer ratio in the country’s computer science departments are among the worst of any department, hovering at about 40:1.

With so many diverse ideas and interests represented, more than an initial exploration of the issues could not have been expected, says Ilatov. “The meeting was very helpful in clarifying a possible agenda, to help us decide what, if any steps to take or legislation to pursue in order to help the industries survive and thrive.”

One of those pieces of legislation is likely to be a rule that will require Israeli pension funds to invest at least some of their money in Israeli hi-tech. “Much, if not most, of the investment and VC money in Israeli hi-tech comes from abroad,” says Ilatov. But pension funds, arguably the Israeli investors with the biggest pockets, have barely given a shekel to local hi-tech, preferring to invest their money in far-flung places, says the MK. If it’s good enough for American VC’s to sink their money into an Israeli startup, Ilatov says, it’s good enough for a huge pension fund to allocate at least some of their funds to the same purpose. “It’s not like it’s any riskier than some of the other things they’ve invested in,” like Central European real estate, Ilatov says. “Americans who invest in Israeli hi-tech get excellent returns, and pension fund investors will as well. We intend to bring up the issue with the heads of the pension funds and try to persuade them that it’s in their, and the country’s, best interests to invest locally. If they agree, that’s fine. But if not, legislation of some sort may be necessary.”

Several other issues were brought up at the meeting: A number of speakers derided a new law that is to be passed as part of the “package deal” between the government and the Histadrut, which gives the union the right to organize among workers in any workplace, including in hi-tech companies (Ilatov thinks this is a bad law, because it will only scare off investors, and won’t help workers, who make far more than the average wage anyway). The names “India” and “China” were mentioned by more than one speaker, the latter for the potential business opportunities available, and the former in the context of the formidable challenge Israel faces in maintaining its position as a hi-tech power. And, there were calls to simplify the investment process, eliminate red tape, and generally do everything possible to encourage foreign investment.

One would have thought that many of these issues would have been hammered out, considering the importance of hi-tech to the country’s economy. But they haven’t, and that’s worrying. Where does one begin? With the universities? Helping existing companies stay in business? Helping fledging startups with great ideas to survive long enough to turn a profit, instead of selling their technology to multinationals for a relative pittance? Do we start with the universities, helping them produce more qualified personnel to fill the great need for top quality people? Or do we try and encourage a love of the sciences in high school and even elementary school students – many of whom, according to one speaker at the meeting, don’t know their multiplication tables as late as sixth grade? Yes, MK Ilatov says. All these areas are important, and we are just going to have to find a way to fund programs to work on all these levels. A tall order indeed, it would appear.

To all those who think being a Knesset member is a cushy job: Take an example from MK Ilatov. I’m sure he didn’t think setting Israel’s hi-tech policy right would be easy, but I’d guess he didn’t realize it would be this complicated. Like Charlie Brown, he has a chance to be a hero, if he succeeds. Let’s not think about the alternative.