Israel’s tech sector has brought this to the attention of Benjamin Netanyahu’s hard-hitting new government, warning that its controversial plans to limit the powers of the judiciary could hurt the country’s $500 billion economy.
On Tuesday, more than 100 Israeli tech groups gave employees permission to join a “warning strike” in Tel Aviv against the plans, which would give the government and its allies control over judge appointments and severely limit the top court’s ability to strike government decisions knock down.
The hour-long protest attracted only a thousand people. But it was the latest in a series of warnings from Israeli business about the reform that critics fear will give the government – widely regarded as the most right-wing in Israeli history – near-unchecked power.
Last week, two former central bank governors said the overhaul could raise Israel’s borrowing costs if implemented as planned. Earlier this month, Standard and Poor’s said it could ultimately damage Israel’s credit rating.
The tech sector’s warnings are particularly resonant given its key role in the self-proclaimed startup nation’s economy, where it accounts for about a sixth of gross domestic product and more than half of exports. In the last two years alone, Israeli tech companies have attracted $42 billion in funding.
“Technology is a strategic sector for Israel,” said Assaf Rappaport, chief executive of Wiz, a cloud security startup that attended the protest. “Without democracy, without a system of legal certainty, business cannot thrive, startups cannot thrive, technology cannot thrive.”
Government officials argue the changes are necessary to rein in a judiciary that has become too active. But to many tech executives and investors, the proposals look more like a power grab and a recipe for erratic policymaking that could undermine the country’s pro-business framework.
“Almost every call becomes a conversation [with investors and customers]said Merav Bahat, founder of cybersecurity company Dazz. “The people who buy goods and technology from us want to buy them from companies that are stable.”
A concern cited by tech workers is that judicial reform, combined with the open hostility toward minorities displayed by some members of the government — which is dominated by figures with unabashedly ultranationalist, anti-Arab and homophobic views — could make Israel a less attractive place to work .
But the biggest fear is that, in the longer term, the legal uncertainty caused by the changes could discourage investors from investing in the country and even encourage founders to set up their businesses elsewhere.
“Right now people are sitting on the fence trying to see what’s going to happen. But I can tell you what will be,” said Eran Shir, founder of Nexar, a technology group focused on the automotive sector.
“If I start a new company tomorrow and have the choice to start it as a US company or as an Israeli company, why should I start it as an Israeli company when there is so much uncertainty? . . . I don’t want to take the risk.”
Wiz’s Rappaport said that given its relatively small domestic market, Israel is particularly vulnerable to relocations of capital and staff.
“We love the Israeli talent and the great people we have here. But there are so many other places in the world with amazing talent competing with Israel,” he said.
“The Israeli economy is very, very small. For most of our startups and tech companies and even the multinationals here, the customers are mostly based in the US and Europe, and most of our employees are also outside of Israel.”
Adam Fisher, a managing partner at Bessemer Venture Partners, which has invested $1.5 billion in about 50 Israeli startups, said he doesn’t expect a “tsunami” of companies pulling out of Israel. But if the reform is passed as planned, there is a risk that the country will be “disadvantaged over time”.
“From my experience in other countries what [could happen] is that if there is an opportunity to expand an operation in Israel, it will be postponed,” he said. “If there is an opportunity to hire more people, a decision will be made to hire elsewhere. Where there is an investment opportunity in two regions, the one in Israel may take longer.”
Others are less pessimistic. “I’m not a fan of the reform, but I also don’t think the situation is as bad as it could be,” said Yaron Carni of Maverick Ventures Israel, a venture capital fund that has raised $180 million across three funds since 2013. “Governments come and go. And reforms come and go. But technology is here to stay. Technology will eat the world.”
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Netanyahu, Israel’s prime minister, has tried to allay concerns about the economic impact of the overhaul. Last week he touted a $2 billion sale of government bonds as proof that investors still trust Israel. On Wednesday he claimed the reforms would strengthen the economy by reducing “redundant court cases”.
“No one will violate intellectual property rights and compliance with agreements,” he added. “There is no need to panic.”
But what worries investors is that in the event of a judicial overhaul, they would have little recourse against a government that chose to break such promises.
“When the government can do whatever it wants, there’s a sense of arbitrary domination,” said Bessemer’s Fisher. “Investors like us look at the situation and realize, ‘Well, that’s law now – but it can change on a whim.'”
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