What Do the Subprime Crisis and the Swords of Iron War Have in Common?

When we try to draw parallels between major historical events, it can feel as if we are searching for points of light in the dark. Yet sometimes, their economic and social effects teach us about the power of change and crisis to strengthen or weaken entire countries. In 2008, a severe global economic crisis broke out, beginning with the bursting of the real estate investment bubble in the US, which led to a dramatic drop in housing prices and mortgage defaults. As a direct result of the subprime crisis, all real-estate-related assets, including securities traded on the stock exchange, lost value. The crisis started a snowball that grew into one of the largest financial crises in modern history, a dramatic rise in unemployment rates, and a 45% free fall of the S&P 500 index, or, affectionately, "Snoopy".. yes, that index you're all rushing to invest in right now..

Fast forward 15 years: the war meets Israeli high-tech in the midst of an ongoing crisis that began in 2022, marked by falling interest rates, massive layoffs, and geopolitical events including the war in Ukraine and the US–China trade war. After all that fun, and a knockout in the ring, came the regime overhaul in Israel too, and of course the war, which is sending many to reserve duty and has driven away stability-loving, risk-managing investors at a record speed we have never seen before. Israeli high-tech is a cornerstone of the country's economy, and any blow to it is a blow to the entire Israeli economy. Corporate tax revenues, the stability of the shekel, and its contribution to keeping the state's foreign-currency reserves stocked are just part of the enormous contribution the high-tech industry makes to the Israeli economy. The damage to this industry is not just a business problem but a national problem that demands an immediate solution.

Our main focus, and rightly so, is on restoring security and caring for our hostages, our soldiers and our citizens. But we must not ignore the unprecedented economic damage taking place in Israeli high-tech, which directly and indirectly affects all of our pockets. The extreme contrast between everyday routine and moments of crisis is a reminder of how important stability and optimism are for entrepreneurship and innovation to flourish. The 2008 global economic crisis and the war in the Negev are a painful reminder that nothing is a given or guaranteed. And yet, out of the destruction we can discern sparks of hope and an opportunity for recovery, renewal and rebuilding.

This is a real test of the ability of the technology sector, which has become one of the main engines of the Israeli economy, if not the main one, to cope and recover. According to the Israel Innovation Authority's latest report from 2023, in 2022 the Israeli high-tech sector accounted for 48.3% of Israel's total exports, amounting to $71 billion. In December 2023, two months after the outbreak of the war, the figures plunged by 60%, the lowest in Israel in the past decade. You don't need to be an expert economist to understand that there is a real danger to the future of the Israeli economy and to tens of thousands of jobs across the country. This is a warning sign not only for Israel's economy, but also for the labor market, for social resilience and for the stability of the entire country. Without the high-tech industry, we can expect an ongoing decline in these areas.

Beyond the analyses and the blame, that crisis taught us about the need for deep reforms and safeguards that would prevent a similar crisis from happening again. The Americans learned the lesson and made significant changes that led to the market's recovery and to housing prices rising to new highs.

Minimizing the damage to Israeli high-tech is critical for keeping the state's foreign-currency reserves stocked, for corporate tax revenues, for strengthening the shekel and for protecting against runaway inflation, or simply put, for economic and political stability.

We can learn a thing or two from the Americans besides Starbucks and Shake Shack. To deal with the consequences of the subprime crisis and revive the market, the US government gave immediate financial backing to the institutions that had collapsed, as a necessary first step to stop the snowball, and carried out, tragically late, a series of reforms to correct past mistakes that effectively reduced the risk of such a crisis happening again. Today, almost 20 years later, thanks to the policy measures that were taken and the reforms, the results are clear: the market recovered, housing prices rose, and unemployment fell.

The question before us is not only how we deal with the current situation, but also how we prepare for the future. Will we learn from history and take determined, early steps to rehabilitate the technology sector? Will we use the knowledge and experience we have gained to rebuild in a smarter and stronger way?

To preserve Israel's standing as a high-tech powerhouse and secure its economic and social stability, we need a long-term recovery plan that includes government support, encouragement of entrepreneurship, and the development of new technologies. This is the time to show flexibility, creativity and innovation – the values that brought the Israeli high-tech industry to where it stands today. We must make sure that this industry not only survives the current crisis, but emerges from it stronger and more prosperous than ever.

For all of us to have a real chance of rebuilding the high-tech industry in Israel, like our sister on the other side of the Atlantic, the first step must be to define the engines for supporting and encouraging early-stage entrepreneurship as a clear policy goal and a national interest. We owe it to ourselves to restore governmental stability, redirect budgets and ease regulation in order to put the locomotive of the economy back on track, and the sooner the better. Israel now needs to take the same bold steps the US government took in 2008; the first step must be a fast and thorough rehabilitation of Israeli high-tech, with a focus on creating support frameworks for technology entrepreneurship. This could include regulatory relief, government investment in innovation, and promoting partnerships between the private and public sectors. In addition, it is important to understand that political and social stability is key to a successful economic recovery. Without it, the economic recovery may run into many difficulties and collapse at the moment of truth.