The Israel Innovation Authority’s 2023 annual report shows that in recent decades, the hi-tech industry has become the engine that pulls the Israeli economy, in which it is the industry with the largest and fastest-growing output. The report also shows that between 2012 and 2023, the average growth rate of the number of employees in the hi-tech industry was three times the general rate in the economy (6.3% and 2.2% respectively). Moreover, the sector’s contribution to GDP was over 18%, having doubled within a decade to 290 billion shekels ($76.5 billion) in 2022.
The software and cyber sector creates a significant comparative advantage for Israel, with over 40% of the new start-up companies operating in this field and over half of the investments flowing into the cyber and software sector. Israel has become a world leader in cyber and information security, and this process is ongoing. According to the head of the IIA, Israel is pushing to take advantage of three areas of innovation: Generative Artificial Intelligence, Quantum Computing and Communication and Climate-Related Innovation.
How did Israel become a world power in technology and cyber? What are the main factors driving this, and what can be learned from them for the future?
Israel’s growth in the cyber and technology domain stems from several elements, the main one being security needs. The phenomenon also requires a close partnership with the private sector and academia, the excellence of which have led many international companies to establish their development centers in Israel.
The basic concept of security formulated by David Ben-Gurion in the early years of the state rested on three pillars: Deterrence, Early Warning, and Decisive Victory. Maintaining a sizeable regular military was practically impossible, so Early Warning was required to gather the reserve units. This constraint obliged the Israel Defense Forces to establish a sophisticated intelligence system. The intelligence units of the IDF were required to develop diverse capabilities. The information revolution and the development of technology caused intelligence to be based more and more on technological capabilities in cyberspace. (This was the case for other units in the IDF and the security organizations, as well.)
IDF conscription is another essential element in the development of the Israeli technological environment. The specialized units in the IDF begin the selection process at very early stages and enjoy access to the highest quality personnel resources of the State of Israel. The IDF approaches students even during their high school studies, through a broad marketing system and the promise that recruits will acquire a profession and skills that will serve them even after their service. The graduates of the technology and cyber units have a guaranteed advantage and horizon in building their professional futures after their service.
The recruits are funneled into a unique IDF training process. The intelligence and communication branches’ technological corps have established training systems that are among the most advanced in the world. The school for computer professions and cyber defense conducts courses in programming, software development, computing infrastructure, cyber protection, etc. The variety of training programs offered by the intelligence branch—which bases most of its efforts on gathering information in cyberspace and analyzing it using advanced technological tools and artificial intelligence (AI)—involve young recruits in their prime, and encourage initiative and innovation.
The demand for admission to the technological units in the IDF has even led civilian companies to offer preparation courses for recruits to help them pass the screening process for these units. Some programs aim to increase the presence of recruits from the periphery, such as the Magshimim program of the Center for Cyber Education, founded by the Rashi Foundation. Such programs promote equal opportunity in Israeli society, together with the Defense Ministry.
The recruits are integrated into the various technological units after training, where they gain significant practical experience. Some even sign up for additional years of service once their mandatory service is finished. Thus, thousands of indivuduals with vast technological experience are released into the Israeli economy every year. They enter the labor market, produce and integrate into an ecosystem that drives Israel’s technological economy, including cyber, artificial intelligence, information analysis and more.
The mandatory service which allows the IDF access to the highest-quality manpower in the country turns the army into a locomotive that is pulling the Israeli economy. Many discharged soldiers have knowledge and ideas that lead to the establishment of start-up companies operating in the global market. As a result, the Israeli hi-tech industry has become an essential player in the worldwide sector, despite the small size of the country in terms of both population and territory.
Another element is the activities of the State of Israel, which recognized this potential and allowed the establishment of R&D funds for start-up companies to enrich intellectual property development in Israel. That in turn led to the establishment of venture capital funds and increased investment by foreign companies in Israel. Then there is the establishment of the technology incubators and accelerator programs, which dozens of technology and cyber companies are absorbed into yearly.
However, there’s a catch: The desirability of service in the IDF’s technological harms the motivation to enlist into combat units. According to an internal survey conducted in the IDF, motivation for combat service for men in 2022 was the lowest in recent years—66% compared with 73% in 2020. For women, it was 48% in 2022, compared with 60% in 2018.
The continuation of this trend is very disturbing. It results in a situation in which the combat units must make do with those who failed or could not integrate into the personnel selection processes for the special units, the prestigious courses and the technological and intelligence array.
The tension between the need to recruit quality personnel for the technological units and thus continue to provide quality personnel to the cyber and technology industry and the need to ensure that the combat units are also able to recruit quality soldiers requires a response at the national level. The buds of such a response can be seen in, among other things, technical training programs such as Warriors for Hi-Tech, which aims to train discharged soldiers to work in the cyber field.
Israel can continue to lead in cyber and technology, but it must balance all its national needs. Moreover, those who serve in field units possess experience as fighters and commanders, as well as other qualities no less necessary to the economy and employers than the training and technological experience of those who served in the cyber groups.
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