Civilian knowledge industries and the ascendance of small and medium-sized states in world politics

Many developed states are working to improve their competitive position by creating knowledge industries that incorporate their national economy into global markets. Unlike traditional industrial development, knowledge industries rely primarily on intellectual capabilities and their harnessing to create knowledge. Secondary to the great powers, middle-power states have the greatest potential to develop competitive knowledge industries; however, a unique subset of technologically advanced small and medium-sized (SMS) states (e.g., Israel, Singapore, Sweden, UAE) challenges conventional middle-power theory by leveraging technology for economic and political influence. This article asks what SMS states can do to develop competitive knowledge industries that elevate their status toward middle power-like influence. Drawing on Kassimeris’s view that these states lack opportunities more than power, the article argues that SMS states operate with narrow margins for error due to scarce resources and trade dependencies. Focusing on Israel’s policy processes in satellites, cybersecurity, and AI, the authors contend that an enduring perception of existential threat fostered securitization of civilian knowledge development, rendering science and technology critical to survival and justifying increased government intervention to build sustainable knowledge industries and preserve critical knowledge. The Israeli path—achieving digital middle power status under resource and security constraints—illustrates how technology can augment foreign policy influence and reshape global power distributions. Examples include deepening ties with India and Japan catalyzed by Israel’s high-tech capabilities. The article outlines a literature review, a securitization-based theoretical framework, the research design, Israel’s national security principles, three sectoral case studies, and a discussion and conclusions.

The article reviews two main bodies of literature. First, science, technology, and international relations: it surveys work on how government policies and international environments shape technological development, innovation capacity, and competitiveness. It notes states’ struggles in winner-takes-all markets, the rise of national technology strategies, and comparative policy studies highlighting gaps between declared and implemented tech policies. A second strand examines national technology governance and its implications for global competition, showing governments as regulators, capacity builders, partners, and standard-setters. Large-scale public investments in human, digital, and physical infrastructures underpin US and Chinese leadership and the emergence of global tech giants that also serve national security needs. Second, the middle powers literature: despite broad agreement that middle powers wield notable regional and global influence, the category lacks a cohesive definition and includes diverse states. Traditional accounts emphasize soft power, economic strength, functional-behavioral traits, and constructivist identity perspectives. Recent work introduces technology as a defining element, proposing “digital middle powers.” The authors argue the role of technology remains under-theorized, especially for SMS states whose technological achievements complicate conventional classifications. The review motivates an inquiry into how securitization and state-led technology policy can elevate SMS states’ influence.

The study uses a theory-centric, process-tracing approach to examine how securitization explains Israel’s civilian knowledge industries development. Empirically, it analyzes primary documents and academic sources related to Israel’s science and technology policy and strategic environment, including Knesset committee protocols and reports, government policy papers, Knesset Research and Information Center and State Comptroller reports, task force conclusions, and leaders’ memoirs and biographies. The article selects three cases—satellite (telecommunications/space), cybersecurity, and artificial intelligence—representing different stages of technological autonomy since the 1980s. Evidence from policymaking processes is used to reconstruct sequences of events and test securitization’s applicability to Israel’s broader technological policy. The analysis focuses on political motivations rather than evaluating policy effectiveness and centers on the Israeli government’s role as securitizing agent; audience roles are acknowledged but not examined in depth.

- Securitization as a policy driver: A persistent perception of existential threat in Israel framed science and technology as critical to national security, legitimizing exceptional government intervention to preserve critical knowledge and build sustainable civilian knowledge industries. - Divergent motivations across sectors: Satellite development was triggered by a direct security need (loss of Sinai-based reconnaissance after the 1979 Egypt-Israel peace treaty), cybersecurity by emerging cyber threats that later translated into commercial opportunity, and AI primarily by opportunity-seeking to sustain high-tech leadership with indirect security benefits. - Satellite industry trajectory: Creation of the MOD Space Administration (1981) and Israel Space Agency (1983) enabled Ofek-1’s launch in 1988 with the Shavit launcher, signaling entry into the “space club.” However, inconsistent civilian support led to crises (loss of Amos-5 and Amos-6 in 2015), partial autonomy and foreign dependencies, and an ad hoc budgeting pattern. In 2022, space was designated a national priority and a 5-year plan to grow a sustainable civilian space industry was adopted, though budget sources remained unsettled. Defense space programs (Ofek series) continued, sustaining core knowledge. - Cybersecurity ecosystem success: Building on 1990s ICT growth (Yozma venture capital program; technological incubators; TELEM forum), the government established a National Cybernetics Taskforce (2010) and the Israeli National Cyber Bureau (2011) under the Prime Minister. Targeted programs—KIDMA (R&D grants for startups), MASAD (dual-use R&D with DDR&D), and academic capacity-building—linked defense needs with civilian innovation. Outcomes: in 2021 Israel attracted about 40% of global private cybersecurity investments, with roughly one-third of global cyber unicorns being Israeli. - AI initiative and gaps: A 2018 National Initiative for Intelligent Systems recommended treating AI as critical infrastructure and creating a critical mass; adoption stalled amid political crises and COVID-19. TELEM (2020) identified major gaps in human capital, compute infrastructure, regulation, and data access. Government Resolution 212 (2021) partially adopted recommendations, with the Innovation Authority leading pilots, R&D funding, and data-sharing collaborations. Resolution 173 (2023) renewed the initiative, but the October 7, 2023 war halted momentum. Israel’s AI landscape nonetheless includes nearly 1,500 startups and multinational R&D centers, with leadership in AI infrastructure technologies second only to the US. - Strategic-economic impact: Israel’s qualitative edge doctrine (self-reliance via human capital and advanced technology) translated into strong knowledge industries that enhanced foreign relations and influence (e.g., expanded trade and tech cooperation with India and Japan). Israel holds about 2.4% of the global defense industry, ranking 9th worldwide, reflecting sustained technological prowess. - Policy lesson for SMS states: After mitigating immediate risks, SMS states should leverage established technological postures to pursue global market opportunities—an approach Israel achieved in cybersecurity but failed to realize in civilian satellites due to inconsistent strategy and support.

The findings address the core question of how SMS states can build competitive knowledge industries to amplify international influence. Israel’s case shows that securitization of civilian technological domains can align national security imperatives with industrial policy, justifying sustained government intervention to preserve and expand critical knowledge. The three case studies illustrate varied threat-opportunity mixes that shape policy instruments: direct security triggers (satellites), dual-use threat-to-opportunity transitions (cybersecurity), and forward-looking opportunity-seeking (AI). This sequencing demonstrates how a small state can convert limited resources into qualitative advantages that strengthen foreign policy leverage and economic resilience. The results highlight the central role of state coordination (e.g., Prime Minister-led bodies, INCB/INCD, TELEM) in orchestrating academia-industry-defense linkages, capacity-building, and targeted incentives. Conceptually, the study underscores technology’s embeddedness in national power, suggesting that technologically advanced SMS states can function as digital middle powers, thereby challenging and refining traditional middle-power theory. Practically, it suggests that once immediate risks are addressed, SMS governments should proactively pursue global opportunities in sectors where they have already invested and demonstrated capabilities.

The article contributes a securitization-based account of how an SMS state can cultivate competitive civilian knowledge industries that augment its international standing. By tracing Israel’s satellite, cybersecurity, and AI sectors, it shows how framing technology as vital to national security legitimized government coordination, capacity-building, and selective market-shaping. The comparison reveals that sustained success depends on moving beyond initial risk mitigation to capture global opportunities—achieved in cybersecurity, less so in satellites, and in-progress for AI. The study also proposes refining middle-power theory to explicitly incorporate technology-enabled SMS states as digital middle powers, aligning the theory with contemporary power distributions. Future research could apply the framework to other SMS cases (e.g., Sweden, Singapore, UAE), explore additional technological domains, and examine audience dynamics in securitization to assess how domestic and external acceptance shape policy design and international cooperation.

- Scope: The analysis focuses on political motivations and securitization processes; it explicitly does not evaluate the effectiveness or economic impact of Israeli technology policies. - Case selection: The study centers on Israel and three sectors (satellites, cybersecurity, AI), which may limit generalizability to other states or technologies. - Audience dimension: While audience acceptance is acknowledged as important in securitization, the article leaves the conceptualization and roles of various domestic and external audiences beyond its scope, focusing primarily on government actions and narratives. - Data sources: Reliance on official documents, policy reports, and memoirs may reflect institutional perspectives and omit unpublished or dissenting views.