JVP Chief Erel Margalit: ‘Judicial Reforms Creating Investment Hesitation, Bad for Business’  

Controversial legislation to overhaul Israel’s legal and judicial systems, parts of which passed first Knesset reading, ‘harming Israel’s social fabric’

The Israeli government’s proposed judicial reforms are creating hesitation among investors and represent a “big threat” to the high-tech industry in the country, a leading investor and entrepreneur has warned.

The controversial legislation, which would overhaul Israel’s legal and judicial systems, has drawn the ire of many in the tech sector, who believe that it will lead to capital flight and brain drain.

Erel Margalit, founder and chairman of JVP and Margalit Startup City, has emerged as one of the tech industry’s leading voices against the legislation.

“We’re saying, no, no to dictatorship and yes to democracy because in addition to the social impacts, which are terrible, it’s also a big threat to the high-tech industry in Israel,” Margalit told The Media Line. “It’s a big threat to the goodwill that exists around the world because people do business with countries that they like to do business with.”

In a stormy legislative session that continued late into the night until the early hours of Tuesday, the Knesset – Israel’s parliament – passed the first reading of parts of the reform. If these bills pass a second and third reading, they would change the makeup of the Judicial Appointments Committee, giving any ruling government coalition an automatic majority. They would also prohibit the Supreme Court from ruling on appeals against Basic Laws.

Other parts of the controversial bill are slated to be brought before lawmakers at a later date, including a clause that would grant the parliament the power to override Supreme Court decisions with a simple majority of 61 out of 120 Knesset members.

Tech workers take part in protests against the Israeli government’s judicial reforms on February 20, 2023. (Dario Sanchez/The Media Line)

But even before the reforms become law, companies and investors already have begun to withdraw their money from Israel. In fact, a report in the Calcalist business news site said that private clients and companies have transferred $3 billion out of the country in recent weeks.

“Companies are not even making it political,” Margalit said in response to a question about capital flight. “When they have a large amount of cash that they just raised from international investors, they want to put it in a place that’s safe,” he explained.

“When Moody’s, Bloomberg and different rating agencies are beginning to talk, when investors from pension funds in Finland or sovereign funds in France or in Singapore are asking: ‘What does this mean to the business,’ it means that there’s a question, and if there’s a question, there’s a hesitation,” he said. “Hesitation at a time of economic and geopolitical crisis around the world is bad for business and is very dangerous.”

Tens of thousands of Israelis gathered in Jerusalem on Monday to protest what they view as a judicial coup. Tech leaders from around the country – including Margalit – chanted pro-democracy slogans and gave speeches warning that the Startup Nation is in peril.

Many of the tech workers who spoke to The Media Line said that they were concerned not only for the future of Israel as a democratic state, but also for the tech industry as a whole and their jobs, which they believe are at risk.

“This is not a good sign for stability,” said Barak, a software developer attending the protest. “This is not where investors will put their money and everyone should ask themselves: [Would] your investors put their money in Russia, Hungary, Poland or Turkey right now?”

Others echoed those sentiments.

“We’re afraid for the future of our democracy and we fear for the future of our industry, the impressive high-tech industry in Israel,” Or, a program manager at a tech company, told The Media Line. “It took us 30 years to establish this impressive and amazing industry and we feel that this so-called reform is now putting our future in jeopardy.”

Despite ongoing protests and calls for compromise, the Netanyahu-led government has shown no signs of slowing down with the proposed reforms.

For Erel Margalit, the damage being done to the country and the economy cannot be understated.

“We had the first intifada, the second intifada and we overcame wars in Gaza and in Lebanon,” he said. “We built the high-tech sector when things were difficult, but we were working together as Israelis, Jews, Arabs, secular and religious in order to hold this country together.”

“We’re saying to Netanyahu: ‘We’ve built a major economy here,’” he continued. “What you are doing is harming the economy and the social fabric of the state of Israel. We’re telling you: Stop because this country is so important. Zionism, the State of Israel, was the answer to dictatorships in Europe after World War II.”