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New Nonprofit Aims to Boost Jerusalem’s Ailing Economy

October 25, 2004
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Although Jerusalem boasts some of the world’s greatest religious and historical treasures, it remains the poorest major city in Israel. But now, a group of investors, academics and high-tech entrepreneurs is working on a plan to jump-start the capital’s economy.

For StartUp Jerusalem, the name of the game is creating “clusters” of industry — local concentrations of interconnected businesses and institutions that can stimulate job creation and growth.

Modeled after economically thriving cities that have focused on particular sectors to boost their economies — such as bio-tech in Boston and aerospace in Houston — StartUp Jerusalem hopes to attract investment and prosperity by honing in on the city’s strategic assets and concentrating them into clusters.

“This can be successful,” said a professor at Harvard Business School, Michael Porter, whose ideas serve as the basis for the organization’s work.

“When people come together with a clear strategic framework,” added Porter, an internationally renowned expert on strategic competition. “I’ve seen transformations.”

The group’s organizers are planning to focus on creating three major clusters: a health and life-science cluster including bio-tech and pharmaceutical companies; a collection of outsourcing businesses focusing on call centers, and a tourism and culture cluster that would capitalize on Jerusalem’s unique assets as a religious center for Judaism, Christianity and Islam.

It could take years to lift the struggling city out of poverty. About half its residents do not work, average salaries are low and more than a third of Jerusalemites live below the poverty line.

On top of that, there is a mass flight of educated young people from Jerusalem — some 7,000 Jerusalem residents are leaving the city every year, more than half of them with university degrees.

Jerusalem has also been the city hardest hit in the intifada, a target of repeated bombings of city buses and cafes. The violence has kept tourism down, once one of Jerusalem’s main sources of income.

As long as the security situation remains unstable, some question the city’s ability to attract investment no matter how many economic initiatives are launched.

Furthermore, some experts ask whether or not Jerusalem — a city where many of the employed work in government or university jobs in the public sector — can supply an adequate private sector workforce.

“There are attempts to push industry and high-tech, but it is just not clicking,” said Rafi Melnick, a professor of economics at the Interdisciplinary Center in Herzliya. “It is possible to help Jerusalem,” he said, citing new high-tech parks in the city. “But this is all on a small scale, it is not something that can change the personality of the city.”

The bulk of Jerusalem’s unemployed are fervently Orthodox Jews and Arab women — two sectors that traditionally have not joined the workforce.

Maya Choshen, a researcher at the Jerusalem Institute for Israel Studies, a think tank that deals with issues concerning Israel’s capital, said efforts by those at StartUp Jerusalem are welcome, but much of its success will depend on how much cooperation it can secure from city hall, the government and others.

Referring to reports of tension between Jerusalem Mayor Uri Lupolianski and Nir Barkat, StartUp Jerusalem’s founder and opposition leader of Jerusalem’s city council, she said all parties in Jerusalem, “need to find a way to cooperate and work together.”

A Jerusalem city spokesman, Gidi Smerling, said the mayor’s office has yet to be approached about the StartUp Jerusalem initiative but would be interested in hearing more about it.

Barkat, a former high-tech powerhouse who once chaired the hugely successful security software company Checkpoint, ran for mayor against Lupolianski and lost.

“There is only one Jerusalem in the world,” Barkat told a packed audience at a conference Oct. 18 launching the nonprofit organization. “But the question is, are we really using the full potential we have?”

He said he and other concerned Jerusalem residents in the business world started the group because “we wanted to think out of the box — what could we do as entrepreneurs to make Jerusalem successful?”

Finance Minister Benjamin Netanyahu supports the group’s approach.

“This is real and can produce real results,” Netanyahu said. “If you do not compete, your poverty grows.”

Supporters of the imitative pinpointed several assets working in Jerusalem’s favor, including the large amount of research money that comes into Hebrew University; the city’s top-notch hospitals, leaders in fields such as cardiology and genetics; the diverse language skills of the city’s residents, many of whom are immigrants, and the city’s unique religious sites.

“Right now, Jerusalem has no image when it comes to economy. We need to build a business case for Jerusalem,” said Porter.

The idea of creating a cluster based on outsourcing and business services derives from the fact that Jerusalem is replete with native speakers of languages other than Hebrew, said Jafar Sabbah, who is managing the cluster for StartUp Jerusalem.

Although the city cannot compete head-to-head with call-center powerhouses such as India, proponents say it can fit a niche for higher-end clients looking for better quality service and workers who have a cultural affinity with the customers they are serving.

For example, Sabbah said, a call-center employee in Jerusalem who is originally from New Jersey will probably have better luck selling car insurance to a customer in New Jersey than his counterpart in India who may never have owned a car and who is unfamiliar with the nuances of American culture.

Sabbah, a lawyer with master’s in business administration from eastern Jerusalem, said the call centers are a potential employment boon for Arabs in the city who could work with clients across the Arab world.

Porter repeatedly stressed the importance of the cluster. “If you can build the concentration, you can achieve extraordinary levels of production,” he said.

Encouraging investors and participants at the of StartUp Jerusalem launch, Steve Wesley, the California state comptroller and a former vice president of eBay, cited the model of San Diego — which went from a “sleepy naval city” to the third-largest life sciences center in the United States — as a potential model for Jerusalem.

Guy Rolnik, the editor of Ha’aretz’s business section, was encouraged. “Every initiative to take proven tools and use them in Israel is very welcome,” he said.

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