Israel's high-tech economic engine balks at govt policies

Israel’s tech industry has long been the driving force behind the country’s economy

Israel’s tech industry has long been the driving force behind the country’s economy. Now, as Israel’s new government pushes ahead with its far-right agenda, the industry is flexing its muscle and speaking out in unprecedented criticism against policies it fears will drive away investors and decimate the booming sector.

The public outcry presents a pointed challenge to Prime Minister Benjamin Netanyahu, who champions Israeli technology on the international stage and has long boasted of his own economic prowess. It also highlights how deep and broad opposition to the government’s policies runs, from political rivals, to top members of the justice system and military.

Tech leaders say that since the government took power last month, a cloud has emerged over their industry, with foreign investors spooked at what some say is a country regressing rather than striving for innovation. They fear the government's plans to overhaul the judiciary and pledges by some top officials to advance discriminatory laws will imperil the industry that has earned the country the nickname Start-Up Nation and in turn, send Israel's economy into a tailspin.

“Investors are asking ‘where is Israel headed? Will it continue to be a country that leads technologically or is it moving two generations backwards? Are political agendas more important than the ability to be global tech leaders?’" said Omri Kohl, CEO of Pyramid Analytics, a company that makes business intelligence software. If the tech industry suffers, he said, “everyone will lose.”

Over the last three decades, Israel’s tech industry has become the beating heart of its economy. The sector employs more than 10% of the country’s salaried workforce, according to official figures. And while the industry has struggled this past year like its counterparts abroad, it still accounts for about a quarter of the country's income taxes, thanks to its high salaries, and produces more than half of the country’s exports.

During his time as prime minister for most of the past decade and a half, plus another stint in the 1990s, Netanyahu's political fortunes have been linked to the rise of the tech industry. For many in the tech sector, that makes his government’s agenda and the speed with which it is advancing all the more confounding.

“Bibi is determined but he also understands that we are a small country that is very dependent on the outside world,” said Eynat Guez, the CEO of human resources software firm Papaya Global, referring to Netanyahu by his nickname. “With all due respect to Bibi, that determination will hit a wall very quickly” when investors start to pull out, she said.

The tech industry sees the government’s policies as a warning light for critical foreign investors, who they say are already holding off on investments as they wait for the political developments to unfold.

The current government’s plans to accelerate settlement expansion on occupied lands sought by the Palestinians for a state could also impact foreign investment. Norway’s $1.3 trillion sovereign wealth fund several years ago ruled out doing business with certain Israeli companies because of their involvement in the settlement enterprise, considered illegal by most of the international community. Last month, Israeli media reports said that the Norwegian fund was again rethinking its investment, in part because of the new government.

Maxim Rybnikov, an analyst with the credit rating agency Standard & Poor's, told The Associated Press in an email that judicial changes could present “downside risks in the future" that could affect Israel's debt rating. That sentiment was reportedly echoed by Israel's central bank chief in a meeting this week with Netanyahu and voiced publicly by numerous other leading economists and business figures.

Many in Israel's tech sector say the circumstances could prompt young Israeli talent as well as global tech giants who have offices in the country to leave. That would be catastrophic for the homegrown industry, they say.

Typically silent on politics, hundreds of tech workers walked out of their offices on Tuesday near tech hubs around the country to protest the planned changes. Waving signs reading “there's no high-tech without democracy,” and “democracy is not a bug that needs to be fixed,” they blocked a central Tel Aviv throughway for about an hour.

Last month, hundreds of executives, entrepreneurs and venture capitalists signed a letter calling on Netanyahu to rethink his policies for the sake of the economy, calling them “a real existential threat to the illustrious tech industry.”

“We call on you to stop the growing snowball, steady the ship and preserve the status quo,” the letter said.

Jerusalem Venture Partners, one of the country’s leading venture capital firms, issued a statement against a proposed law allowing discrimination against LGBTQ people, signed by the companies it backs.

And leaders of top firms are speaking out on social media, including Barak Eilam, chief executive of the Nasdaq-traded NICE Ltd., one of Israel’s oldest and largest tech companies and Nir Zohar, CEO of the website builder Wix, who have both slammed the proposed changes.

Netanyahu has pledged to charge ahead with his policies.

At a news conference on Wednesday, he lashed out at his critics, accusing his political opponents and the media of using scare tactics to promote their own agendas.

“In recent days, I have heard concerns about the effect of the legal reforms on our economic resilience," he said. “The truth is the opposite. Our steps to strengthen democracy will not harm the economy. They will strengthen it.”

Most worrisome to the tech sector is the planned overhaul of Israel’s justice system, which would give parliament power to overturn certain Supreme Court decisions. Critics say the changes would grant the government overwhelming power and upend Israel’s democratic system of checks and balances. Last weekend, an estimated 100,000 Israelis took to the streets against the planned changes.

Tech leaders also have spoken out against pledges by Netanyahu’s ultranationalist partners to craft legislation that would allow discrimination against members of the LGBTQ community, seeing it as contradictory to the pluralistic values of the tech sector.

Netanyahu has given authority over certain educational programs to Avi Maoz, the head of a radical, religious ultranationalist party who is anti-LGBTQ. Netanyahu has also made promises to his ultra-Orthodox coalition partners to strengthen their insular school system that emphasizes religious studies over subjects like math and English. Economists say this will prevent their integration into the modern world, a step seen as necessary to keep the economy afloat.

Moshe Zviran, the chief entrepreneurship and innovation officer at Tel Aviv University, a position that encourages youth to navigate the tech world, said the next generation might not have the same opportunities as their predecessors because of the government's policies.

“If there won’t be exits and sales and Israeli high-tech it’ll be a real problem. It’s a fatal blow to the Israeli economy," said Zviran, the former dean of the university's business school.

“The minute that innovation departs, what are we left with here?”