ZICHRON YAAKOV, Israel - Despite cumulative losses of $3.3 billion in R&D aid to mature industry since the establishment 30 years ago of the chief scientist's office in the Ministry of Industry and Trade, the government has again responded to pressure from large companies, notably Motorola and Teva, and postponed reforms to redistribute aid to assist smaller start-ups.
Finance Minister Avraham Shohat explained at the weekly cabinet meeting, "We did not anticipate the rush of objections, and thus decided to delay the deliberations for a month of further investigations."
The ministerial body agreed to postpone discussion of six structural reforms from the 80 proposals by the Finance Ministry, despite some "concerns raised by Industry and Trade Minister Ran Cohen and the ministry's proactive chief scientist, Orna Berry, as well as many high-tech industry leaders including Zohar Zisapel, co-director of the Israel Biotechnology Organization.
The situation is not healthy in general and worsens the terms governing state support for high technology, and especially for the younger biotech sector.
Shohat said several prominent businessmen had warned him that the decision to increase the rate of return to 4.5 percent of revenue, from the current 3.5 percent, from investments of government capital would "force many of them to move their R&D to other countries where they would get better conditions."
The finance minister's announced "rethinking" came on the same day (Aug. 24) that the study announcing billions in losses was published by the Institute for Advanced Strategic and Political Studies in Jerusalem.
The study, compiled by Adam Ruskin and based primarily on data provided by the Finance Ministry, the Central Bureau of Statistics and the Chief Scientist's Office, showed that $3.86 billion in R&D subsidies had been given to private industry, yet only $559 million was returned in royalties.
Ruskin questioned the need to support Israel's richest companies when its youngest need encouragement from the state, stating that "some of this state aid was being misdirected by big business into bigger profits or distributed dividends" rather than in R&D. These subsidies to big companies have reached $18 million a year per firm, comprising anywhere from 5 percent to 300 percent of the companies' profits before tax, which Ruskin called "subsidies for shareholders."
He summed up by saying, "The Israeli government takes the taxpayers' hard-earned money and distributes it via the Chief Scientist's Office to companies and shareholders who are already among the wealthiest people in Israel. Why does a rich and profitable company like Teva need a government handout, when they make a perfectly good living without state support?"
The study said mediocre R&D is being supported at the expense of more advanced research efforts, by approving some 75 percent of all grant applications because "state employees working for the Chief Scientist's Office have no incentive to look at the bottom line of their investments. They won't lose their jobs if their financing decisions don't pay off like their colleagues in the private sector."
By comparison, the Israeli government provides one of the highest levels of aid for private R&D: Fifteen times the customary level in Switzerland and Japan, and twice that of the OECD countries. On the other hand, Ruskin speculated that, based on venture capital experience elsewhere, if the government were to withhold financing from start-ups totally, private venture funds would provide cash for companies worthy of investment anyway.