By IPS Correspondents
JERUSALEM, Jul 2 2008 (IPS)

Alex Argov is now onto his fifth high-tech company. A serial entrepreneur, Argov’s latest product is an Internet-based telephone that scrambles messages, making it almost impossible to eavesdrop on a conversation.

An algorithm is used to encrypt the voice, explains Argov, as he sits in his Petah Tikva office, not far from Tel Aviv. In keeping with the informality associated with the high-tech sector, he is dressed casually, in jeans and an open-neck, short-sleeve cream-coloured shirt. His hair is tied in a ponytail and he sports an earring.

“We create a tunnel on the Internet that no one can see, like a black hole, and we send the voice through that tunnel,” he explained to IPS. “To decipher the call you would need seven super-computers working non-stop for 10 days. And if you change the encrypting every day then it’s close to impossible to crack.”

The Cryptone phone, as Argov has called the device, works on Voice over Internet Protocol (VoIP). It is meant for use within closed systems like the military, a spy agency or a company. Israeli security agencies are already using the technology, but Argov believes the real opportunity lies in the civilian, not the military market.

He sees banks, investment houses, insurance companies, big industrial concerns and even political parties who want to safeguard sensitive information as potential clients. There is already interest in his product in places like South America and Eastern Europe where, he says, industrial espionage is more common.

“More and more businesses are looking for ways to ensure secrecy,” says Argov. “They want to make sure that their competitors and even government bodies aren’t listening to their conversations.”

According to the Economist magazine, Israel has the most companies listed on Nasdaq after Canada and the U.S. And Israel is second only to the U.S. in the number of start-ups a country churns out.

Israelis created ICQ, the first Internet-wide instant messaging application. They also developed the firewall programme for computer protection.

Thanks to an Israeli company, by the end of the year, passengers on trans-Atlantic flights will enjoy wireless and cellphone capabilities, enabling them to surf the Internet, check their emails and even conduct a video conference. Israeli companies are also leaders in ‘cleantech’ innovation.

Israel’s high-tech success cannot mask deeper structural problems within the economy. Many traditional industries, like the textile industry, are struggling. And the high-tech success stories have also accentuated the gaping wealth gaps in Israeli society.

But there’s no doubting that high-tech has been a crucial engine in driving the Israeli economy, which has enjoyed over three percent per capita GDP growth in recent years, despite the Intifadah uprising and the war in Lebanon in the summer of 2006.

How then has Israel, preoccupied with existential threats and with a population of only seven million, become a world leader in high-tech? Highly skilled technology-based units in the military, in which young soldiers are often encouraged to experiment, mass immigration from the former Soviet Union, and the boom created by the Oslo peace process in the 1990s all helped transform Israel into a hub of high-tech ingenuity.

Argov, for instance, did his military service in an electronic warfare unit in the early 1980s. But he feels the immigration of large numbers of engineers and technicians from the former Soviet Union has been a far more influential factor in Israel’s high-tech success than the military dimension. “They brought a lot of knowledge with them as well as many ideas that they weren’t able to develop over there,” he says. “They did a lot to move things forward.”

Argov also points to the absence in Israel of more defined bureaucratic procedures that might exist in older, more established countries as an advantage when it comes to high-tech innovation. The fact that the high-tech sector is small – he estimates it at no more than 100,000 people – is also a plus. “Everyone knows everyone. This makes it easier to get new initiatives off the ground.”

But Argov also believes that there is something in the “Israeli character” that promotes entrepreneurship. “It’s an attitude of ‘Don’t teach me how to do it, I’ll teach you’.”

“Maybe it has something to do with Israeli hutzpa,” he adds, using a term that loosely can be described as a mixture of daring, boldness, gall and irreverence.

“Let me give you an example: If you order a steak in a restaurant in America and they tell you that the extras are either mashed potato or peas, you cannot ask for half a portion of mashed potatoes and half peas. They will tell you it can’t be done. In Israel, not only will they give it to you, but the next day they’ll be offering it to all their customers as part of the menu.”

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