History & Overview
by Dan Izenberg
On May 14, 1948, the State of Israel was proclaimed; less than 24 hours later, it was invaded by the regular armies of five Arab countries, forcing it to defend the sovereignty it had regained in the Jewish people's ancestral homeland. In 1948, Israel had a population of some 650,000, while thousands of European Jews - survivors of the Nazi holocaust - and Jews living in Arab countries in the Middle East and North Africa were waiting to immigrate to the nascent state. Given the country's struggle for survival and the urgency of providing for the most basic needs of a population which tripled itself in a decade, it was hard to imagine that Israel would make significant progress in economics or technology.
And yet, 50 years after its establishment, Israel has become an economic and technological powerhouse. It has the 21st highest per-capita GDP in the world; a recently-published United Nations report ranked it 23rd worldwide in its standard of living, based on per capita income, life expectancy and educational standards.
Much of the progress is due to innovative abilities in the applied sciences and technology. As a country almost bereft of natural resources, special emphasis was placed, from the beginning, on the need for advanced education and scientific research.
In fact, the combination of the educational and scientific infrastructure with the country's most pressing problems unexpectedly made for a creative synthesis which set development into motion. Two examples of this synthesis are Israel's military infrastructure and its agriculture, both critical to the nation's survival. Faced with well-equipped Arab armies and difficulty in obtaining weaponry from abroad, the Israeli leadership determined to do what it could to provide its own weapons. In 1951, the government launched Israel Aircraft Industries and the Technion opened an aeronautical engineering department; both have proved to be "wise investments." Agricultural innovations, aimed at producing food for a rapidly growing population, have included drip irrigation, agromechanical equipment and, more recently, the use of plant genetics to produce better-yielding and more disease-resistant crops.
Today, the country is enjoying a blossoming of high-tech entrepreneurship rivaling the most developed countries in the world. Foreign investment in high-tech industries has leaped from $240 million in 1995 to $850 million in 1996. The country's 1,800 high-tech companies are expected to generate exports of about $9 billion this year, nearly double the 1990 figure.
According to a survey of Israeli college students done by BDI-COFACE and released on October 27 2014, the majority of Israeli college students have aspirations to work in the technology sector. The report details how 31% of college students in Israel are seeking jobs at high-tech companies such as Intel and Google after graduation, even if they are not studying something technology related. Of the students surveyed, 15% said that they want to work in the service industry after graduating, 13% said that they want to work in finance, and 4% want to pursue a career in education. Intel, Google, and Teva Pharmaceuticals have the most sought-after jobs for Israeli recent graduates.
The Bloomberg Global Innovation Index is a list published yearly in January, highlighting the 50 most innovative and impressive countries in the global technology market. In the 2015 list, Israel is ranked as number four in the world, ahead of other global technology powerhouses the United States and China. The list has individual sections that add up to the final total, and Israel scored: 2nd worldwide in research and development, 4th in education, 4th in research personnel, 11th in high-tech companies, and 21st in manufacturing. You can read the full Bloomberg Innovation Index report for 2015 here.
Israel's high-tech sector attracted a staggering $4.43 billion in investment during 2015, according to the Israel Venture Capital Research Center (IVC). This number represents a 30% increase over 2014's amount. The IVC reported that there were 708 deals completed in the Israeli high-tech sector during 2015, averaging $6.3 million per deal.
A number of top-level academic institutions were established by the yishuv, the Jewish community in Palestine, even before Israel gained its independence. The first of these was the Technion - Israel Institute of Technology, established in 1924. the Hebrew University of Jerusalem was inaugurated in 1925 and the Weizmann Institute of Science, which came into being in 1946, had its origins in the Sieff Institute, founded in 1934.
In fact, even before these academic institutions were formed, the Jewish community was already conducting agricultural research at the Mikveh Israel School (established 1870) and the Agricultural Station (set up in Tel Aviv in 1921, later to become the Agricultural Research Organization). The British mandatory government had also established public research institutes and government institutions which boosted scientific development. These included a hydrological institute (1931), public health laboratories (1937), a construction testing station (which later became the Standards Institute of Israel) and the Board for Scientific and Industrial Research. The Scientific Council, which was responsible for organizing and coordinating research and encouraging new research projects under the British Mandate, was reconstituted by Israel's government in 1949. A decade later, the Council was replaced by the National Council for Research and Development, a body consisting of leading scientists, engineers, industrialists, chief scientists of government ministries and other prominent figures, who advise the government on science policy and priorities.
Research and Development
R&D in universities
Research and development is carried out primarily at the universities. As everywhere, the advancement of basic scientific knowledge is the chief objective of researchers at Israel's universities. In addition to their scientific research activities, the universities continue to play an important role in the country's technological advancement.
Today, 105,000 students are enrolled in Israel's universities, with about 21 percent of all undergraduate students and 50 percent of all Ph.D. candidates specializing in the sciences or medicine. Another 13 percent of all undergraduate students and 8 percent of all graduate students specialize in engineering and architecture. Relative to the size of its labor force, Israel has a significantly larger number of publishing authors in the natural sciences, engineering, agriculture and medicine than any other country. Statistics also show that Israel has a larger share of publications co-authored by Israeli and foreign scientists than any other country, indicating prolific international scientific cooperation. Altogether, Israel spends $260 million annually on academic research, most of the money coming from the government and administered by the Council for Higher Education's Planning and Budgeting Committee. In addition, research authorities within the universities help faculty members locate, apply for and administer external research grants. There are at least 300 such sources, including ten large foundations, most of which involve foreign donors and require collaboration with foreign scientists. All in all, grant programs support about 2,000 research projects at an annual cost of $70 million. Israeli researchers also successfully compete for foreign grants and fellowships.
University research and development foundations, the first of which was established in 1952 by the Technion, are responsible for the interaction between researchers and the world of industry; they facilitate the commercialization of the innovative abilities and industrial know-how of the universities' personnel. A recent study shows that the universities are Israel's leading patentees at home and abroad, and that the relative size of their patenting activity far exceeds that of higher education sectors in other countries.
R&D in industry
Research and development also takes place in industry; in fact, studies have shown that R&D-intensive companies have been a major source of growth in industrial employment and exports.
Thus, in 1968, the government decided to establish an office of a chief scientist in the Ministries of Agriculture, Communications, Defense, Energy (today the Ministry of National Infra- structure), Health and Industry & Trade in order to promote and encourage science-based high-tech industries. Each chief scientist acts as advisor to the minister on matters of industrial R&D and implements government and ministerial decisions in this area. The chief scientist is also responsible for providing financial aid to worthy R&D projects, as well as guidance and training to new enterprises and funding for industrial and technological incubators. The chief scientist promotes cooperation with foreign countries to advance binational activities and tries to generate risk capital in Israel and abroad for the development of innovative technology.
The Law for the Encouragement of Industrial Research and Development (1984) is aimed at developing science-based export-oriented industries, capable of creating employment and improving the country's balance of payments. The chief scientist of the Ministry of Industry and Trade is responsible for implementing this law, and provides suitable R&D grants to industries seeking to export their products. If a project fails, the government's money is lost; if it succeeds, the entrepreneur pays back three percent of the grant yearly until the sum is repaid. In 1996, income from royalties on the sale of commercialized products was roughly $60 million. In 1996, Industry and Trade Ministry Chief Scientist Dr. Orna Berry distributed $400 million to large corporations and to small start-up companies in order to encourage the development of smart, export-targeted products.
Today, Israel boasts 1,800 R&D-based companies, including many new start-ups and software houses, which account for more than half of the country's $20 billion export of goods. In manufacturing, at least 30 out of every 1,000 workers are engaged in R&D. Altogether, Israel devotes 2.3 percent of its GNP to civilian R&D. Over 60 percent of the money goes to the electronics sector, a broadly defined field including telecommunications, data communications, medical electronics, defense systems and software. Over the past few years, electronics has emerged as the country's leading industrial sector. In 1995, exports amounted to $4.3 billion, an increase of 15.5 percent over the previous year. Total sales in 1995 reached $5.89 billion and in 1996 passed the $6 billion mark.
Almost 40,000 people are employed in electronics, of whom one-third are university graduates and 60 percent are highly qualified engineers and technicians. Output per employee has grown from $46,000 in 1984 to approximately $150,000 in the mid-1990s. R&D activity has been instrumental in the development of methods for the digitalizing, processing, transmitting and enhancing of images, speech and data. In the optics field, R&D has helped Israel become a world leader in fiber-optics, electro-optic inspection, systems for printed circuit boards, thermal imaging night vision systems and electro-optics-based robotics manufacturing systems. In the computer field, computer graphics and computer-based imaging systems and educational programs have been developed.
Israel has also signed bilateral R&D cooperation agreements with the United States, Canada, members of the European Union, India and Singapore. The aim of the agreements is to encourage contacts between Israel and overseas companies to facilitate joint ventures in R&D, manufacturing and marketing. The establishment of joint ventures with foreign industrial firms has often utilized the strength of the Israeli firm in innovation and those of the foreign firm in large-scale production and market penetration. Joint ventures have been undertaken in areas such as electronics, software, medical equipment, printing and computerized graphics, with many actively assisted by these binational frameworks.
Putting Research into Practice
For many years, Israel's industry was strong in research and innovation, but weak in finance and marketing. One of the tasks of the chief scientist was to encourage the commercial sale of innovative technology. One way of doing so was the creation of science-based industrial parks, which are often located near major university campuses.
The parks provide initial services and facilities to fledgling science-based industries, which are carefully screened before being accepted. The government often provides investment incentives, loans, grants and tax benefits to industries moving into the parks. Where universities are involved, the parks also benefit from the expertise of academic staff and from the advantages of joint purchasing of materials. Conversely, the park's industries often provide supplementary jobs and subcontracts for university faculty and graduates.
In addition to these parks, technological incubators were introduced in 1991 to encourage the development of innovative ideas by individual entrepreneurs, whose companies were too small or whose ideas were too risky to fit into the Ministry of Industry & Trade's regular research and development program. The establishment of the incubators coincided with mass immigration from the former Soviet Union, which brought an estimated 65,000 engineers to Israel, many of them experts in their field but lacking capital and experience with the workings of a free enterprise economy.
The task of the incubator, which is an independent, non-profit entity, is to assist entrepreneurs to complete their projects and turn them into commercially viable ventures. It provides assistance in recruiting R&D staff, performs marketing and feasibility studies, and provides physical facilities, professional and managerial guidance and assistance in recruiting investment capital.
Today, there are 26 incubators throughout the country, in which over 200 projects are being conducted. More than 300 projects have already graduated from the program, including 173 which completed their goals and have continued on their own after the incubation period. Of these, 123 have signed agreements with investment, commercial or strategic partners, with capital investments ranging from $50,000 to $5.2 million. Virtually all the products are export-oriented, as the ultimate aim of the incubators is to increase Israel's exports of goods - today some $20 billion annually.
In the last few years, the leaders of Israel's educational system have come to realize that technological developments have created a gap between modern adult society and the school environment. Furthermore, if Israel's advanced technological level is to be maintained and enhanced in the future, scientific know-how - and familiarity with modern tools - must be introduced to children as early as possible.
One outcome has been the introduction of a revolutionary program to saturate the schools - from kindergarten upwards - with computers. The program is part of an overall plan known as "Tomorrow 1998", aimed at upgrading the teaching of mathematics, science and technology throughout the school system. According to the authors of the program, computers will become the fourth basic element of education, which, for generations, included the proverbial "three 'r's" - reading, writing and arithmetic.
The program, which was launched in 1992 and is still in the process of implementation, calls for the installation of a computer in every kindergarten and of one terminal for every 10 students in primary and secondary schools. In the three years since the program was initiated in 1993, 33,400 terminals had been installed for the country's 1,200,000 schoolchildren, and 1,160 computers in the country's 4,000 kindergartens.
According to the Ministry of Education, the program is aimed at creating a "technologically-saturated learning environment," which will help introduce technology into the schools.
Looking Toward the Future
Over the past few years, Israel has witnessed an extraordinary boom of industrial productivity. During that time, Israel's GNP has posted an annual growth rate of 5-6 percent, one of the highest in the industrial world. Among the new factors influencing this are the influx of thousands of highly trained engineers from the former Soviet Union; the development of marketing skills, making innovations commercially viable; the decline of the military industries and the application of once-secret military technology to the civilian sector; a significant increase in foreign investments thanks to the peace process; and the proficiency and relatively low cost (though this is rapidly changing) of local expertise.
It has become a cliché, over the past few years, to compare Israel to California's Silicon Valley or Boston's Route 28. The country is on the cutting edge of several high-tech fields and, despite its size, has managed to carve out a respectable niche in areas dominated by the industrial giants. Israeli successes are to be found in a number of fields.
One of the earliest Israeli industrial innovations to reach international markets was the drip irrigation system, based on a concept pioneered in the 1890s by a researcher in California. In drip irrigation, water and nutrients are discharged directly to the area around the plant's root system, so that much smaller amounts can be used more efficiently. This also enables farmers to provide the precise amounts of water at the rate required by different crops. Today, the system is computer-controlled. Drip irrigation has allowed the country to develop one of the most efficient water systems in the world, which it needs badly, since it uses up virtually every drop of available water each year. Israel has also become the world's leading producer of drip-irrigation systems, exporting them to Holland, Yugoslavia, Australia, New Zealand, the Far East, East Africa and Central and South America.
But drip irrigation is not the only agricultural innovation. Israel is a leader in the development of mechanized systems used to speed up harvesting and other operations. Locally designed and manufactured computers have been developed to coordinate farming activities; these perform functions such as guiding fertilizer injection while monitoring relevant environmental factors, or supplying feed for livestock mixed according to tested least-cost/best-yield proportions. Meanwhile, scientific breeding and genetic testing has increased the yield of dairy cows to one of the highest in the world. Today, Israel is involved in agricultural advances which, it hopes, will make the sector as profitable as the electronics industry. This includes automated plant tissue culture, biological insecticides, disease-resistant seeds, biological fertilization and the development of biological pest controls.
Israel's electronics expertise, a strong tradition of medical practice and emphasis on R&D have combined to form a small but influential medical electronics industry, especially successful in diagnostics. Products include nuclear magnetic resonance imaging, computerized tomography, nuclear medicine and ultrasound imaging systems, as well as an NMRI system four times faster than existing systems and sensitive enough to detect very small tumors in the breast.
Telecommunications advances include state-of-the-art products for wireless communications and encryption, compression schemes to move video data over cable lines, interurban public digital exchanges, digital private automatic branch exchanges, mobile rural exchanges and integrated services digital network terminals. In some cases, defense-related research has proved beneficial in this field: for example, frequency-hopping, multiple-access technology (originally used to avoid hostile detection) can improve cellular phone communication and create its own digital wireless network systems for mobile voice/data and dispatch communications services.
Several hundred software houses throughout Israel account for annual exports of well over $300 million. And this is only part of the story, since these figures relate only to "stand-alone" software, as opposed to the embedded software which exists in most Israeli-made electronics goods and accounts for much of their competitive advantage. In fact, one in three workers in the electronics industry is a software specialist.
Educational software is one of the newest and fastest growing fields. More than 20 companies produce programs for kindergartens that develop visual and reflective thinking, sense of color, optical orientation and basic mathematical concepts. Other developments include computer-aided language and math training for elementary and secondary schools. Products of Israel's software houses also include computer-aided production engineering software for automated production systems and an automated data-entry program for creating advertisements.
The list of science-based industrial successes goes on and on, and is being carefully noted by international hi-tech manufacturers and investors. Jonathan Fleming, a partner in MVP Venture, one of the largest venture-capital firms in the northeastern US, told Business Week that "Israel is emerging as a major technological center." The company raised $10 million to make Israeli medical technology firms the recipients of its first overseas investment. International giants such as Intel, Motorola, IBM, Hewlett Packard and Vishai have recognized Israel's potential for many years and made large financial investments in the country. Research and development that has taken place in Israel has produced a number of important products for these firms. The Netherlands-based Madge Networks was the first foreign company to buy out a local enterprise, paying $300 million for Lannet Data Communications. Japan's electronics giant, Kenwood, and its largest software house, CSK, have also taken strategic stakes in local hi-tech firms.
According to industrialist Efi Arazi, "Israel now has a critical mass in high technology that is far ahead of anything in Europe." Like many others, he believes Israel is on the high-tech map to stay.
Sources: Israeli Ministry of Foreign Affairs, Jerusalem Post