Startup Nation: rooted in socialism and military technology

• Published date: 03 May 2023

Tracing the roots of Israel's tech industry back to the 1960s and 1970s, shows the extent to which this industry has always maintained continuous contact with government officials and ministers, cooperation with US corporations, foreign banks, and the US-Jewish community. Mapai (Mifleget Poalei Eretz Yisrael - the Labor party), the Likud party, MIT, Israel Discount Bank, the NYSE and Nasdaq all played a decisive role in forming the building blocks of Israeli tech in its formative years. Even if sometimes political considerations were behind certain decisions, they helped in founding a knowledge-based industry, in a country with no natural resources

Globes traced the formative years of Israeli tech, the politicians, government officials, military generals, industrialists, and investors who made it what it is today.

The French arms embargo and Mapai-style capitalism

Two major events befell Israel in the late 1960s: the economic recession prior to the Six Day War in 1967, and the arms embargo imposed on Israel after its victory by then-French President Charles de Gaulle. These circumstances compelled Israeli politicians to increase spending, and plan the establishment of institutions that heralded the growth of Israel's tech industry.

In those years, the young country that had procured French-manufactured planes, ships, weapons, and technologies, and sent its best and brightest to study at the Sorbonne, suddenly found itself without a strong ally. "The decision made by the government in response to the boycott was one that ruled out the possibility that Israel would ever be dependent on another foreign power," says Prof. Dan Breznitz, Munk Chair of Innovation Studies, and Co-Director of the Innovation Policy Lab at the University of Toronto. "Instead, starting in 1967, the Mapai government invested in developing advanced weapons systems such as radar-guided missiles, tanks, fighter planes and ships."

But even socialist Mapai, says Breznitz, realized that without elements of a free market, it would not be possible to promote a profitable industry, one that would turn Israel into a global scientific and technological center, as envisioned by senior party leaders Levi Eshkol and Pinchas Sapir. Eshkol and Sapir benefitted from enormous political stability that allowed them to conduct a consistent and long-term policy and, in practice, shape Israeli economic policy (assisted by dozens of professionals and graduates of the Hebrew University of Jerusalem recruited specifically for this purpose).

At the same time, Sapir was engaged in a high-profile conflict over free-market competition with the Secretary General of the Histadrut (the General Organization of Workers in Israel), and Histadrut-run construction company Solel Boneh. The upshot was the Secretary General's resignation, making clear to all the importance the ruling Labor party ascribed to private property.

Israel's first 20-year-old super entrepreneur

Sapir and Eshkol were not operating alone in the 1960s. They already had several successful private companies at their disposal, all linked to one person. Uzia Galil was an entrepreneur and mathematical genius who had immigrated from Romania as a young man in 1941. After heading the Israeli Navy's electronics R&D department, and becoming director of the electronics department at the Technion Faculty of Physics, at only 20 years of age he founded Elron in a small workshop. This would later become Israel's first international privately-owned tech company, one that blazed the trail for those that followed.

Elron, founded in 1961, became famous less for the products it developed and more for its business breakthroughs. It was the first Israeli company to receive venture capital investment, thanks to funds raised that year from Israel Discount Bank and the US-based Rockefeller Group. In doing so, it became the first Israeli...