Startup Nation or Left-Behind Nation? Israel’s Economy is a Study in Contrasts

(photo: The Economist)

Dazzling high-tech firms divert attention from a serious productivity problem.

Special Report: Six Days of War, 50 Years of Occupation / The Economist
May 20, 2017

The economic disparities are striking. With GDP per person at $35,700 a year in 2015, Israel’s standard of living is much the same as France’s. For the West Bank the figure stands at $3,700, akin to Egypt’s; for Gaza it is about $1,700, similar to Congo-Brazzaville’s. In real terms, Gazans are about 25% poorer today than they were at the time of the Oslo accords.

Israel’s security barrier is, to a large extent, also a one-way protectionist barrier. The Palestinian market is fully exposed to Israeli goods, but Palestinian products struggle to get out. Strawberry farmers in Gaza, working less than a kilometer from the border fence, say they cannot export to Israel and only rarely to the West Bank. In the main, Palestinians are treated as a source of cheap, and disposable, labor.

IN A PATCH of desert until recently frequented only by passing camels, workers in a computer lab examine new “smart” appliances: a slow cooker on one bench, a security camera on another, a smoke detector on a third. Millions of devices that incorporate mini-computers are being connected to the internet. But as well as convenience, the “internet of things” offers cyber-criminals many new vulnerabilities to exploit. “If I were an attacker, I would never hide in your PC,” says Oleg Brodt, director of research and development at Cyber@BGU, the cyber-security research centre run by Ben Gurion University in Beersheva. “I would try to hide in your smoke detector or door alarm, because nobody bothers to protect them.”

The centre has shown how wearable devices can be used to eavesdrop on corporate networks. It has also demonstrated the multitude of ways in which even supposedly ultra-secure computer systems not connected to the internet can be hacked. These include exploiting FM radio waves emitted by video cards, the blinking of LED lights or even the pattern of heat signatures.

The Israeli government wants to turn Beersheva, a comparatively poor southern city, into one of the world’s prime cyber-security centers, attracting multinationals to work with startups in an incubator (established by JVP, an Israeli venture-capital fund) and with the university’s computer-science department. More important, the army’s signals-intelligence Unit 8200 and other tech-savvy branches are due to relocate to Beersheva in the coming years, providing a flow of young and capable veterans to boost the industry. Alumni of Unit 8200 have already seeded much of Israel’s high-tech industry.

Israel attracts about 15% of the world’s venture-capital investment in cyber-security. It is part of Israel’s booming “startup-nation” economy, the most dynamic innovation ecosystem outside America. Direct flights now connect San Francisco to Tel Aviv. Other high-tech areas look promising, too, among them agricultural and water technology (building on Israel’s expertise in desert farming), digital health services and financial technology.

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