When most nations are grappling with the pace of technological progression, desperate to harness the meteoric growth of the information and communications technologies sector, Israel worked on efficient ways to commercialise good ideas, tripling hi-tech exports in the last ten years. Another measure is that there are more Israeli companies listed on the NASDAQ exchange than there are from any other country.

There are many potential lessons from Israel for Australia, one of which is that this has been achieved during a time of immense domestic and international political turmoil in the Middle East. The Middle East Peace Process is not only about morality and freedom, but is also a crucial ingredient to the economic success of the region. However a tough political environment is not a prerequisite to finding the political leadership to guide the necessary adjustments to industry policy. Surely Australia’s stable environment should be an ideal environment in which to build our own ecology of innovation.

The changing structure of the global economy has meant that capital is now far freer of domestic economy constraints. Characterised as the ‘electronic herd’, Thomas Friedman in his book ‘The Lexus and the Olive Tree’, asserts that the anonymous collective that manages the global flow of capital is driven by the opportunity to profit and pays no heed to the health or survival of domestic economies. Hence the situation has risen where it is this electronic herd that can and does ‘punish’ and ‘reward’ governments for their willingness or otherwise to participate in the global economy in ways that allow profit to be gained.

As a result, global economic participation requires nations to accept, and even hasten, a decline in their economic identity. Hence, it is a strong sense of cultural identity that seems to offer a domestic political environment more conducive to finding the political will to make the changes to public policy necessary to take advantage of the new areas of growth.

So what are the features of this ecology of innovation, for which the rewards are meaningful global economic participation and growth? They are well documented and traverse a blend of public policy intervention and private sector incentives over the last decade.

The BIRD Foundation is essentially a research, development and commercialisation agreement between Israel and the United States. The program provides for joint government sponsorship of projects that put Israeli technology companies together with US companies who understand the market. This program still stands as a key element in establishing the relationships necessary to facilitate growth of hi-tech companies. They are born global.

Adjustments to education policy to strengthen science and engineering participation, the influx of Russian engineering talent in the early nineties, and the creation of a tightly focussed Office of the Chief Scientist led to a change in emphasis for innovation and an entrepreneurial culture.

The Office of the Chief Scientist has since played a crucial role in overseeing a series of policies aimed at stimulating access to capital (YOZMA) and opportunities for budding entrepreneurs through incubators. An underlying feature is the close relationship of these initiatives with the tertiary education institutions, with Technion, the Israel Institute of Technology, providing over 70% of graduates into the high-tech sector.

However changes to the international market and sheer pace of technological progression witness the need to continually assess and update policies to ensure relevance to the prevailing conditions in the market. One example of this is the incubator program, which features a two-year incubation period and is often unsuitable to many dotcoms - the lightning-paced internet start-ups. Hence the focus of the funded incubators has evolved to primarily industrial and life science technologies. These technologies should serve as economic ballast through the heady fluctuations in the hi-tech sector of the market.

This demonstrates the need to learn from Israel’s experience, rather than merely mimic programs. There are also other issues emerging in Israel that are worth watching, including how to maximise and share the benefits beyond creating a start-up friendly environment. Israel is still struggling to find a way to encourage companies to list on public equity both in Israel and the US.

Israel, like Australia is also experiencing a growing divide between the rich and poor; the haves and have-nots. The challenges of sharing the wealth being generated by this phenomenal growth are vexing issues that go to the heart of how an equitable society in the 21^st century will be realised.

Protecting the interests of the entrepreneurs and staff of start-ups is one aspect of this. For example, the incubator program mandates, by way of setting minimums, equity held by entrepreneurs and staff through the incubation phase of the companies. Too often the voracious appetites of equity investors see the ideas people come out second best. Australia is yet to legislate a decent regime for employee share ownership schemes.

Israel’s grip of the critical role of relationships underpins the commitment of the Australian-Israeli Chamber of Commerce to organising regular, high profile trade missions to Israel. The mission extended to Silicon Valley, where we saw how the relationships Israeli companies had formed in the Valley contributed to their global success.

There were several specific initiatives that I believe are worthy of immediate attention, including the establishment of a Research and Development Agreement. Australia currently has eleven bilateral agreements in place. An Agreement with Israel makes good policy sense. It will help build relationships.

Australia also has 40 agreements on double taxation, with negotiations on another five nearing their conclusion. Israel is not one of these. Double taxation agreements are designed to avoid international double taxation and prevent evasion.