Ben Crome

Israel’s history of innovation offers many lessons for the UK

Whether it is despite or because of the government’s involvement, there is no doubting the success of the Start-Up Nation


Beautiful unicorn on a rock in a space scenery - 3D illustration

June 01, 2023 17:05

In late April, while addressing a gathering of business leaders, Rishi Sunak talked of his ambitions to send ministers to Silicon Valley to market Britain as a “Unicorn Kingdom”. The message that Sunak wanted to project to his audience — and to the world — is that the UK is a world-class tech hub whose entrepreneurially minded government does all it can to boost the country’s tech sector.

While Sunak’s fairytale language attracted plenty of online mirth, on the face of it the UK is fertile ground for unicorn-farming. The latest research shows that the UK has the world’s third- or fourth-highest total of “unicorns” (privately-held companies valued at more than $1B), far behind the US and China but outstripping similar-sized European economies such France and Germany.

But these metrics only tell part of the story. Whether by accident or by design, the weeks following Sunak’s remarks saw the tech elite queuing up to lambast the state of British tech and dehorn the “Unicorn Kingdom” narrative.

A few days after Sunak’s speech, the Competition and Markets Authority blocked Microsoft’s $69billion takeover of the video games giant Activision on the grounds that the acquisition would be anti-competitive. Activision’s CEO responded with a unanimous statement that “Despite all its rhetoric — the UK is clearly closed for business.”

Next, the co-founders of finance super-app Revolut, one of the UK’s highest-valued tech startups, strongly criticised the government’s lack of support for the tech sector, especially in comparison to the US. It was later reported that the Bank of England plans to reject Revolut’s application for a full UK banking licence, a move which for critics signified an overweening regulator stifling the forward march of an innovative and popular newcomer.

The inventor and entrepreneur Sir James Dyson joined the party in a belligerent letter to The Times, attacking “woeful policies” including high corporation tax and shortages of specialist staff.

Underlying these critiques is a sense that despite Sunak and his ministers’ ambitious statements about British tech’s disruptive potential on the global stage, the country lacks the political and regulatory framework to foster truly world-leading innovation in the private sector.

The question of whether the UK is an ideal environment for establishing and scaling tech companies will continue to attract extensive commentary and analysis. Concerned insiders would do well to note that the UK isn’t the only place where dilemmas about the relationship between the government and the tech sector persist — and for a highly instructive example, look no further than Israel.

Israel is a tech success story by almost any measure. Like the UK, Israel is among the top-ranked countries in the unicorn charts, but as a country of less than ten million inhabitants, Israel is an outlier in a list largely comprised of the world’s biggest economies.

Significantly, Israel attracts the world’s second-highest amount of venture capital investment per capita (behind Singapore). Israel also leads OECD countries in terms of R&D expenditure as a percentage of GDP (well over 5 per cent, compared to an OECD average of around 2.7 per cent) and has more than 100 companies listed on the Nasdaq.

But there’s an active debate as to whether these successes have taken root due to government policy — or in spite of it. To be sure, Israeli governments of all political persuasions have adopted numerous measures to offer tangible support to the tech sector.
Back in 1993, Israel launched Yozma, a pioneering government programme that used state funds to match foreign venture capital investments in Israeli startups, kickstarting the country’s venture capital industry. Today, the Israel Innovation Authority (formerly known as the Office of the Chief Scientist) is a particularly active public body that funds, trains and nurtures various components of the Israeli tech ecosystem and fosters meaningful collaboration between academia and industry.

On the flipside, one could argue that these examples of government support for tech in Israel are a classic example of the tail wagging the dog. According to this line of thinking, Israel has always had a vibrant culture of innovation for a wide range of reasons and so government policy complemented, but didn’t fundamentally shape, Israel’s position as a tech powerhouse.

Some would even add that Israeli regulations and bureaucracy are actively detrimental to the fortunes of Israeli tech — levelling many of the same charges as their UK counterparts: too much red tape, high tax rates, a chronic lack of skilled human capital and underinvestment in education and training.

This debate has only intensified in the past few months, amid the potential economic fallout from Benjamin Netanyahu’s government’s proposed judicial reform. Leading venture capitalists have warned of an investor flight, while some Israeli companies have pulled their cash out of Israel. Official estimates suggest that from 50 to 80 per cent of new companies established by Israeli entrepreneurs in the first quarter of this year were registered overseas. Overall investment in Israeli tech is down in early 2023, but the same is true worldwide amid challenging macroeconomic circumstances, so it’s too early to discern any correlation between Netanyahu’s legislative agenda and the fortunes of Israeli tech.

In sum, there isn’t a great deal of consensus as to the true impact of Israeli government policy on the culture of technology and innovation in the country. But what can UK tech learn from Israel’s experience of building a flourishing tech ecosystem alongside a political leadership that may not see eye-to-eye with tech leaders?

Israel’s experience shows that where the social and cultural conditions that foster a culture of innovation are present, tech is primed to thrive — independently of government policy, which in any case fluctuates over time.

The same is true of the UK, where tech has flourished due to natural strengths such as world-class universities and London’s position as a financial and investment hub. These conditions predate Rishi Sunak’s time in office and are likely to persist long after everyone’s forgotten about whichever catchy slogan he has given to the UK’s latest innovation drive.

Similarly, in Israel the anchors that prop up the tech ecosystem are deeply rooted in society and outlast the tenure of any specific government. For example, the training provided by the IDF’s elite cyber and intelligence units has made an immense contribution to Israeli tech and, as the importance of the military is unlikely to dwindle, Israeli companies have a disproportionately large pool of young, highly skilled professionals to recruit from. This reality is unlikely to be affected by the policies of one government or another.

The UK and Israel are very different culturally, economically and demographically. But there are enough similarities to offer insights as to how UK tech can learn from Israel’s example and embrace its own strong points, accepting that political and regulatory change will always be part and parcel of the background. After all, individuals play a key role in entrepreneurship and innovation. Policymakers can offer support, but cannot alone provide the ingenuity needed to conceive world-changing ideas.

Ben Crome is Head of UK Tech at Headline Media, which provides global communication services to startups in Israel and the UK

June 01, 2023 17:05

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