With its research and development-based industrial products leaving agriculture far behind in the export race, Israel is on the verge of committing itself even more fully to innovative industry.
This will involve increased government infusions of risk capital and the transfer of scientists from academic projects to the private sector, officials said this week.
The government, already heavily extended in subsidizing development of new products for export, hopes to improve its precarious balance of payments position in the next five years by sinking $350 million into industrial research and development, Arie Lavie, chief scientist of the Ministry of Industry, Trade and Tourism, said in an interview.
Coupled with an estimated $150 million that will be privately invested, the commitment will put Israel, on a per capita basis, among the leading nations in the research and development sweepstakes.
"The government recognizes the priority of exporting sophisticated industry. We have to do this thing, not in spite of our economic problems but because of them," Lavie said. Inflation in Israel currently is running more than 100 percent annually.
He said the new policy would retain the current government grants of up to 80 percent of costs for a new product, and add government loans for working capital and broad tax incentives to industries and individual investors to encourage private venture capital.
The export of products based on research and development has soared in Israel, from a paltry $2.5 million in 1967 to $700 million this year, or 30 percent of total civilian industrial export products. Economic analysts predict that by 1981 the total will reach $1 billion and by 1986 $2 billion, or 40 percent of total industrial exports.
Since the founding of the Jewish state 31 years ago, agricultural exports -- ranging from cut flowers sold in Europe to oranges and avocados sold worldwide -- have dominated Israel's foreign sales. But last year, the country's total $2 billion in civilian and military industrial exports included $540 million in research and development-based products, compared to $495 million in agricultural exports.
The annual rate of growth of innovative industrial products, Lavie said, is 30 percent, compared to 9 percent for industry based on imported technology.
Having found the way to feed its 3.5 million population with food to spare for sale abroad, Israel is now plunging headlong into exporting its ingenuity. f
The surge of innovative products, in fact, was inspired by traditional Jewish ingenuity that turned vast areas of desert into productive farmland, and gave rise to a formidable arms exporting industry whose sales this year are expected to total $600 million.
Without an adequate supply of cheap labor and with no abundance of natural resources, Israel would not seem to qualify for accelerated industrial growth. But its academic manpower -- 10,000 scientists and 20,000 engineers, many immigrants from Eastern Europe and the Soviet Union -- gives the country an edge that offsets these deficits.
A recent joint study by the Massachusetts Institute of Technology and the World Bank recognized the potential of ingenuity, while seeking to learn how Israel has increased its industrial research and development in so short a period, and how the country has translated it into export growth.
The government has launched programs to lure more scientists and engineers from academia into cororate laboratories to boost the innovative pace.
Start-ups of new companies dealing exclusively in research and development products are running about 20 a year and approximately $20 million a year is being spent on joint projects with foreign firms, including $12 million invested in projects by 12 U.S. firms.
Israel's semisocialist government currently is investing $35 million a year in conditional grants to private companies, covering 50 percent of research and development on new products and up to 80 percent for products classified of "national importance." The latter category includes such products as a new solar pond and generating turbine near the Dead Sea.
If a research and development results in commercialization of a product, the firm pays the government royalties of 1 percent of sales for seven years, but not exceeding the grant.
"The government should split the risk. There's very high risk involved, and a lot of these companies are too small to absorb any kind of loss," Lavie said.
Lavie said the government is also planning to implement other incentives long used in Western industrialized countries, including tax benefits and government loans for working capital in succesful research and development ventures.
The leading Israeli products in the civilian research and development export field now are medical equipment and drugs, electronics, communications products, computers, fine chemicals, machinery and plastics.
In the field of arms exports, Israel has long been in the big leagues, employing 32,000 workers in the defense industry -- 11 percent of its industrial work force. The government is secretive about its defense industry, refusing to publish sales or market data.
Its biggest investment has been the development of the high-performance Kfir C2 jet fighter. The government-owned Israeli Aricraft Industries is designing a new fighter for the next decade that will perform similarly to the American-made F16. It has been estimated that research and development on the new fighter could reach $2 billion.
In addition, IAI and its subsidiaries produce the Gabriel missile, the Arava Stol military transport, the missile-equipped Dvora high-speed patrol boat, armored vehicles, antiaircraft weapons, field guns and electronic components for ships, small arms -- including the renowned Uzi submachine gun and the Galil assault rifle -- and ammunition.
About 200 firms reportedly are involved in the manufacture of the Merkhava tank, which was unveiled recently in field trials.