Jerusalem Gets Business Jump-Start

Jerusalem might be a spiritually moving “holy city,” but many Israelis see it as an economic backwater from which young people are fleeing. Roughly 7,000 highly educated young people leave the city each year, and 40 percent of the city’s residents live below the poverty line.

The establishment of the Hebrew University in 1927 created an image of an ivory-tower town, while commerce and industry developed primarily at the center of the country. Today, Nir Barkat, high-tech entrepreneur and dynamic Jerusalem councilman, is trying to breathe economic life into the city by using the academic and intellectual sectors to jump-start the capital’s economy. In partnership with venture capitalist Alan Feld, Barkat has created StartUp Jerusalem, bringing together high-tech and venture capital leaders, university researchers and Jerusalem businessmen in a promising new business initiative under CEO Eli Kazhdan.

The largest non-Israeli delegation at the StartUp Jerusalem Conference, which recently launched the initiative, came from California. State Controller Steve Westly pointed out that in today’s high-tech world, academic institutions, like those found in Jerusalem, are the springboard for business and industry.

“Government investment in research at Stanford University led to the flourishing of Silicon Valley,” said Westly, an Internet development pioneer.

“The future of the world economy is in technology, particularly in the life sciences,” he said, calling for investment in Jerusalem’s medical and university research, and the creation of a culture that provides incentives to take risks.

StartUp Jerusalem initiative is based on the economic “clusters” theory of Harvard professor Michael E. Porter, who served as honorary chairman of the conference, and consults for StartUp Jerusalem through his Center for Middle East Competitive Strategy. Porter was impressed that, in spite of Israel’s security situation, it has maintained its competitive advantage. In line with his clusters theory — geographic concentrations of interconnected companies — Porter offers strategic tools to analyze the dominant economic sectors in the city, and create infrastructure and links between the various companies in each sector. He emphasizes co-operation and exchange of information, rather than competition among the businesses of each sector.

“Prosperity is a win-win situation,” Porter said at the conference. “If one company within a sector is productive, it will help others be productive as well.”

StartUp Jerusalem is concentrating on biotechnology, since Jerusalem boasts resources that can make it an important player in that field. In addition to high-level research being done at the Hebrew University and Hadassah Medical Center, Jerusalem College of Technology and Hadassah College, Jerusalem also hosts 28 percent of the Israeli companies in biotechnology, including Teva and Medinol. Fifty percent of the biotech patents registered in Israel come either from the Hebrew University or Hadassah Hospital.

StartUp Jerusalem is also highlighting outsourcing, a fast-growing player in Jerusalem’s economy particularly suited to Jerusalem’s multilingual and ultra-Orthodox population. According to Kazhdan, hundreds of residents can be employed in service centers for foreign companies, particularly American organizations. Jerusalem possesses the infrastructure for such centers and the government is willing to provide subsidies for them. But most of all, Jerusalem boasts former American residents, both Jewish and Arab, fluent in English and steeped in American culture, who can man the telephones for hotel and airline reservations, banking and telecommunications organizations outside of Israel.

“Israel cannot compete with India’s cheap labor,” Porter said, “but it can provide a quality labor force able to communicate with clients on their own wavelength.”

David Silbershlag, an employment consultant and a StartUp Jerusalem board member, urges the business community to reach out to the potential in the ultra-Orthodox community.

During the 19th century, Jerusalem became a place where Jews came to study Torah supported by communities in the Diaspora. This tradition continues, accounting for a large unemployed ultra-Orthodox sector.

“But there are different types of ultra-Orthodox, many with multilingual and technical capability,” Silberschlag said. “Outsourcing can provide employment for them in frameworks that respect their unique religious character.”

Clustering can also be a model of Arab-Jewish co-operation. Since service centers must function without interruption, English-speaking Arabs can be on call Saturday and Jewish holidays, while Jews can take over on Arab holidays.

Jerusalem’s cultural and religious treasures also make it a great tourist attraction. But it must be honed and refined. But interfacing between tourism and cultural organizations must be improved to develop a clearinghouse of information for tourists.

“Economic development is not magical,” Porter said. “It involves a relentless process of improvement.”

Jerusalem must overcome many obstacles to become a flourishing business center. Former Jerusalem Manufacturing Association head Motti Tepferberg said that one of the problems is the lack of open land for manufacturing. He also points out that there hasn’t been sufficient attention given to the subject of attracting business to Jerusalem.

“The government has not provided business incentives or tax breaks to attract businesses to Jerusalem,” he said. “There also have to be greater cultural incentives.”

Terrorism has certainly affected the city.

“Foreign investment has been very low in the past few years,” said Avraham Aberman, a prominent Jerusalem lawyer. “But as terrorism has declined, or people simply got used to it, large venture capital groups situated themselves in Jerusalem, and tourism is flourishing again. The main problem remains Jerusalem’s image. It’s a psychological matter. Jerusalem doesn’t have the image of a dynamic center, a place where the action is.”

StartUp Jerusalem hopes to change this perception by highlighting Jerusalem’s competitive advantages. But what assurance is there that StartUp Jerusalem can work? Barkat, who ran an unsuccessful mayoral bid in Jerusalem, has confidence in the city’s innate advantages. But as he also pointed out, “We’re not inventing the wheel. We’re following a method that has succeeded in other places.”

“The government is on board,” said Barkat, who pointed to significant support from Finance Minister Binyamin Netanyahu. “However, the government is not investing or interfering. We’re not asking for fish, but rather for rods that will enable us to catch the fish.”

Barkat feels that things have begun well, with the top echelons in the health and medical fields, in particular, buying into the idea.

“We don’t have any choice but to be successful,” Barkat said. “The alternative is unthinkable for the future of Jerusalem.”

Rochelle Furstenberg is a Jerusalem-based journalist and critic writing about social, cultural and religious issues. She’s a columnist for Hadassah Magazine and a regular contributor to the Jerusalem Report.