Kandel: Growth, unemployment must remain top priorities

Strong growth and low unemployment must remain the government’s two top priorities as it tackles global economic turmoil, National Economic Council head Eugene Kandel said at the Presidential Conference in Jerusalem Thursday.

Speaking at a panel discussion on Israel’s economic tomorrow in light of the global financial crisis, Kandel said that everything apart from growth and unemployment were secondary issues. He explained that growth was needed in order to sustain yearly increases in defense expenditure, while maintaining a low unemployment rate was important because we forget how damaging it was when 11 percent of job-seekers were out of work one decade ago.

Kandel and former Treasury budgets director Ori Yogev both compared the current situation to that which faced Israel prior its last great domestic crisis in 2000-03. Kandel said the difference then was that “we had no problem explaining it,” due to the high debt-to- GDP ratio of around 100% and high unemployment at the time. Yogev was extremely pessimistic, saying, “this time we are really in crisis.”

Israel is enjoying a period of high growth and full employment, and the economy appears to be strong, “but the reality suggests otherwise,” Yogev said, warning that we could face a serious crisis by the years 2013-14 unless the government takes the right steps. He warned that it must ignore calls to burden the business sector with more regulations, and must instead use tools such as decreasing government expenditure and raising indirect taxes.

Kandel was a little less negative, saying that the collapse of the dotcom bubble in 2000 impacted Israel heavily because it was even more exposed than the US to troubles in that industry, but that we do not necessarily have to suffer the same amount as the US and Europe this time around.

“We are small, and we – mainly our private sector – adapt ourselves far more quickly to changing circumstances than other countries,” he said. “In the last four years we have grown despite the fact that 70% of our exports are sent to the USA and Western Europe. This is partly because of diversion of exports to emerging economies, and partly because we have diversified to other industries such as water.”

Prof. Dan Galai, Dean of the Hebrew University’s School of Business Administration, rejected talk of an imminent crisis, arguing that the Israeli economy is structured differently today than it was in 2000.

“We are small compared to the rest of the world,” Galai said. “Years ago the Israeli economy shut down when the Haifa port workers went on strike.

Today no branch of the economy is so dominant that it can cause the Israeli economy or its currency to collapse.”

Israelis have always questioned why the country cannot produce firms like Nokia, Galai said in reference to the embattled Finnish multinational communications corporation. “We should welcome this fact, because while it is great when your dominant company grows, it is a catastrophe when things go the other way. We should deter potential Nokias because it is bad to trust only one branch of the economy.”