Start Up Nation v. Stop Us Nation

Or, How The Government Could Scare Away Every High Tech Business From Israel

This week saw two very worrisome actions by Israel’s various branches of government that could have a very negative impact on Israel’s high tech industry and our economic growth. The first was the Supreme Court’s decision to stop the Israeli government’s deal with Noble Energy on developing the Natural Gas Reserves. The second is the legislation working its way through Knesset to limit the compensation of Banking and Financial Service executives at publicly traded companies. While there may be reasonable motivations behind these decisions, the decisions and processes themselves are symptomatic of Israel’s myopic and incompetent government officials who spend all day grandstanding and legislating what not to do instead of focusing proactively on what we all can do to make our economy better.

Upside down and backwards government legislation

I have no idea whether the gas deal struck by Netanyahu’s government is a good one or a bad one. Somehow, everyone else seems to know that it is either fabulous or horrific. What I do know is that the government struck a deal with Noble Energy many years ago, then it sent that deal to a committee to change the agreement after Noble found the gas at sea; then it sent it to another committee to change it yet again. Then, the government came to a 3rd or 4th deal with Noble Energy and now the Supreme Court has effectively nullified this deal.

No matter your particular position on how good or bad the deal is, the above description of the process is a fact. The lack of predictability of a regulatory regime is the single most effective way to drive business out of your country. Who wants to do business in a place where a deal is not a deal and you need to move a feckless government minister (Deri), and a regulator (Gilo) aside to do a deal for the third time? If the initial deal was a poor one for the State, that says everything about that government and its officials and nothing about the businesses. This is a government, bureaucracy and justice system that just says NO and whose judgement is deeply flawed. But it is The Government and it represents our country. So I want to know when someone will say YES, this is how you can develop natural resources in our country with a predictable taxation and regulation. I would not want to register my company in a country where regulation is changed as often as the ministers’ in a banana republic…er…the Knesset.

The populist limitation on Bankers’ salaries that is going through the Knesset now is even worse. This is not because the compensation differentials are not outrageous. They are. It is for two more insidious reasons. First, there are rumblings that these regulations will be extended to all companies traded in Tel Aviv. That is a great way to chase every high tech company off of the Tel Aviv Stock Exchange. Talent knows no borders and tech talent is in very short supply in Israel, and everywhere else for that matter. It is also the most productive talent in our country. Nobody in their right mind will register an LTD company in Israel when there is a risk, or even a perceived risk, that the populist Knesset members may, at some later point, change the rules around their compensation just because they are guilty of registering in Israel. This stupidity — or it’s perceived effect, it doesn’t matter — will cost the State tens of billions in future tax revenues and commercial activity.

I have been getting worried questions and phone calls from all around the industry asking what will happen next? Which industry will be targeted by the obtuse politicians and regulators? The calls are from entrepreneurs and tech leaders who see these proposed changes, who read the newspapers and then have no idea how their business will be impacted. All by itself, this regulatory aggression and ensuing uncertainty is exactly the damage that half-assed initiatives by shallow press-hungry politicians and bureaucrats create.

The banking compensation restrictions are yet another example of the government saying NO. Instead of issuing banking licenses to engender competition and thereby force banks to be competitive, they took out the Knesset stick and regulated compensation. This is ass-backwards. Competition inevitably lowers consumer fees (which are ridiculously high) and will naturally lower the profits of the banks and thereby lower compensation for executives. This is the way a healthy market economy works. However, currently, the government limits competition through licenses which keeps profits high and then regulates compensation and then wants to extend their litany of screw ups to other sectors! It speaks to the fact that almost no members of Knesset nor ministers have worked a day in their lives in the Private Sector. It shows they don’t understand that a thriving economy needs a light regulatory touch and deep trust.

I am sincerely worried that a day may come in which my fiduciary duty will force me to encourage Israeli entrepreneurs to register their companies in Delaware. I don’t want to do that. I am worried that foreign companies will find doing business here ill advised. None of us want that. I am worried that the bright people of Start Up Nation are just continually fed up with the mediocre bureaucrats and politicians in Stop Us Nation.

Michael A. Eisenberg: Six Kids And A Full Time Job

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VC, Israel, Internet, Family, @home, @work, @israeli, @politics, and lots kids

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