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transition to civilian markets began after a major defense project, the Lavi fi ghter jet, was
canceled in 1987. This put thousands of engineers out of work, at just about the time that new
opportunities were being created from the deregulation of the global telecommunications in-
dustry and the development of new technologies, principally the Internet.
The government played a critical role in helping to lay the foundation for a venture capital
industry, sponsoring technology incubators where entrepreneurs could develop new prod-
ucts, and subsidizing corporate research and development. Among Israeli innovations were
the fi rst generation of Internet chat software and the fi rst solid-state fl ash drive. Israel-based
engineers were also responsible for the design of some of Intel's most important computer
chips.
Two decades after the industry got under way, Israel's technology sector remains focused
on innovation. At the core are start-up companies developing cutting-edge communications
and computer products and medical devices. In 2008, Israel spent 4.8 percent and, in 2009,
4.3 percent of its GDP on research and development, in each case the highest percentage in
the world. Where the industry has been less successful is in marketing and building large and
sustainable enterprises.
Israeli start-ups frequently pioneer a technology only to sell to a foreign rival, leaving them
the choice of turning to another market niche or selling themselves to a larger, overseas com-
petitor. The founders typically form a new company with a new core technology and target
market, repeating the cycle. That strategy has been criticized for its short-term outlook and for
depriving Israel's economy of the income, skills, and jobs that large and growing multinational
companies generate.
Chemicals and Pharmaceuticals
One of Israel's few natural resources with industrial value is the combination of phosphate,
potash, and other mineral deposits from the Dead Sea and adjacent areas, used mainly in mak-
ing fertilizers. As opposed to everywhere else in the world where these minerals are mined, at
the Dead Sea they are collected at much lower cost in huge salt evaporation pans that occupy
the entire southern end of the lake. These minerals were fi rst exploited by the Palestine Potash
Company, founded in 1930 by Moshe Novomeysky and his British partners after they obtained
an exclusive license from the British authorities.
The Israeli government took over the company in 1952, changing its name to Dead Sea
Works. Over the years, other chemical businesses were added to form what is now Israel
Chemicals, which was privatized in 1995. Besides fertilizers, the company makes fl ame retar-
dants and chemicals for the oil industry and has bought companies in the United States and
Europe to expand beyond its Dead Sea base.
Israel has also developed a large pharmaceuticals sector thanks to one company, Teva
Pharmaceutical Industries, the world's largest producer of generic drugs. More recently, Is-
rael's biotechnology industry has sought to replicate the model used to develop electronics
and communications start-ups, which relied on government backing and venture capital for
fi nance. In place of the army, which often served as the source for innovations in communica-
tions and computers, the country's academic institutions serve as biotech companies' source
 
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