Will Less Democracy Kill Israel’s Tech Sector?

TEL AVIV, Israel—Throughout his combined 15 years in power, Israeli Prime Minister Benjamin Netanyahu has weathered countless public protests and demonstrations. The most recent, against his new government’s planned overhaul of the country’s judicial system, may be different.

Alongside the tens of thousands of people who have already taken to the streets in protest, opposition leaders warning of unchecked government power, and legal officials predicting the end of Israeli democracy, there is a new and unexpected opponent: the business community, led by the vaunted Israeli tech sector.

Netanyahu and his ultranationalist and ultra-Orthodox allies won 64 seats in Israel’s 120-member parliament in last November’s election, forming arguably the most far-right coalition government in the country’s history.

That government is now preparing legislation that would undermine the Supreme Court’s independence and judicial review powers, widely seen as a step toward illiberalism in Israel. The new laws would allow legislators to overrule the court’s decisions with a simple majority and would place the judicial appointment process in the hands of the government.

Current and former legal officials have declared the plans “fatal” to the separation of powers and checks and balances between the various branches of government, with Israeli Attorney General Gali Baharav-Miara warning that the country would “be left with the principle of majority rule alone. That and nothing more—democracy in name only but not in substance.”

Israeli President Isaac Herzog, who serves in a limited ceremonial role, has warned of a “historic constitutional crisis,” saying this week that he was attempting to mediate a compromise to avoid an “all-out confrontation over the character of the state of Israel.”

“This powder keg is about to explode,” he added.

Analysts are clear, however, that there is no real political or judicial mechanism that can force the Netanyahu government to back down—save for, perhaps, a massive public outcry.

A wide coalition of civil society groups, former military commanders, LGBTQ rights groups, anti-Netanyahu activists, university students and presidents, former legal officials, lawyers, and others has, in recent weeks, organized growing street protests. Last Saturday night in Tel Aviv, some 120,000 people came out, along with several thousand more in Jerusalem and other cities, in the country’s largest demonstration in over a decade.

But the big surprise has been the role the Israeli tech community has taken in this anti-government movement, with industry executives speaking out publicly and bankrolling the demonstrations.

One prominent speaker at the rally last Saturday was Eynat Guez, the CEO of Papaya Global, a tech firm specializing in human resources management.

“No wealth holder will put money in a state where democracy is crumbling,” she told the masses who had gathered underneath the sleek glass-and-steel towers of central Tel Aviv. “The Start-Up Nation without democracy can’t exist,” she said, invoking a label often attached to Israel.

Economists are quick to point out that Israel would wilt without its tech sector. The industry accounts for more than 40 percent of all exports, a quarter of all taxes, and some 15 percent of GDP while making up roughly 10 percent of the workforce, according to government figures.

This week, the governor of the Bank of Israel, Amir Yaron, held an urgent meeting with Netanyahu, where he warned of the negative economic ramifications were Bibi to push through his judicial overhaul. One member of the Bank of Israel’s monetary board has already resigned in protest. (The bank is roughly equivalent to the U.S. Federal Reserve.)

In a joint op-ed published Sunday, two former Bank of Israel governors, Karnit Flug and Jacob Frenkel, detailed the material harm experienced by countries such as Hungary, Poland, and Turkey, whose governments have become increasingly illiberal.

“Weakening judicial oversight is liable to allow the government to advance measures that will lead to economic damage as a result of a possible infringement on property rights, investors’ fears of arbitrary and unpredictable decisions, and changes to the rules of the game in the absence of judicial oversight,” the authors wrote.

This week, more than 270 economists and former senior finance officials, including Nobel laureates and some who worked in previous Netanyahu administrations, wrote an open letter warning of likely “unprecedented damage.” A leading analyst at S&P Global Ratings, the global credit rating agency, has given multiple interviews warning of a possible downgrading of Israel’s credit rating.

Anti-government organizers seem to understand that this brewing revolt by elements of the private sector could carry more weight than ordinary street protests.

“According to a widespread assessment, the chance of stopping the systemic coup will come mainly from the side of the economy,” the committee coordinating the protests wrote in an internal email this week seen by Foreign Policy.

Such a revolt escalated in recent days, with Guez’s Papaya Global announcing that it would pull out all of the company’s investments in Israel. Two Israeli venture capital funds did the same this week, while a third—the U.S.-based Insight Partners, one of the biggest investors in Israeli tech—sent a letter to its portfolio companies in Israel expressing its support for the protest movement.

Also this week, several hundred tech firms and small businesses held an hourslong “warning strike” against the government in Tel Aviv and other cities, with employees taking off work and demonstrating outside their offices.

Netanyahu, at least for now, appears undaunted.

On Wednesday, he held a harried press conference on economic policy—the second in as many weeks—in an effort to quell the growing unrest. The prime minister described the dire warnings about the fate of the country’s democracy and economy as a “tsunami of lies” and said his judicial reforms would in fact strengthen both.

“Too much judicialization [i.e., meddling by the courts] is like sand in the wheels of the Israeli economy,” Netanyahu said, directly tying his judicial plans to economic growth.

Legal analysts and tech executives who spoke with Foreign Policy are adamant that Netanyahu, a graduate of MIT’s Sloan School of Management, understands the gravity of the situation. But Netanyahu stands to benefit personally from changes to the judicial system. Government ministers have made clear that there will be further steps taken to rein in the country’s legal and judicial system, which, according to analysts, could halt the ongoing corruption trial against Netanyahu.

Amir Mizroch, a former tech editor and current consultant to local firms, said the tech sector now feels under direct attack.

“For years, tech never got involved in politics—it was a complete bubble. No matter the wars, the money kept coming in, the companies kept growing, and the government left the industry alone,” Mizroch said. “But now the government wants to change the country’s entire operating system—the rule of law, the courts, liberal democracy, etc.—and you add on top of that the tough global economic climate, and so the industry views it as a massive assault.”

Gil Pekelman, a leader in the protest movement and the CEO of Atera, an information technology management company, agrees. On the sidelines of the warning strike this week in Tel Aviv, he laid out to Foreign Policy a grim scenario if the Netanyahu government implements its plans.

Foreign investment would stop, as would the sale of Israeli tech companies to foreign investors—known in Israel as an “exit.” “What crazy person would want to buy a company in an autocratic country with no checks and balances,” Pekelman said. And the top Israeli talent would simply emigrate.

“Living in a country that turns more ultra-right and ultra-religious, with no legal protections for minorities like the gay community or women, will be impossible for them. They won’t want to raise a family here,” he said.

Pekelman’s foreign investors were already calling him with concern about the political and legal upheaval in the country. “I told them it could take two weeks and we’ll be an autocracy,” he said, emphasizing the speed with which the Netanyahu coalition could pass the relevant legislation.

He vowed to “do whatever it takes, for as long as it takes,” to stop the government. “Tech will respond like tech knows—surprisingly, creatively, strongly. We won’t take this lying down.”

In Atera’s offices high above Tel Aviv’s Rothschild Boulevard, the floor-to-ceiling windows look out on the wealth and prosperity that Israel’s tech sector helped build on the Mediterranean: the shimmering commercial towers, the luxury residential buildings, the construction cranes everywhere.

“All of this could disappear,” Pekelman said. “But it’s too great a country to destroy.”