Israel’s Tech Dominance: a Political Strength
By Pavel Vaclav
Israel is one of the world’s leading nations in tech, but to fully understand how its global status came to be, we need to evaluate the strengths of the Israeli tech sector and explain the political ramifications of this dominance. Israel’s dominance in tech is not purely due to luck, but rather Israel’s top-notch education system, its privileged relationship with the U.S., and the economic advantages of conducting business in the Startup Nation. All of these factors allow Israel to use tech as not just a soft power, but as a tool of negotiation — a hedge against the world.
Israel’s pursuit of technological advancement is not just innovation for innovation’s sake. There are many political advantages to being the Startup Nation: countries want (and often have little choice but to) do business with a rising technological epicenter. Although Israel is subject to sanctions and boycotts, the power and reach of Israeli tech are simply too great to ignore. Most notably, Intel (a leading technology company best known for its computer processors) is one of Israel’s biggest employers. Intel has been in Israel since 1974, and its presence in the Jewish State highlights Israel’s status as a crown jewel of the company. Israel’s favorable tax code, high productivity, and research ubiquity have proven highly attractive to the tech giant, which recently invested $11B in an Israeli chip plant expansion project.
To give some perspective, Israel ranks 13th on the Global Innovation Index, higher than Japan (16th) and Russia (47th), industrialized nations with much larger populations. This helps to highlight Israel’s impressive stature compared to larger countries. The Startup Nation is a relatively small country in terms of size, population, and GDP. Despite its minor size and economic output, Israel has managed to form privileged relationships with many countries such as the U.S., Russia, China, and India, raising a simple question: How can such a small country have so much influence? The answer, in short, is tech.
For example, the Tel Aviv-Jerusalem area is ranked as the 6th best “startup ecosystem” in the world in the Global Startup Ecosystem rankings, making it one of the most prolific hubs for startup development worldwide. Israel has a population of less than 10 million people, but is the country with the third most companies listed on Nasdaq, only behind the U.S. and China. Israel also invests a lot in technology: In 2015, the nation spent the equivalent of 4.27% of it GDP on research and development, more than any other country in the world at the time. Israel has confirmed its tech dominance in 2020, with a 14% increase in the number of investment deals compared to 2019. 578 deals worth a combined total of $9.9 billion were made in 2020.
As the world faced unprecedented challenges in 2020, Israel once again showcased its technological force. The COVID-19 pandemic was often a multi-level stress-test for countries, and Israel seems to have passed admirably so far. Israel is not only in the midst of one of the world’s most successful vaccination campaigns (after being one of the world’s most heavily impacted countries), but is also negotiating with Pfizer and Moderna to build local plants as soon as possible. These agreements would bring even more political power to the Jewish State, all thanks to its efforts in technological leadership.
China’s involvement with Israel is complex. Israel is a strong U.S. ally, a nation with its own, complicated relationship with China, and Israel’s impact on the Chinese economy is minor compared to many nations. But as China’s immense power and political influence continue to grow, the Chinese government has been turning to Israel over the last decade to strengthen its tech industry. In 2011, the China-Israel Joint Committee on Innovation Cooperation was formed. This committee’s only goal is to facilitate investment and relationships between Chinese investors and Israeli companies (and vice versa, at a much smaller scale).
As China seeks more global political influence, a strong partnership with Israel is not just economically beneficial, but also politically advantageous. Israel has historically been a strategic political “base” in the Middle East for many countries, but it has now become a political ally for technological reasons. As the stakes of technological development rise, strategic partnerships with countries at the cutting edge of innovation are a salient point for any larger country’s development.
Like many nations, Israel suffers from a brain drain (mostly towards the U.S.). Despite this, Israel’s education system is recognized as one of the most competitive in the world, which could paradoxically explain why many Israeli students choose to continue their education in the United States. Israel has many well-recognized universities such as the Hebrew University of Jerusalem or the Technion-Israel Institute of Technology. These institutions have ties with universities and companies across the globe and have alumni who are Nobel Prize and Fields Medal winners. This educational success pushed China to strengthen its ties to Israel not only through trade, but also education. The growing ties between China and Israel, coupled with Israel’s excellence in education, led to the creation of the Guangdong Technion-Israel Institute of Technology, an institution where thousands of Chinese students are now enrolled.
Since its establishment in 1948, Israel has steadily grown into a global political leader. The technological advancements and capabilities of Israel make it necessary for global powers to maintain relations with the Jewish State to keep a technological edge. Israel’s tech dominance is the result of favorable economic policies for innovation, a strong educational system that has growing ties to the best universities and research centers around the globe, and most importantly, an ability to form successful relationships with the major global powers, most notably the United States.