Government Support for Commercial R&D: Lessons from the Israeli Experience

Israel constitutes an interesting "laboratory case" of government intervention in the realm of R&D policy. The recognized scientific and technological prowess of the country was leveraged by extensive government support for commercial R&D projects. R&D policies proved to be highly responsive to changing circumstances, instituting innovative programs such as a government-sponsored fund that jump-started the venture capital market, the technological Incubators program, a program for the support of generic projects conducted by consortia of firms and academia, etc. The Israeli high-tech sector has grown remarkably fast since the mid-1980s, and it is quite likely that government policies significantly contributed to its success. In this paper we review in detail these policies as well as the challenges that confront them: the design of alternative allocation schemes for R&D grants in view of a rigid budget constraint, possible ways of departing from neutrality, the conditionality of production in Israel, the difficulties in setting a policy target for R&D spending, etc. We also lay out the more general issues and possible lessons for other countries that arise from the Israeli case: what should be the policy goal in terms of total resources devoted to R&D, to what extent these policies should target supply vs. demand in the market for R&D inputs, which types of support one can envision in the context of R&D policies, and how these may be affected by international spillovers.