Start with one number: $111 billion. That is how much capital flowed through Israel’s technology sector in 2025—nearly four times the previous year, comfortably surpassing the giddy peak of 2021. By any normal accounting, this should be the champagne year, even if the war mutes any celebration. Whatever the case, nobody in the real economy seems to have gotten any party invitations.

Some subtle (and not-so-subtle) shifts suggest that our growth rate has slowed relative to peer tech hubs and  indications are that our gaps with global competitors have widened. High-tech’s share of GDP has been flat for two consecutive years. Startup formation is declining. The brain drain is accelerating. And the sector that was supposed to be the engine of Israeli prosperity employs about 10–12% of the workforce—leaving everyone else to contemplate apartment prices that would give a Manhattanite sticker shock.

The headline numbers tell the story. Of 260,000 people employed in Israeli tech, only 60,000 work for publicly traded firms. Half the employees of privately held Israeli tech companies are now based abroad—not just in sales, but in R&D, the function that was supposed to stay put forever. Bloomberg has reported fears of a “permanent exodus” of skilled elites, which is the kind of phrase you associate with fading states, not countries that might be prematurely running a $111 billion victory lap.

High‑tech contributed roughly NIS 317 billion to GDP last year—17.3% of the national total—virtually unchanged from 2023. The sector is getting richer even as its growth rate flatlines. Meanwhile, Israel’s GDP per hour worked runs 20–25% below the OECD average and 40% below the top performers. Israelis work longer hours than nearly all their peers yet produce less for each one—the economic equivalent of flooring the gas while stuck in neutral.

The reason is structural: Israel doesn’t have one economy; it has two. High‑tech workers generate about 160,000 dollars per worker in purchasing‑power terms, compared with 83,000 dollars in the domestic sectors that employ the vast majority. Milken Fellow Gilad Brand (now Lead Applied Research Economist at the Finance Ministry) has mapped what is essentially a dual economy under a single flag: a small, globally competitive tech enclave—a kind of gated penthouse economy—built on crumbling stairs of trade, construction, local services, and low‑tech manufacturing where productivity growth has stalled. The wall around this penthouse is remarkably solid—limited labor mobility, yawning skill gaps, under‑investment in infrastructure, and sheltered domestic markets that feel little competitive pressure to modernize. Innovation stays upstairs. Everyone else gets Silicon Valley prices on decidedly non‑Silicon Valley paychecks—as the cost of living keeps climbing.

There is, however, genuinely good news. When the Milken Innovation Center convened its first Financial Innovations Lab on Israel’s capital markets in 2014, the Tel Aviv Stock Exchange was quietly expiring. Daily trading volume had cratered by half, liquidity ranked 31st globally, and 95% of startups were being sold to foreign buyers rather than going public at home. The diagnosis was blunt: Israel was building world-class companies but lacked the financial plumbing to keep the value they created.

Of fifteen reforms proposed at that Lab, at least ten have been substantially enacted. TASE demutualized and listed itself in 2019. The exchange shifted to Monday–Friday trading in January 2026.........

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