s is now clear to nearly everyone, the recovery of the American economy from the Great Recession of 2007–08 has been a relatively jobless one. While corporate profits are robust and the financial industry is thriving once again, the American middle class is besieged and shrinking. Americans are justifiably anxious about the long-term prospects for generating enough middle-class sustaining jobs in a globalized and increasingly automated world to hold together the sinews of the American political economy, and keep the social peace based on it. Sustaining a vibrant middle-class society clearly depends on advancing and harnessing science and technology to create whole new industries. There is no going back to the old national labor profile of the mid-20th century, just as the invention of electricity and the automobile meant there was no returning to the labor profile of the late 19th century.
Many say the key to thriving in the years and decades ahead lies in bringing our educational system up to speed with this new economy. Others would also change our immigration laws to attract the skilled and entrepreneurially talented from abroad. These ideas are fine, as far as they go, but there is another major opportunity staring us in the face, and we’re not seeing it: If private corporations can bring knowledge, technology, human and physical capital, management and marketing together into systems distributed across the planet, why can’t governments foster partnerships to do the same thing to accomplish their goals?
Governments can encourage partnerships between complementary economies to maximize comparative advantages that go well beyond traditional commercial relations. Such partnerships can operate on a scale and across a range of economic niches that private corporations, left to their own devices, cannot match. If, say, one country has efficient and sizable capital markets and a large domestic consumption capacity while another excels in niche innovation based on excellent higher education and deep reservoirs of human capital, then bringing the two systems closer together could create a tremendous opportunity for both parties.
From the U.S. point of view, this means that we do not need to depend entirely on our own human capital to jump-start new economic activities, nor on the slow-moving and uncertain prospect of doing so via immigration reform. We do not need to limit the benefits of dealing with other nations merely to trade. We can instead match our assets with those of complementary economies in broad-ranging, nation-to-nation coalitions encouraged and facilitated by governments but not run by them.
Which countries best fit this formula of economic complementarity? Which have high reservoirs of creative human capital and effective institutions of higher education but also have national economies that are too small to realize the full value of those advantages? Singapore (population 5.2 million) certainly comes to mind. So do Finland (population 5.4 million), Sweden (population 9.4 million), and perhaps some countries with larger populations like South Korea (49.8 million) and Taiwan (23.1 million). But the best example by far is Israel (7.7 million).
The United States has for many years assisted in Israel’s defense and economic growth. Now Israel can assist the United States with future job creation.
Toward a Three-Dimensional U.S.-Israeli Partnership
.S.-Israeli ties have often been described as “special” by both sides. Special has thus far been defined in practice as having two dimensions: “hard” strategic common interests and “soft” cultural-historical affinity. There is an as yet undeveloped third dimension to the special relationship: the development of potentially many U.S. economic partnerships for the 21st century designed specifically to create new companies, new industries and new jobs.
Why Israel? For starters, Israel has a markedly entrepreneurial populace, with more start-ups, more scientists and more doctors per capita than any other country in the world.1 Israelis have garnered more patents from the U.S. Patent Office than the citizens of any of the G-7 countries, and Israel attracts far more venture capital per person than any other country in the world. With nearly 200 new companies created in the second quarter of 2012 alone, Israel is second only to Silicon Valley in its concentration of start-ups.
Israel is also uniquely poised to aid the American economy because of its established special relationship to the United States, strong bipartisan support for Israel in the American electorate, and U.S.-Israeli business contacts. Dubbed the Start-up Nation, Israel has shown an impressive ability and desire to work with Americans in industries ranging from pharmaceuticals to renewable energy to high-tech.2 As Michael Oren, the Israeli Ambassador to the United States, has noted:
At a time when American corporations are outsourcing to Asia, Israel is outsourcing to the United States: Tens of thousands of Americans are employed by Teva, the world’s leading generic-drug producer, and by dozens of Israeli high-tech, textile, and defense plants throughout the United States. The nearly 6,000 projects mounted by three U.S.-Israel foundations have generated myriad American jobs, as does the $3 billion in American military aid to Israel, $2.25 billion of which is spent in the United States.3
The U.S.-Israel economic relationship already has some limited support at the Federal, state and municipal government levels, and ad hoc collaboration in the private sector testifies to the enormous potential for economic growth that a non-governmental national coalition could facilitate. But we need more. We now need a mechanism for multiplying contacts between the American and Israeli business and higher-ed communities. Some Americans are especially primed to take the relationship to a new level: Entrepreneurs like Warren Buffett and Bill Gates and corporations like Intel and Motorola have already discovered the many advantages of an Israeli connection. But that’s not enough. We need a new approach (but not necessarily another government program) to introduce investors and industrialists to the opportunities that Israelis and Americans can seize by working even more closely together. We need an American-Israel Commercial Exchange (AICE).
The AICE would work as a centralized hub that presides over a national network of commercial enterprises. In essence, the AICE network would provide a mechanism to match Israelis with innovative ideas and products to American companies and distributors. For Israelis, such a mechanism would enhance their chances of succeeding in the vast American market. For Americans, it would introduce the Israeli option, of which most Americans are still unaware despite the 350 percent increase in bilateral trade over the past twenty years.
Establishing an AICE “hub” means building a new institution to serve as a clearinghouse for an expanded economic relationship. This institution should be founded by a group of investors (and donors) who stand to gain financially as facilitators of an expanded relationship. Start-up costs of this clearinghouse hub would be in the several million dollar range, and initially it would probably focus on sectors known to possess special potential: health, water, energy and communications. The expertise necessary to identify the most promising partners and experts in appropriate fields would be developed over time in these areas and then expand to others.
The key challenge is to identify American businesses that specialize in the kind of work in which Israeli entrepreneurs excel. The Israeli scene is much smaller, so cataloguing Israeli specialists would be the cheapest, quickest and easiest route forward. Eventually, as the AICE hub grows in size and reputation, it could become quite profitable as participants paid finder’s fees or success fees—all the while doing good for both countries. It would also pioneer a model for future U.S. partnerships with other qualifying countries. If it did so, it would not be for the first time: The 1985 U.S.-Israel Free Trade agreement, the first of its kind between America and another country, is now the model for 19 other such agreements.
A Basis for Success
he basis for expecting that an American-Israeli Commercial Exchange would work is the impressive degree of economic cooperation that already exists between the United States and Israel. Five areas of that cooperation stand forth.
Two-way trade with Israel now totals about $37 billion annually as a consequence of the Free Trade Agreement. Israel is also one of the top twenty countries investing in the United States, having injected $58.5 billion into the economy in the past decade. Since June 2012, the Obama Administration and Congress have worked to further reduce economic barriers between the two countries by making E2 Treaty Investor visas available to Israeli citizens investing a substantial amount of capital in American enterprises.
Academic research. Both governments have invested heavily in academic research and the private sector through the Binational Science Foundation (BSF), the Binational Agricultural Research and Development Fund (BARD) and the Binational Industrial Research and Development Fund (BIRD). The U.S.-Israel Science and Technology Foundation (USISTF), an offshoot of the U.S.-Israel Science and Technology Commission, located on the American side in the Department of Commerce, provides grants to programs that demonstrate an advancement of science and technology for both countries in order to build infrastructure for long-term strategic collaboration. Recently, the foundation has concentrated its efforts on the field of neuroscience. The Commission sponsors high-level consortiums bringing government, academic and industry forces together to accelerate business interchanges and bi-national initiatives.
Likewise, BSF facilitates collaboration between Israeli and American scientists and institutions to support scientific discovery and strengthen the binational relationship. To date it has funded 4,000 joint research projects in 375 institutions across the United States and Israel, and a stunning 40 grantees are Nobel laureates. Breakthroughs include a “nanoglue” that can bind almost any two materials together, a method of reversing birth defects through the use of stem cells and a drug that treats brain cell death in Parkinson’s and Alzheimer’s patients.
BARD has funded more than a thousand projects with a total investment of more than $250 million. In 2000, an independent and external economic review of ten BARD projects projected more than $700 million in revenue by the end of 2010. Overall, BARD-sponsored research has generated sales of more than $500 million, tax revenues of more than $100 million, and created more than 5,000 American jobs.
BIRD excels at matching Israeli and American companies and encouraging joint development by funding up to 50 percent of research and development costs. Its projects have generated $8 billion in direct and indirect revenues for both countries and have helped to create approximately 20,000 American jobs. One impressive product is Argo Medical Technologies’ and Allied Orthotics & Prosthetics’ ReWalk robotic suit, which gives paraplegics the ability to walk.
In a deal with the Department of Energy, BIRD and BSF recently committed to the goal of alleviating energy scarcity for the United States and Israel. This program funds projects developed through the cooperation of Israeli and American companies already involved in clean and renewable energy technology projects. Several partnerships have already received funding, with large Israeli firms teaming up with smaller American start-ups, a reversal of the usual pattern of large American companies working with smaller Israeli counterparts. HelioFocus (Israel) and Capstone Turbine Corporation (California) have developed and will commercialize a micro-turbine that converts solar energy into electricity. SmartSynch (Mississippi) and Motorola (Israel) have developed and piloted a smart electrical grid that saves time and money for both utility providers and customers. Tigo Energy (Israel) and U.S. Architectural Glass and Aluminum Co. are working to develop a complete Building-Integrated Photovoltaic (BIPV) system for widespread adoption. And TransBiodiesel (Israel) and Purolite Co. (Pennsylvania) found a method of producing enough biodiesel fuel for commercial use.
Security and intelligence. The close security and intelligence relationship between the United States and Israel makes them natural partners in the exchange of military technology and strategy. After suffering substantial losses to its air force from Syrian surface-to-air missiles during the 1973 war, Israel revived and redesigned America’s nascent drone technology to improve remote surveillance and attack capabilities while mitigating casualties. These unmanned aerial vehicles (UAVs) proved impressive against Syrian air defenses in the 1982 Lebanon War. The U.S. government in turn invested significant amounts of money to procure and develop other technologies, enabling the United States and Israel to create together the most advanced anti-ballistic missile system in the world. The two have also developed X band radar technology and made significant advances in intelligence gathering and counterterrorism techniques.
State and municipal governments. Many state and local governments have put Israeli innovation to work in solving their energy challenges, expanding academic research and promoting tourism. The American-Israel Chamber of Commerce, founded in 1965, has played a large role in facilitating these achievements, and it has opened branches in California, Florida, Illinois, Maryland, Minnesota, New York, Ohio, Texas, Virginia, the Central Atlantic region and the Southeast region. The Southeast chamber alone has claimed responsibility for facilitating $1 billion in transactions since 1992.
New York, California and Texas have the closest economic ties with Israel, resulting in tens of billions of dollars in revenue from exports each year. Los Angeles and Tel Aviv began cooperating in 1997 and have initiated many joint programs, including cooperative agreements between UCLA and Tel Aviv University to share expertise in health care through medical exchange programs. This relationship continues to grow; in 2008, Los Angeles Mayor Antonio Villaraigosa reached out to the Kinrot-Jordan Valley Technology Incubator, which helped the drought-plagued city and county by inviting Israeli start-ups to test water conservation pilot programs in the city’s water systems. Sonoma County, California, has entered a new partnership with IBM-Israel to install a smart water system with automatic leak detection and water-management technology. A major trial of the pilot program was conducted in April 2013, and will soon be ready for commercial applications across the United States.
San Antonio, Texas, has also brokered agreements with Eilat, Tel Aviv and Jerusalem. With Eilat they are cooperating to improve reclaimed water systems and to build a desalination plant in San Antonio expected to be producing 10 million gallons per day by 2016. With Tel Aviv and Jerusalem, the governments signed on to boost trade and exchanges of ideas in renewable energy, biotech, cultural affairs and education.
Private sector achievements. Activity and cooperation in the private sector have thrived even without help from binational committees and programs, academic exchanges and government-to-government security cooperation. Teva Pharmaceuticals, an Israeli multinational, is one of four U.S.-based companies identified as a leader in the fast growing generic pharmaceutical sector. In April 2012, IBISWorld published the top-ten industries in the United States that are contributing to revitalizing the American economy. At least three of those leading American companies have teamed up with Israeli counterparts. For example, the largest American solar panel manufacturer, SunPower, and Israel’s leading solar integration and developing company, SolarPower Ltd., constructed Israel’s first rooftop solar system for the high-tech industry in 2009.
Israeli companies in the solar power industry have also found opportunities in the United States. Brightsource Industries Israel, a subsidy of Oakland-based Brightsource Energy, provides research, IT and engineering services for the Ivanpah Solar Electric Generating System in the Mojave Desert, the world’s largest solar power plant, slated for completion in 2013. This project alone will generate $300 million in local and state taxes and provide enough energy for 140,000 homes. And Pythagoras Solar engineered the first photovoltaic glass for energy-producing windows. The Willis (formerly Sears) Tower in Chicago was an early client, using the glass to reduce energy consumption and costs. The solar industry has the potential to create 160,000 new jobs in Arizona, Colorado, California, New Mexico and Utah, and Israel can play a significant role in helping the U.S. economy meet that goal. In the rapidly growing 3-D printing industry, too, Israeli innovation has led the way: The U.S. company Stratasys recently merged with Israel’s Objet in a move that raised their combined valuation to $3 billion.
Then there is water. As the country with the third-highest rate of per-capita water consumption in the world, the United States may soon need to access Israeli water reclamation, conservation and desalination technologies. Israel reclaims 75 percent of its raw sewage. The next highest, Spain, reclaims 12 percent. The United States today reclaims a mere 1 percent of its water. The Israeli company Netafim invented drip irrigation to significantly increase crop yields while decreasing water usage. This method could significantly cut costs and use of water resources in the United States, where agriculture accounts for 80–90 percent of water consumption.
In addition, IDE Technologies Ltd. has built 400 desalination plants globally, making Israel the world leader in desalination technology. California is among its clients, and the United States in general has much to gain by employing Israeli technology on a larger scale. U.S. access to non-potable ocean water holds even greater potential; with Israel’s help, electricity generated from eco-friendly ocean wave energy could become common. The wave-energy business could generate 13,000 jobs per eligible state, $2.4 billion in profits, and up to a third of the country’s energy needs. While this domestic industry is woefully underdeveloped, at least two Israeli companies are building power plants to harness the power of waves. The United States could jump-start the industry by utilizing the expertise and capital of Israeli partners like SDE Energy Limited, which is currently building the second of three such plants in China and plants to expand to Chile, Mexico, Zanzibar, Kenya, El Salvador, Thailand, Ecuador and Myanmar.
Harnessing unconventional sources of energy seems to be a national Israeli talent, and Americans have the need, ability and desire to take advantage of these technologies. For example, Innowattech has developed an operational a system of generating electricity via sensors embedded in roads, sidewalks and railways that absorbs natural compression energy from the trains, trucks, and cars moving over them. The technology could literally put the hustle and bustle of our densest urban areas to productive use and at least partially offset their huge energy demands. Israelis are also making significant contributions to the viability of biofuels made from all manner of natural materials, such as algae and the jatropha plant.
Israel also has a thriving bio-pharmaceutical industry, with the most patents filed, companies founded and publicly traded companies listed in the past five years. The United States, with the world’s largest market for pharmaceuticals and a leader in research, is already a patron of this industry, importing nearly $3 billion annually in medical, dental and pharmaceutical preparations. And for good reason: Pharmaceuticals developed by Israelis treat Parkinson’s, various types of cancer, diabetes, multiple sclerosis and the common cold, among many drugs both in the experimental phase and on the market. One in five prescription pills taken by Americans is manufactured by Teva.
Additionally, Israelis have produced a range of non-invasive, painless technological alternatives to common medical processes, including colonoscopies, injections, cardiac health screening, tumor ablation, screening for breast cancer, and treatment of brain disorders like Alzheimer’s, depression, autism and addiction. A forum to address potential U.S.-Israel collaboration in neurotechnology took place in May 2013. The two-day event was hosted by the Medical University of South Carolina, the South Carolina-Israel Collaboration of the American-Israel Chamber of Commerce, the Israel Economic Mission, the BIRD Foundation and Israel Brain Technologies, and featured discussion of new products for diagnosis and treatment of brain disorders through joint research in the computer science, nanotechnology and brain research fields.
Collaboration between Israel and America has been particularly prolific in the high-tech communications sector. Israel’s contributions are as well-known as they are numerous: the first flash drive, internet messaging service (bought by AOL), commercial internet firewall, and Voice-Over-Internet Protocol technology used in services like Skype. Israeli researchers also played a key role in developing microprocessors for Intel and the modern cell phone for Motorola. Intel, IBM, Motorola, Cisco, Google, Microsoft, Qualcomm, Autodesk, Oracle and Apple have all established R&D centers in Israel. After buying its first Israeli start-up, Facebook plans a larger presence. It is not alone. Google acquired LabPixies, and eBay purchased The Gifts Project. Israeli innovation can be found in almost all of our favorite electronic gadgets, like the Java platform running on the Amazon Kindle, developed by Oracle in Israel.
Israeli institutions of higher learning are also playing a part in private-sector collaboration. In 2011 Cornell University and Technion beat out MIT, Columbia and Stanford to win development rights for the Cornell NYC Tech Campus on Roosevelt Island, with the Technion-Cornell Innovation Institute as its centerpiece. Project leaders hope that by imitating Technion’s strategy of creating close ties with nearby companies, New York City will become a networking haven for graduates and technological industries. Mayor Michael Bloomberg estimated that the institute would produce 600 spin-off companies and $23 billion in economic activity over the next three decades.
hese ad hoc arrangements between Israeli and American corporations, states, cities and the Federal government just scratch the surface of potential mutual benefits. Israel could become the model high-tech/human capital in-source country, with Singapore and others to follow. If China has become the outsourcing capital of the world for American jobs, Israel and other small but highly impactful economies could put America on the path to reversing the trend.
How to begin? Five steps can make it a reality. First, investors and donors would have to contribute the funds to incorporate and stand up the AICE hub.
Second, a planning document must design the hub. The designers would need to confer with those already involved in a partnership-in-the-making in government and the private sector, in business and community work, in Israel and the United States.
Third, as the AICE develops it must be mindful of the complexity inherent in the multi-level involvement in sectors in both countries.
Fourth, AICE founders and first-generation managers would have to be of the highest intellectual caliber, with business and political acumen second to none.
Finally, especially in its initial stages, the AICE hub would require coordination between the various groups engaged in order to make this process stable and effective.
However AICE might be set up, its prospects would benefit from five other steps:
Enlist pro-Israel organizations to advertise the hub. Pro-Israel organizations in the United States are typically well organized, well funded, and highly networked. They are the ideal vehicles to bring attention to an American-Israeli Commercial Exchange and help it spread during the beginning stages. Both political advocacy groups and apolitical, business-oriented organizations like American-Israeli Chambers of Commerce across the United States can play a role here. The Chambers of Commerce organizations are particularly well placed to play a large role in advertising the coalition, directing businesses toward the social network and organizing events.
Leverage existing commercial networks. The AICE should first look to existing business hubs in the United States, because they function as local networks that can serve as the basis for a national network. These include the International Division of the U.S. Chamber of Commerce; the aforementioned American-Israeli Chambers of Commerce; cities and states with existing agreements with Israel, such as in New York, California and Texas; Silicon Valley, Silicon Alley (New York City), and Silicon Prairie (the Midwest). By incorporating existing commercial networks, including those in the high-tech sector that already have a strong orientation toward Israel, a national network can take root rapidly. AICE directors should also focus on clusters in industries that are not yet aware of how Israeli innovation can benefit them. By beginning with a large network of interested companies, first-generation AICE directors could increase incentives for businesses in various industries to become part of this national economic exchange.
Use conferences to supplement interactions and increase awareness. Conferences are a staple of business relations, and the networking opportunities they provide could play a vital role in the AICE’s success. Conferences are also an excellent means of attracting attention to the hub, and can be organized around different industrial sectors in order to increase participation by those less accustomed to working with Israelis.
Offer professional training. Professional training is another important tool for developing business ties at the interpersonal level. Training programs can break down linguistic, cultural or other unforeseen barriers to successful economic partnerships. Academic cooperation has been a fundamental part of the American-Israeli relationship, and more could be done to introduce Americans to opportunities in Israel through an educational setting. For example, exchange programs between Israeli and American MBA students can foster contacts between future business leaders, with students from each country spending some time in the other as part of their MBA preparation. In addition, short-term training programs could be made available to Americans and Israelis, respectively, to facilitate effective partnering. These could be in-person seminars or, if necessary, online seminars.
Encourage start-up incubators that bring Israelis to the United States. Start-up incubators are already growing in popularity, and binational forms of them can help further the economic partnership by providing crucial seed money for innovative ideas, giving American companies a chance to invest early in promising enterprises, and encouraging networking. One example of this process is the Virginia-based Dominion Resources GreenTech Incubator, which hosts promising Israeli companies at their facility in order to groom them for investors and markets in the United States. Another is UpWest Labs, which recently began hosting the first round of Israeli start-ups in Silicon Valley in its three-month incubation program.
These five steps are important to publicize and supplement the activities of the AICE hub, thereby attracting new participants. This comprehensive program could result in a dramatic increase in American-Israeli commercial connections; few Israelis know whom to contact in America, and few Americans know of the opportunities available to them in Israel. We can change that.
merica is like no other country in history, a diverse and multi-talented society that, with a few unfortunate exceptions, has traditionally welcomed new people, new ideas and new ways of doing things. Before us stands an opportunity to bolster America as the universal nation, and to use that opportunity to restore America’s national and global economic strength. Israel is a good place to start.
1Sources for all data in this essay available from the author upon request.
2See Dan Senor and Saul Singer, Start-up Nation: The Story of Israel’s Economic Miracle (Twelve, 2009).
3Oren, “The Ultimate Ally”, Foreign Policy (May/June 2011).