Thursday, September 09, 2004

On Israeli technology and American outsourcing

I saw an interesting piece on Israeli television (IBA News in English, via satellite) claiming that Israel is the second most important technology center after Silicon Valley in California. The statistics cited were startling. The number of new technology startups in Israel is roughly 25% of the number of those in the United States. In addition, the amount of venture capital invested in Israeli technology startups is also around 25% of thet in the United States. What makes these numbers so amazing is that Israel is a tiny nation of six million people, compared to 275 million plus in the U.S. in a huge land area.

They went on to cite how ubiquitous Israeli technology is. One example: the computer I am writing on is based on an Intel Pentium CPU. The Pentium architecture was developed by Intel in Haifa. The list of examples went on and on, the upshot of which is that everyone in the world, even those in nations who hate Israel, use Israeli technology each and every day of their lives.

Based on my own experience I find the report totally believable. Israeli culture places a high value on advanced education. More Israelis have college degrees by percentage than Americans, and most middle class Israelis continue their education, a class here and a class there, througout their working lives. One thing Israel does not do is export it's high tech jobs. In the U.S. high tech hiring is expected to drop by 50% from 2003 levels this year. In contrast, in Israel, high tech is the fastest growing sector of the economy with hiring and wages surpassing all other industries.

I would argue that in outsourcing so much high tech to India and other Asian destinations the U.S. is likely to lose it's ability to produce cutting edge technology. In addition, many American innovations will end up in countries where patent law is not enforced and will be duplicated and sold at a deep discount.

Leadership in technological innovation is key to the economic future and national defense of both Israel and the United States. This is one area where the U.S. could learn a thing or two from Israel, or, more correctly, can relearn the lessons that were taught to Israel by the American example of technological innovation and entrepreneurship in the first place.


Anonymous Person said...

"In the U.S. high tech hiring is expected to drop by 50% from 2003 levels this year."That's hard to believe, can you cite a source? I heard tech hiring was on a rebound.

I don't think protectionism is likely to prevent Intellectual Property theft. It will stifle innovation in America and the investment capital will flow to places that can produce things more efficiently. Piracy is more prevalant in developing markets than in developed markets IMO so we should help foster development in those markets.

Caitlyn said...

The source is a CNN report last night by Lou Dobbs quoting the Information Technology Association of America (ITAA), the main lobbying group for the IT industry.

Based on my experience in the Research Triangle area (Raleigh-Durham, NC) the report is dead-on.

Protectionism implies tarrifs. Nobdy is suggesting tarrifs nor limiting imports and exports. What Mr. Dobbs, a Republican, is suggestion is that the wholesale exportation of skilled jobs is hurting the United States in a lasting and damaging way. I happen to agree with him.

Regarding intellectual property, it's a whole lot harder to steal if you aren't involved in the development process from the outset.