Israel Pushes High-Tech Industries as Major Economic Goal

Stef Wertheimer is Israel’s industrial Pied Piper, leading what he calls the third stage of Zionism to the wooded hills of Western Galilee.

The first stage of Zionism, in Wertheimer’s view, consisted of farmers; the second, soldiers. The third stage, he says, must be made up of entrepreneurs who will make the Israeli economy a science-based, export-oriented economy.

The Israeli government agrees, and it has designated this area in the extreme northwest of the country as one of several centers for the high-technology industries that it sees as the long-term answer to Israel’s economic troubles.

“What we have to understand is that the entire economy must be science based,” Prime Minister Shimon Peres said in an Independence Day interview with the Jerusalem Post last spring. “Science and technology are not merely one aspect of economic life; rather, the whole country must be based on them.”

The German-born Wertheimer, a self-made man and prophet of free enterprise, is doing his share by spearheading two ambitious projects that he hopes will become models for similar efforts around the country.

One is Entrepark, an industrial park described as a “greenhouse for entrepreneurs.” It offers subsidized rents to start-up firms, along with centralized business services for which the tenants pay only as needed.

The other project is Kfar Vradim, or “Rose Garden Village,” a development of ultramodern houses designed to attract the best business brains with what is billed as the highest living standard in Israel.

But these showcase projects are only a small part of a high-tech push that involves public as well as private efforts.

Gad Yaacobi, the minister of economic planning, said in an interview that the goal is for Israel to more than double its exports of industrial goods and services over the next five years and more than triple them in a decade. About two-thirds of that $10-billion increase, he said, is expected to come from technology-based industries.

Some people here believe that these goals are unrealistic, but Yaacobi and others see little in the way of an alternative.

High tech is not new to Israel. In the late 1960s, the government created an Office of the Chief Scientist to push industrial research and development.

Rina Pridor, a former deputy to the chief scientist and now managing director of World Technologies Investments Ltd., a Tel Aviv venture-capital firm, estimates that there are about 100 established high-tech firms here and 300 others struggling to get off the ground. So many are headquartered in one small section of Herzliyya, a fashionable suburb north of Tel Aviv, that the area has come to be known as “Silicon Wadi.”

Exports of industrial goods resulting from Israeli research and development are expected to reach $1.9 billion this year, according to Yaacobi. But, given Israel’s economic troubles, the growth has not been nearly fast enough.

Israel’s foreign debt is one of the world’s highest at about $23 billion, or well over $5,000 for every man, woman and child in the country.

Interest costs and defense spending account for two-thirds of the government budget.

In order to reduce its dependence on American aid and Jewish philanthropy, Israel has little choice but to increase exports.

It cannot export its natural resources--it doesn’t have any to speak of. And the country is too small and too isolated to become a major world supplier of consumer goods. But it does have a highly educated population and a reputation for innovation, nourished in part by one of the most technologically advanced military forces in the world.

The new emphasis on high tech is rooted almost as much in ideology as economics. Israel exists to provide a Jewish homeland, but, in fact, fewer than one in three of the world’s Jews live here. Half choose to stay in the United States and Canada. Even more troublesome, from Israel’s viewpoint, is that about 300,000 of its best-educated and most highly trained professionals have left the country for what they perceive as greener pastures in North America.

“I can tell you what’s missing,” said Pridor, the investment firm director. “In every case, the U.S. offers to people like me and you much more than we can offer in Israel in economic terms. I was offered twice what I earn here, and my husband was offered four times what he earns here.”

A lawyer, she returned recently after three years in the United States, where her husband was a visiting professor. By courting high-tech industry, Israel hopes to narrow the gap and create enough attractive jobs to bring those expatriate professionals back and to attract new immigrants as well.

The Israeli government, in partnership with 17 of the country’s major technology-based enterprises, has organized a recruiting drive aimed at Israelis working in the United States and Canada.

The first of four two-day recruiting “fairs” will begin Wednesday in San Jose. The drive will then move to the Hyatt Wilshire Hotel in Los Angeles for the weekend and then on to New York and Toronto. Organizers say they have more than 600 jobs to fill.

Another Israeli goal is to attract high-tech venture and investment capital from the United States. Pridor’s firm, for example, is promoting limited partnerships in which investors have a stake in as many as five Israeli high-tech start-up firms.

“If one of the five will succeed, that’s all you need,” she said.

Operation Independence, a new, government-inspired private organization of Israeli and international business leaders formed to promote new investment here, has one working group whose sole mission is to promote increased sales of stock in Israeli companies on foreign markets.

Skeptical financial markets are just one of the hurdles facing Israel’s high-tech push. Prices of a number of Israeli high-tech shares plunged along with the fortunes of Elscint Ltd., the high-flying medical imaging firm that reported a $33-million loss on fiscal 1985 sales of $147 million. An index calculated by the newsletter Israel High-Tech Report of the shares of 10 leading companies in the field was down 25% last month from September, 1984.

Also, Israel is not alone in trying to build its economic future on high tech. Other nations, from Bulgaria to Scotland, are trying to do the same thing--not to mention the established giants in developed industrial countries such as Japan and the United States.

Marketing Talent Key

Israeli experts concede that success in high tech frequently depends more on marketing talent, which is not one of the country’s long suits, than on scientific brilliance, which is.

“From my experience with these kinds of firms, not less than 80% are technologically successful,” Pridor said. But not more than 40% are marketing successes, she said.

Here in the Western Galilee, the jury is still out on Stef Wertheimer’s showcase projects. Entrepark, which was planned for 15 tenants, has five so far and two more signed up. Four of the start-up firms are run by Israelis who have returned from abroad.

Many more would-be entrepreneurs have applied, but few pass the eligibility requirements enforced by a board that includes Wertheimer and government officials. (The government invested a reported $22 million to put up the buildings that Wertheimer is trying to fill.) Among other things, applicants must be able to demonstrate an overseas market for their product, knowledge of the field and readiness to invest some of their own money.

Wertheimer said the government is committed to building three more industrial parks if this one proves successful.

About 80 families have moved here to Kfar Vradim, which is planned as a town of 10,000. Two hundred others have started to build and another 120 have bought lots--for the equivalent of $20,000 each.

“We’re just people who are looking for something different,” said Rafi Sela, a self-proclaimed member of the Wertheimer “movement” and one of the first Kfar Vradim residents. Sela and a partner who produces large-screen projection systems in San Diego have applied for space in Entrepark in order to move the operation here.

While others may be reserving judgment, Wertheimer certainly isn’t. An advocate of positive thinking, the 59-year-old businessman built his firm, Iscar Ltd., from a corrugated shack in nearby Nahariya to a multinational corporation with annual sales of $100 million.

Wertheimer contends that Israel has been living on handouts for too long and that too many people work for the government. After serving a term in the Knesset, Israel’s Parliament, he refused to stand for reelection in 1981.

“I believe,” he explained, “that the continuation of the Zionist dream requires a healthy economy created by high-technology exports, and this is not going to be designed in the Knesset.”

To dramatize his contention that Israeli workers would produce more if taxed less, he announced early this year that he would pay his employees’ taxes for three months--up to $500 per person per month. It cost him $300,000, but output improved by three times that much, he said.

Wertheimer, whose conversation is laced with such comments as “profit is a side product coming out of the word pride, “ insists that the system, so heavily reliant on American aid, has to change.

“This,” he said, “is the only healthy thing to do for Israel.”