The Start-up Nation owes its prized success, in part, to Israel’s many immigrants and the policies that welcomed them. Host Niv Elis tells the story of why the same immigration policy is now threatening Israel’s competitiveness as a high-tech giant. As debates about immigration and its value rage in the United States and around the world, the Israeli experience might serve as a useful guide.

Production: Niv Elis, Ari Plachta, Tammy Goldenberg and Itai Shelem

James isn’t exactly the kind of guy you would think of as a threat. He’s 25, sports a man bun and facial hair, and is really into his music. He’s American, and has been living in Israel for the past few years. But when he and his Israeli girlfriend Noam flew back to Israel after a visit to the US, James ran into some trouble at the airport.

When we came back, they told me to wait in a small waiting area.

James wasn’t sure why he had been stopped. By any standard, he is the kind of person any country would want to have. He has a degree in mathematics and started his first company in college. His second company, where he currently works, provides generic medication to people in the developing world. He first came to Israel because his company got accepted to a prestigious start-up accelerator here.

So James was surprised to be pulled aside at the airport. After about an hour, a woman came in and said she wanted to help him out.

And she goes into some room, where there are I guess immigration officials talking to each other, seemingly arguing about something, and she comes out 15 minutes later and is like ‘Are you Jewish?’ and I was like ‘no,’ and they told me I had to get out of the country in the next seven days.

You see, Israel is a Jewish democracy, and its immigration laws aim to ensure that the population remains mostly Jewish. Even though the country was built on immigration, that is, Jewish immigration, today, as James’ story illustrates, its restrictive immigration laws are making it harder for it to compete.

I’m Niv Elis and this is TLV1, where today we’ll be talking about how Israel’s immigration policies, the same ones that helped it become a start-up nation, are now threatening that status.

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Israel is a country of immigrants and refugees. Its population was just 600,000 when it was established in 1948, but today it’s grown to well over 8 million, fueled in part by an influx of 3.2 million immigrants.

Like a lot of places, the constant flow of newcomers caused tensions with the established residents.

There’s this famous Israeli TV sketch from the 1970s that pokes fun at the dynamics of immigration here. It starts with two Russian Jews arriving in Palestine in 1888, getting off a boat, and kissing the sand joyfully while local Arabs, played by the same two actors, curse about how everything’s about to go to the dogs. But then, two Polish immigrants arrive, same actors again, and get off the boats and kiss the sand while the Russians, who seemingly arrived moments before, begin cursing at them. Next, Yemenite Jews arrive to the scorn of the Poles. And Germans to the scorn of the Yemenites, and so on, and so on, and so on, with each wave of scorned immigrants quickly turning around to scoff at the next group, lament the government benefits they get, and the inevitable cultural decline they will bring. By the end, the newest bewildered arrivals simply join the crowd of protesting old-timers, yelling toward the empty sea before they even put their suitcases down.

But the fact is, many of the immigrants brought useful skills with them. Immigration’s positive economic effects of immigration may be clearest from the Soviet migration wave in the 1990s. You see, the Soviet Union had very strict laws keeping its people from leaving, so after it collapsed, about a million Soviet Jews made their way to Israel to start a new life.

Absorbing that number of new people was really challenging. At the time, Israel’s population was only about 4.6 million, so imagine that for roughly every 5 people already living there, a new one showed up from the former USSR. The government struggled to find them housing and teach them Hebrew, but it bent over backwards to ensure that there was a place for them. The effort paid off, in part, because many of the immigrants were really well-educated.

Here’s Mooly Eden, the former CEO of Intel Israel.

If you look at it there was 1 million immigrants, many of them experts in basic math, basic physics, electronics. I know that at Intel we have some brilliant processor architects, so no doubt, if you look at this immigration, the Soviet immigration, there was some great people, very talented people, who came over to Israel and definitely gave us a kind of an injection, a boost to our overall economy.

Israel’s high-tech sector is a crucial part of its economy. It accounts for about 15% of its GDP, half of its business exports and about a tenth of its jobs. The book “Start-up Nation,” which lays out all the reasons Israel became such a hotbed of tech innovation, devotes an entire chapter to immigration. The economic contribution of immigrants has been well-documented elsewhere. A report by the US Small Business Administration found that in 2007, immigrants were about twice as likely to start a business as US-born workers. But in Israel, where the government goes out of its way to attract Jewish immigrants, the rules for non-Jews are very different.

So when James and his co-founders finished their accelerator program here, they decided that they should stick around and open their R&D center. While his Jewish co-founder Dan had almost no problems getting a visa to stay and work in Israel, James was forced to leave the country for months at a time while getting things sorted.

The reason is the Law of Return, which was designed to make Israel a refuge for any Jew. Israel was created as a haven for Jews at a time when many countries were turning Jewish refugees away. In the Holocaust, Hitler went after anyone with a Jewish grandparent, so Israel made its policy a mirror image of Jewish persecution. It decided that anyone with a Jewish grandparent could be granted automatic citizenship.

Here’s Jennifer Schear, founding partner of Schear Immigration law firm, which deals with immigration issues here in Israel.

Getting people under the law of return is simple. You come in, you change status, within a month or so you have your visa and you can work wherever you want. So I’d say there’s major differences in the timeline and also the criteria that someone who’s Jewish or not Jewish need to meet in order to work. So the processes for both of these, for Jewish nationals it’s relatively simple. For non-Jewish nationals it’s relatively complex, and a more drawn-out process.

James says he understands the reasoning behind it.

I don’t have anything against the idea of a Jewish state, right. And with a Jewish state comes exactly what happened to me, and much worse things to other people, so I do completely understand the rationale, I understand the sentiment behind it, but I’d like to clarify that I’m not upset or angry about the situation. I understand it. But first of all for me personally it’s frustrating. I will say that when it comes to that idea of being more welcoming to outsiders, whether it be outside of a religion or a tradition or a culture or what have you, that’s something that I appreciate in general. So when it feels as if that might not be the case in all scenarios, then it’s something that’s a detriment to me.

While the immigration laws make a certain degree of sense in Israel’s internal logic, it can prove tough for businesses. When someone like James is trying to run an office, an office that has created Israeli jobs, being forced to live abroad isn’t ideal.

It’s obviously much harder to lead a team and also I think from the work perspective, it’s hard to lead a team remotely and you have to be able to go to those countries. I think the main thing for me was that it was just stressful. It’s an extra level of stress when you’re entering a country and you’re not sure if you’ll be let into the country.

And the situation isn’t limited to people like James. Here’s Jennifer Schear again.

It’s posing a huge challenge for companies, simply because Israel is considered the start-up nation, there are a lot of technology companies, there’s a lot of acquisition, there are lots of technology projects going on here. We’re a leader in tech, but we’re not really playing by the global rules of being able to transfer people in a normal way in a regular amount of time to get them in on time on those projects. I believe that it’s putting foreign companies off of doing business with Israel, ultimately.

Experts worry that Israel’s rigid immigration system is one of several issues making the country less competitive.

Eden: Today we are harvesting the fruits of trees that have been planted 20 years ago, you know, the right policies with respect to the academic role, the right policy with respect to encouraging technology companies to thrive, the right investment in education, many things.

Part of the problem is that Israel has been a victim of its own success. So many multi-national corporations have opened R&D centers, that the demand for engineers is just too high. But Israel’s education system hasn’t been able to keep up.

You know, the amounts of start-ups in Israel are growing almost exponentially, the multi-nationals, we’ve got 360 multi-nationals in Israel, that say we would like to harvest the talent as well, and we are proud of it. So if I’m looking, the demand has gone up and up and up, but if I look at excellent students that finish what we call “five-point math,” the highest level, in 2007 we had 12,800 graduates, and in 2012, just five years later, we’ve got only 8,800.

That doesn’t just effect foreign companies, it effects Israel’s homegrown market as well. This is Mira Marcus, a spokeswoman for the Tel Aviv Municipality.

Tel Aviv has the highest amount of start-ups per capita, and we also have the highest amount of engineers per capita. And because there are so many start-ups, there just aren’t enough engineers. And not only in that field, there aren’t enough designers, there aren’t enough marketing people, all these people are needed more and more. And why is there such competition for talent? First of all, because of the sheer amount of start-ups, but also because we’re seeing the biggest multi-national companies in the world are opening R&D centers in Tel Aviv: Siemens, Coca-Cola, AOL, Facebook, Google, all these offices are opening offices in Tel Aviv, and all of them also want the best engineers and talent. So here we have a small start-up, that has the best idea in the world, and they want the best engineer in the world to come work for them, but they have to compete with Google, and that’s very hard competition.

Since the 1990’s, the rate of Jewish immigration to Israel has dropped by almost three quarters. Meanwhile, the country issued about a third as many expert visas per capita as the United States. Marcus says that looser immigration laws could help Israel import talent, and help relieve some of the pressure.

If I have the best idea in the world, I might want to hire the best engineer in the world, and not just in Tel Aviv, and right now, because of strict immigration laws in the state of Israel, you can’t. You can practically only hire someone who already resides in Israel or someone who’s Jewish and is willing to relocate and he can get citizenship and a visa to work because he’s Jewish.

The so-called “Geek shortage” has sent the cost of hiring engineers soaring. According to Israel’s Central Bureau of Statistics, between 1995 and 2007, high-tech wages increased 38% faster than the average wage. Here’s Noa Ecker, from the Israel Innovation Authority.

First, salaries go higher and higher. Second, some projects can’t be executed due to lack of engineers, and it also affects the competitiveness of Israeli companies.

The high-tech industry has been turning up the heat on the government. This is Karin Mayer Rubinstein, who heads the industry group representing Israeli high-tech, the IATI.

In the industry’s opinion, if the gov’t will allow more and more employees to come from outside of Israel to get visas, even in the short term, it will do good for the industry and the start-ups are looking forward to get it, and we’re working hard on it.

The government has taken some measures to fix the country’s education system and make it easier to hire engineers from abroad, at least in the short term. But while everyone knows better immigration laws could help fix the problem, they also know that Israel’s Jewish character won’t allow it to open the door to non-Jewish immigration.

Rubinstein: I’d rather not to talk about the immigration policy. My opinion is that we will be very happy to see employees from outside of Israel come to Israel and work here. I know that the start-ups will be happy, the multi-nationals will be happy, but it’s the very very small part of the solution.]

Eden: I’m not sure we’re a very tempting country for immigrants. It was always the case that the main immigrants who came to Israel are Jews, and we have to make sure that we have to grow the talent from within, and I believe we have enough talent and great people to do it.

James thinks that even if the visa situation works out, or he and his girlfriend decide to get married, he says he might not be inclined to make a home here.

Honestly I don’t think that far ahead, but I do think there’s been a general distaste for the situation, and I think that it would be more on my mind if all my troubles with being here hadn’t happened. For me America has always – the idea that you can immigrate to America, legally or illegally, and become a citizen of the United States and forge your own path has always been a core idea of America to me, and it’s something that I value in America a lot. And now well, maybe something has changed, or things have surfaced, but certainly the idea that that’s not the case in Israel is something I find very unpleasant and unwelcoming and not necessarily a great attribute of a country.

That, says Tel Aviv’s Mira Marcus, is something that Israel will have to grapple with.

I think that the world today is becoming more flat and global, and Israel on the other hand is sometimes becoming more and more, sometimes, closed and segregated. And it’s really a big question that the younger generation need to ask ourselves. Do we want this place to be more cosmopolitan and international, and with people from all kinds and races and colors etc, or do we want it to stay very homogeneous like it is today. I think that today the gov’t of Israel is aiming it to be more homogeneous. It’s against the global trend but that’s something that’s up to the government to decide.

Israel, of course, is not the only country in the world grappling with immigration policy. Antipathy towards open immigration laws helped tip the British vote to leave the EU and elect President Donald Trump. Israel’s story is an example of how immigration can be seen as part of the solution.

As for James, he’s got a shiny new one-year visa, and is hoping to stick around in Israel and grow his company. But, if the visa falls through…

Well I guess at this point if I couldn’t get another one I would probably move to Ghana.

…the other country where his company has an office and hired dozens of workers. He won’t have any trouble getting a visa there.