In turn, the politicians receive financial and other support from the enterprises which they subsidize and protect. This arrangement may be a virtuous circle for its beneficiaries, but is a vicious circle for the Israeli people as a whole. The technological revolution threatens to overturn the cozy relationship between politicians, bureaucrats, and Israel s corporate system. Young high-tech entrepreneurs don t need the state or its money. In their eyes, the government is the problem, not the solution.
Money inevitably leads to political power.
Even though Israeli high-tech firms are listed on Nasdaq, ordinary Israelis are reluctant to invest aggressively in the U.S. stock market. The reason is that overseas capital gains are subject to a 35 percent tax in Israel, whereas domestic capital gains are tax free. If Israeli Nasdaq firms were automatically listed on the TASE and remained free of capital gains tax, investors would rush out of the TA 25 into the new high-tech firms. Histadrut would find it increasingly difficult to retain the support of its members. Politicians would be forced to look to 25-year old Israeli capitalists for financial and political support.