When Israeli Prime Minister Benjamin Netanyahu boasts about his country’s powerhouse technology, he glosses over the fax machines that banks still use, the homes that take nearly three years to build and the classrooms that do not have a single computer.
Behind Israel’s shiny reputation as a locus of innovation lies the low-tech reality of much of its economy, which stilts growth by reducing productivity. Israel ranks 23rd out of 35 nations on the Organisation for Economic Co-operation and Development’s productivity scale.
Bank of Israel Governor Karnit Flug has warned that “the country’s economic locomotive” — technology — “is pulling decrepit railroad cars.” Economist Dan Ben-David says Israel’s productivity has been falling behind the developed world’s for four decades.
The government needs to invest more in education to put people in high-tech jobs, and do more to encourage innovation throughout the economy, Flug said.
Half of Israeli schoolchildren score below many developed-world peers in math, science and reading tests — and some Orthodox Jews barely study the material at all. That means half the population does not reach the bottom rung of the income-tax ladder, and 90 percent of income-tax revenue is generated by one-fifth of the population, said Ben-David, founder of Tel Aviv University’s Shoresh Institution for Socioeconomic Research.
“The direction that this burden is headed will one day become untenable for the more skilled and educated sectors of the population who are keeping us afloat,” Ben-David said. “The cutting-edge knowledge that still exists in the country needs to reach all parts of its population before it’s swamped and driven out.”
Some of the productivity lag can be explained by businesses’ reluctance to spend money on technology, while some stems from a fear of using it, officials and businesspeople say.
The government is offering grants and loans to encourage modernization. The Economy Ministry last month offered 50 million shekels (US$14 million) to 10 manufacturers to install technology in factories that produce doors, sausages, furniture and other non-tech goods.
“The thriving Israeli high-tech industry is not breaking its ‘glass ceiling,’ and the majority of Israeli sectors do not enjoy its fruits,” the Innovation Authority said in an e-mail. “Israeli industrial factories are not innovative enough, and are struggling to compete with the low operational costs of their Far East competitors.”
The Innovation Authority department dealing with the manufacturing sector, headed by Avner Shadmi, had 110 million shekels to hand out last year, up from 81 million shekels four years ago.
“If we hadn’t started changing and innovating we would have shut down completely” — pushed out by cheaper competition abroad — instead of seeing annual revenue growth, said Arie Shtinberg, Cabiran’s vice president of engineering and development.
The construction sector is also looking for technologies to replace labor-intensive practices such as hauling steel rods up multiple floors on foot. Today it takes an average of 32 months to build a residential project in Israel, versus 21 months a decade ago and 13 months in the US, said Shay Pauzner, deputy director-general of the Israel Builders Association.
Using robots to make the work more efficient “is where we want to end up,” he added.
The association, in cooperation with the government and open technology platform SOSA, has launched an initiative to fund innovators to look at the construction industry, which is worth about US$10 trillion worldwide.
“We’re in a branch where technology just isn’t the state of mind,” said Yoni Weizman, the association’s deputy director-general in charge of entrepreneurship. “It’s a branch that’s a few steps behind. But that creates a blue ocean of opportunity.”
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