R&D generates significant revenue, but manufacturing capabilities are the real backbone and the truly large source of wealth.

Israel has built a global reputation on innovation. But while the United States and Europe are investing trillions of dollars to bring advanced manufacturing back to their territories, Israel continues to sell ideas and manufacture abroad. This is a strategic miss. R&D is the brain. Manufacturing is the heart.

Israel excels in algorithms and exits, but we have forgotten a basic principle: the higher you move up the value chain, the greater the profit. The value of intellectual property is orders of magnitude lower than the value of the final product. R&D is a fast engine; manufacturing is a deep, stable engine with irreplaceable national value.

A country can be brilliant and still vulnerable. Geopolitical crises and supply chain disruptions have proven that countries without local manufacturing are overly dependent on others. Israel has experienced this firsthand: dependence on imported ammunition during wartime was a warning sign. The Prime Minister’s call for local production reflects recognition of this dependency.

Local industry has not declined due to weakness, but because of an unsupportive environment: lack of proper government support, burdensome regulation, high energy costs, and a shortage of technological manpower. The result: factories relocate abroad, industrial zones turn into real estate projects, and manufacturers import because there is no economic incentive to produce locally.

The world has understood this. Israel has not - yet. Tim Cook put it simply: advanced manufacturing is a concentration of deep engineering skills, not a commodity. And once such capability disappears, it is difficult to rebuild. Professor Stanley Fischer warned about this a decade ago: an economy that does not manufacture struggles to grow sustainably.

Meanwhile, the United States is investing tens of billions through the CHIPS Act, Europe has set a target of 20% industrial share of GDP, and China has been systematically building its manufacturing capabilities for 40 years. The direction is clear: local industrial manufacturing leads to less dependency and greater sovereignty. Israel, at the moment, is moving in the opposite direction.

Israel has world-class technological knowledge and growing global demand for both defense and civilian solutions. If we combine Israel’s intellectual strength with advanced local manufacturing - especially in defense, but not only - we can evolve from a supplier of ideas into a full-scale manufacturing player.

We have already proven this is possible: in water technologies, cybersecurity, and defense sectors. When there is supportive policy, Israel knows how to win. If multinational companies that establish R&D centers are also required to establish industrial production centers, Israel could take another leap in GDP and productivity.

Advanced industry is not “low-tech.” It is Industry 4.0 - a combination of artificial intelligence, automation, and precision manufacturing.

To establish efficient industrial manufacturing, three steps are required:

1. Reintroducing engineering-industrial education in schools.

2. A multi-year national program to promote advanced industry at a significant scale (tens of billions).

3. Reducing regulatory burden and energy costs for the industrial sector

If Israel does not invest now in manufacturing infrastructure, human capital, and a supportive environment, we will find that at the critical moment we have an excellent brain - but no hands to build the future.

This is no longer just a matter of growth. It is a matter of independence.

The writer is chairman and controlling shareholder of Klil Windows.