The ‘Rise of the Rest’ in Israel’s ‘Periphery’

In mid-November, the Ministry of Finance Chief Economist updated the 2021 forecast for Israel’s economic growth to an annual 7.1%. This figure is significantly higher than previously forecasted at the end of 2020 (about 2%). The main factors contributing to this increase are the reopening of the economy following the massive COVID-19 vaccination and Israel’s thriving high-tech sector, surpassing $20B in funding raised in 2021. These record-breaking figures demonstrate the ability of the tech sector to survive the COVID-19 crisis unscathed and have even shown it to have benefited from an acceleration in the transition to the digital economy.

While the success of the high-tech sector has significantly benefited specific segments of Israel’s population, others, particularly those in Israel’s “periphery,” have not enjoyed an equal opportunity to benefit. According to a 2020 report by the Research and Information Center of the Knesset, only 30% of research and development (R&D) related jobs were created outside of Tel Aviv and the Central Region.

In the U.S., the technology ecosystem has been traditionally concentrated in three hubs – Silicon Valley, Boston, and New York, which attract 75% of all venture capital funding. The founder of AOL, Steve Case, has identified this as an opportunity and introduced the concept of “Rise of the Rest,” which formed a nationwide platform and seed funding dedicated to supporting and investing in entrepreneurs outside of the traditional hubs.

We practically take it for granted that high-tech companies tend to be concentrated in some geographical regions. The concentration of tech hubs in Tel Aviv and Central Israel is often compared to America’s Silicon Valley tech hub. Even if we accept this premise, it is unfortunate that in Israel, a country the size of the State of New Jersey, such significant gaps have developed between the central metropolitan region and the rest of the country.

The good news is that there is a growing realization that this situation is preventing the Israeli economy from achieving its full potential and, at the same time, creating unsustainable social gaps. In its 2018-19 report, the Israel Innovation Authority presented a detailed analysis and strategy for an “innovation-driven economy” in the Israeli periphery. This has resulted in several initiatives. One is a program for advancing under-represented populations in the high-tech sector, including residents of the periphery. Another is promoting innovation systems by establishing new incubators in the periphery, and a third provides significant grants to encourage investments in periphery-based start-ups.

One other piece of good news is the re-evaluation of an initiative to establish a university in Galilee. The Israel Council for Higher Education appointed a committee led by Professor Aaaron Ciechanover to examine the options, considering existing institutions such as the Ort Braude College in Karmiel, the Western Galilee College in Acre, and others. A university in Galilee will upgrade the existing higher education offerings and become a magnet for research talent. Although this is not the first time this initiative has come up, it seems that now there is a much broader consensus to make it happen.

Private sector initiatives, such as the Margalit Start-Up City Galil and the recently launched Foodtech Center in Kiryat Shmona, will hopefully create quality jobs in the region for the Galilee population and attract young families to move to the north of Israel.

Despite their difference in size, the U.S. and Israel share a common goal to increase the participation of those located in areas outside the main hubs in the innovation economy. In both countries, the opportunities stem from the unexploited talent and from those local leaders and residents who are motivated and committed to bringing change to their communities.