After 75 years, could Israel no longer be the innovation nation?

Israel is the miracle of the 20th century, according to serial entrepreneur Yossi Vardi. 

“From all corners of the world, the Jewish people came to this empty land with only their brains and the power and the will to create something. And create is what we did. We created from nothing one of the most thriving economies in the world,” he said.

But on the eve of Israel’s 75th birthday, when the country should be celebrating Israeli innovation, inspiration and impact, Vardi said he is concerned. Following weeks of countrywide protests against a government-proposed judicial overhaul that brought the country to the brink of civil war and threatened to downgrade Israel’s credit rating, the hi-tech community remains on edge. 

While Prime Minister Benjamin Netanyahu paused the reforms, the future of Israel’s Supreme Court system remains in limbo. 

Moody’s Investors Service predicted that Israel’s credit rating might be downgraded from positive to stable, impacting its ability to attract investment.

“I cannot tell you where we will be in three months, so how can I answer where Israeli innovation will be in 10 years?” Vardi responded when asked to envision the next stage of Israeli innovation. “We are 75 years old. And if you look back, you see only a remarkable story so amazing, unbelievable, that it is almost unreal. 

“Tell you how we proceed from here?” he continued. “I have no good answer.”

Israel celebrates 75 years of independence on April 25 this year. It is an excellent opportunity for some of the country’s leading innovators and entrepreneurs to weigh in on how Israel became the Start-Up Nation, Scale-Up Nation and Unicorn Nation in less than a century. But it is also their chance to share how they feel about the future while what some have called a constitutional revolution looms large.

How did Israel become so innovative?

According to Israeli entrepreneur, inventor and investor Dov Moran, the answer is because we are Jewish. Today, Moran is the managing partner of Grove Ventures. He invented the USB memory stick.

“Entrepreneurship is a feature that exists with Jews,” he told The Jerusalem Report.

He cited a recent list of The Most Influential Entrepreneurs published by the New York Post. More than 20% of the 30 people listed were Jewish, including two Israelis. 

“For about 2,000 years, Jews were a small minority and constantly pushed out of the country in which they lived. They were given restrictions, could not buy land, could not become farmers,” Moran explained. “We had to look for what we could buy and sell, and over the years there were more and more entrepreneurs in each generation, and these are the people that survived. Now entrepreneurship is built into our DNA.”

He said this does not mean that every Jew is an entrepreneur or that only Jews can be entrepreneurs. It just means that the chances are higher. Moran also clarified that this does not mean Jews are more intelligent. It is just that they are more willing to take risks. 

“Israel is a country full of Jews; therefore, we are a country of entrepreneurs,” he said.

Vardi added that the Jewish people’s focus on education is also part of the secret sauce. 

“For centuries, education was revered among the Jewish people,” he said. “A mother would tell her son, ‘Go and study. I want you to be a doctor, an engineer.’ During all of the atrocities, the one thing that could not be taken away from you was your education.”

And finally, it was the fact that something had to be built from nothing. Vardi said the founders of the State of Israel were “not afraid to jump in” to their new situation. They looked at building Israel as an opportunity instead of a threat, finding ways to irrigate and plant the desert, make water from the air and more. 

“Israel’s first innovators did not have anybody to learn from,” Vardi said. “They used to bring textbooks from the United States and sit among themselves and study the material because no one could teach them.”

These original pioneers became the founders, such as Prof. Jacob Ziv, who developed technologies and concepts that still impact today’s world. Ziv, for example, worked with his colleague Abraham Lempel to develop the Lempel-Ziv algorithm for data compression, which became the basis for efficient Internet operation. Ziv recently passed away. 

“For these guys, like Ziv, their driving force was developing solutions for the nation they were building. We had all kinds of needs – electricity, natural resources, defense – and these guys dedicated their lives to doing these things. This was their grand mission, not to create a start-up and make money but to build this young nation,” Vardi stressed. 

So, this is innovation?

Innovation is to create something or a new process that did not exist before and improves a situation in any field – not only technologically, Vardi said. 

“Innovation is the result of the creative brains of people sometimes, but in many cases it stems from a need or challenge that stands before a group of people and requires a solution,” he said. 

How do you know something is innovative?

“You look at it and say, ‘Wow!’” Moran commented. “You know that no one has done it before.”

“No one expected a country like Israel – located in such a tough neighborhood with so many problems – to be the one to invent so many things and to have the power to challenge the big players,” said Dr. Aviv Zeevi, vice president and head of the technological infrastructure division at the Israeli Innovation Authority.

He said that even in an era where all eyes are on Israel, entrepreneurs continue to emerge with innovative ideas because of how the IIA operates, giving individuals and companies seed funding but requiring them to buy in on their side, too. 

“We operate more like a VC than an authority,” Zeevi explained. “We support you during the ramp-up phase, but then you must do it independently.”

He added that there is also a lot of focus on innovation from the government’s perspective. The IIA alone has 140 employees managing a budget of around NIS 2 billion annually. In addition, the IIA deals with regulations, market sales and identifying emerging technologies. Today, he said, the IIA is focused on climate technology, biotechnology, artificial intelligence and quantum.

Could it all really go away?

A recent Finance Ministry report warned that if the legal overhaul passes and Israel’s credit rating is downgraded, the country could lose between NIS 13 and NIS 30 billion. A similar report by Moody’s credit rating agency said earlier this month, “If implemented in full, the proposed changes could materially weaken the strength of the judiciary and, as such, be credit negative.” 

Moody’s predicted that Israel’s credit rating might be downgraded from positive to stable, impacting its ability to attract investment.

“Most of the money [in hi-tech] is coming from foreign investors, who are looking at us,” Zeevi said. “If they cannot be sure their investments are safe, they will not invest in Israel. So fewer investments mean fewer start-ups and fewer options to grow.”

Moran said that the politicians pushing judicial reform do not understand the impact they could have on Israel’s future. 

“They are cutting the branch they are sitting on,” Moran said. 

He said that if Israel continues with the overhaul as it has been currently presented, the country “will become a sort of dictatorship,” and “we will lose Israeli hi-tech as we know it.

“Think about it,” he continued. “Are there start-ups in Hungary? Of course, there are. But the best guys, the smartest guys, the real entrepreneurs and scientists, the brilliant engineers – they all leave. So we will see Hungary in Israel, and our economy will not survive. It is harrowing.”  ■