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Intel Israel: The best and worst of new economy

KIRYAT GAT, Israel, May 14 (JTA) — Drive 15 miles southwest of the area where David slew Goliath, and an enormous complex faced in pinkish Jerusalem stone testifies to a new type of giant towering over Israel.

This is Fab 18, a plant opened last year by Intel, the world’s biggest semiconductor manufacturer, in the industrial zone adjacent to the poor southern town of Kiryat Gat.

It is here that Israelis see the best and the worst of their country’s new, technology-driven economy. Jobs are created, but the gaps between rich and poor have widened, as low-tech workers are not being integrated into Israel’s new job market.

Inside, the 75-acre facility is like a small city, complete with fitness room, infirmary and travel agency. There is almost a relaxed Californian feel here that contrasts with Israel’s usual bustle.

Casually dressed workers wearing brightly colored hard hats break for coffee in the tree-lined plaza. Engineers in airtight white bunny suits working in a sterile 30,000-square-foot “clean room” are quietly and diligently churning out silicon wafers, which contain Pentium 733 megahertz chips that power the world’s machines.

The Israeli engineers and managers here will soon be manufacturing $3 million of chips a day — or about $1 billion a year. They have been so successful that this month, Intel said it is considering Fab 18 — among several others in the United States and Ireland — for an expansion involving an investment of up to $3.5 billion.

It would be the biggest foreign direct investment in Israel, far outstripping Intel’s original $1.6 billion investment in Fab 18.

Yet although the existing plant has already created about 3,500 jobs, unemployment is still running high in Kiryat Gat, at 10 percent. Local politicians are hard pressed to explain why projects like these are good for the community. Many residents say Intel is actually widening socioeconomic gaps between rich and poor in this town.

“Intel has not yet managed to change the cycle of unemployment here, since people who have been laid off from textile plants cannot retrain for high-tech,” says Micha Gabay, deputy mayor of Kiryat Gat.

“But at the end of the day, Intel will be a blessing to Kiryat Gat and to the entire area. The people here do not always see the changes immediately. It takes long-term vision to see it.”

In the long term, a capital infusion of the scope Intel is discussing would create at least 2,000 more jobs. It would mean that an astonishing 10 percent of Intel’s current workforce would be located in the Jewish state, where it first invested in 1974.

Back then, Andrew Grove, currently Intel’s chairman, chased a promising young Israeli engineer named Dov Frohman back to Israel and set up a research and development facility in Haifa with five engineers and a $300,000 investment. In 1985, Intel built Fab 8 in Jerusalem, which now manufactures 130 products.

Today, even with Fab 18, Kiryat Gat looks as if it is situated directly on the fault line that severs Israel’s old economy — and its unemployed or low- paid workforce — from the new economy, with its increasingly wealthy engineers, managers and high-tech entrepreneurs.

Fab 18 towers over an industrial zone of steel mills, sugar processing plants and textile plants that have shut down as companies shifted manufacturing across the border to Jordan or Egypt, where labor costs are significantly cheaper. Most skilled workers and engineers at Intel here relocated to the area from other parts of the country.

Nevertheless, Intel Israel managers say the plant serves both as a tangible proof of Israel’s technological prowess and an incentive for the local community.

“We carried out this project faster, on target cost and with better yields than what is done in America,” says Maxine Fassberg, Fab 18’s engineering manager. Intel, she adds, is playing an important role in the community, with engineers helping the elderly and contributing to education.

Intel recently hired 73 of 75 young students from Kiryat Gat who participated in an Intel-enhanced school curriculum, with stronger emphasis on physics and maths.

“One of the problems in a place like this is that capable youngsters tend to leave the town,” says Fassberg. ” A program like this helps them stay.”

Some workers say Intel has changed their lives. Yossi Gal, manager of a small manufacturing line at Fab 18 had a similar job at a nearby air conditioning factory. He recently hired two Kiryat Gat graduates of the Intel program.

“I have gained an enormous amount personally, both from discovering a new world and seeing the differences in managerial culture,” says Gal, who lives on a nearby kibbutz. “I think it has also contributed to the whole environment here, in terms of encouraging people to strive for quality and excellence.”

However, of the 1,700 workers employed directly by Intel, and another 1,700 indirect jobs created in everything from catering services to construction, Deputy Mayor Gabay says only about 600 are from Kiryat Gat, a town of 52,000.

“Intel is a joke,” grumbles Shuki Azoulay, 25, who worked for a company subcontracted by Intel but was laid off when the project ended. “It has not helped improve the standard of living or the unemployment situation. It’s all just public relations.”

Hundreds of thousands of Israelis face a similar situation in the high-tech era. It is also one of the biggest challenges facing Prime Minister Ehud Barak, who came to power promising to create 300,000 jobs and reduce unemployment from about 9 percent.

Yet among the high-tech community, which is desperate for skilled workers, and among the low-tech job seekers desperate for a livelihood, there is a feeling that the government has no idea how to integrate workers like Azoulay into the new economy.

Israel debates high-tech tax breaks

Intel’s investment plans in Israel may spark a fresh debate over how the government should promote such projects.

The semiconductor giant built Fab 18 in the depressed town of Kiryat Gat after receiving a grant in 1995 from the government worth 38 percent of the total investment.

Israeli taxpayers financed $600 million of the total $1.6 billion.

The controversial grant was part of the government’s law for promoting foreign investment for approved projects.

Supporters said it would help attract more investments and create new jobs.

Opponents questioned the wisdom of backing a project that will generate billions of dollars in revenues to a multinational powerhouse.

Following Fab 18, Israel lowered these grants to between 20 and 24 percent of a total investment for priority zones like Kiryat Gat. However, even at this rate, the government cannot afford to finance a $3.5 billion project and has set up a special committee.

“We are very interested in the company continuing to grow here,” says Uri Stein, spokesman for Israel’s trade and industry ministry. “But an investment like this would wipe out our budget for several years.”

Other Israeli Trade Ministry officials assess that after the strong success of Fab 18, government assistance may not be the decisive factor in Intel’s decision this time.

Indeed, the Finance Ministry committee that recently proposed sweeping tax reforms suggested tax breaks for foreign investors be lowered and also recommended that Israel reconsider its policy on providing investment grants. The committee said it believes the “heavy flow” of investment in recent years is a sign that such grants may no longer be necessary.

But Hanan Achsaf, president of Motorola Israel, another multinational which generates $1 billion in revenues from Israeli manufacturing operations, warns it is way too early to eliminate government assistance.

“We should not underestimate the importance of government assistance,” he says. “Every country in the world wants foreign investment. It would be a big mistake to scrap government support.”

Kiryat Gat’s deputy mayor, Micha Gabay, agrees. “A plant like this that will receive massive government funding will return every cent it gets,” says Gabay.

“My hope is that most of the Intel workers will eventually be Kiryat Gat residents, and I believe that it will happen.”

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