Bloomberg reports that investment in Israeli technology firms has surged since the start of the conflict in Gaza.
Since the conflict escalated six weeks ago after the abduction of three Israeli teenagers, investors have kicked $598 million into the country’s tech startups. During the time between June 12 and July 24, investing has actually accelerated as the fighting has claimed more than 1,200 Palestinians and 55 Israelis. During a preceding six-week period starting in April, private tech financing was $282 million, according to data compiled by IVC Research Center in Tel Aviv.
This week is set to be the busiest for initial public offerings of Israeli companies in New York in 12 years.
This is happening despite the war – or maybe because of it.
Relative to the country’s size, Israel’s science and technology sector is one of the biggest in the world, in terms of people employed and levels of investment in R&D. As this 2001 paper by Dan Peled noted, it was Israel’s massive defence spending that got its tech industry started.
When viewed in historical perspective, there can be little doubt that the defense sector in Israel had a fundamental impact on the development of this country’s technological and industrial capabilities. For most of its first 50 years, Israel devoted a large share of its resources to defense purposes, putting a high priority on the development of modern armed forces with sophisticated military technologies and equipment, and on the ability to develop and supply these capabilities by its own means. Derived demand from this buildup for highly skilled workers, scientists and engineers affected public resources allocated to universities and research institutions, and accordingly the directions that these institutions emphasized as they expanded. Israel has today a concentration of scientists and engineers in its work force which is among the highest in the world, and a rate of high-tech startups which is high among industrialized countries even in absolute terms. The defense manufacturing industry in Israel accounts for a significant share of its industrial capacity, includes some of its largest corporations, and is considered a major worldwide player in some areas of the defense industry.
As the old saying goes, necessity is the mother of invention. There is nothing like an existential threat for realising a burst of creativity and, more importantly, a large amount of government investment to turn that creativity into innovative products. Israel has been on a war fitting for its entire history. That’s the reason for its powerful technology sector.
I have written before about the technological leaps during my grandmother’s lifetime. We went from wooden aeroplanes powered with car engines and bicycle chains to a rocket visiting another planet and from broadcasting electrical bleeps for a few yards to beaming moving pictures back from space. My grandmother was born shortly before the start of the Boer War and she died just before the end of the Cold War. For most of her life, the western world was either at war or expecting it. It’s no coincidence that the pace of invention and innovation was so rapid.
At the start of the Second World War, both sides were still using biplanes, By the end of it, the jet fighter and the ballistic missile had been invented. The Spitfire, leading edge technology in 1939, was almost obsolete by 1945. Wars, or the threat of them, bring forth innovation.
Nowhere is this more true than in America, the home of most of the world’s high-tech industry. This talk by tech entrepreneur turned academic Steve Blank explains how Silicon Valley got started. He traces the history way back to the Second World War, what he calls “the first electronic war”. The military investment started during the war continued during the Cold War:
The motivation for Silicon Valley in the 1950s and 60s was the Cold War crisis not profit. The country faced a life-and-death struggle and the motivation for entrepreneurship was crisis. The government was funding entrepreneurs with military finance.
Before 1972, says Blank, venture capital funding was tiny. It was defence spending that powered the development of America’s technology firms.
From the late 1970s, venture capital took military innovations and adapted them for consumer use but with nowhere near the investment that had been required to get these industries started in the first place.
Mariana Mazzucato takes up the story in this TED talk, pointing out that the internet, GPS and much of what makes your smartphone smart was developed by the military. It’s still going on. Tech companies are talking about consumer applications for drones. The machine that was developed for military reconnaissance and remote killing may one day deliver things to your house.
War, then, is good for technological development. Of course, it’s not the killing and destruction itself that leads to innovation. You can do a lot of that with relatively primitive technology. What drives the scale and speed of technological innovation is a massive concentration of investment. It’s just nothing seems to promote quite that level of investment quite like armed conflict, or the fear of it. Of course, it needs entrepreneurs and private investors to develop the technology and market it for other uses, which is why Russia’s defence spending did not lead to the development of a similar high-tech sector. But, as Steve Blank says, it is the defence industry that primed the pump for America’s massive advance in technology. Once the investment, the infrastructure and the skills were there, others could pile in.
I see articles every day offering tips on innovation and attempting to explain the creative success of certain companies. The main reason why America has created its massive technology sector, with famous firms like Microsoft, Apple and Google, though, is because it has, for some time, been the richest power on Earth, with by far away the highest defence spending. Whatever other explanations you might find for innovation and the growth of technology, war is way ahead of them all.