Tent City Dismantled 311.
(photo credit: ben Hartman)
Last august, Hurricane irene formed in the caribbean, sucked energy from warm
sea waters and smashed rain and wind onto america’s eastern seaboard. The
world watched as meteorologists predicted its path with remarkable accuracy,
giving new York city Mayor Michael Bloomberg plenty of time to prepare emergency
teams and warn residents in coastal areas to flee.
I envy those weather
forecasters. as an economist, i see a global storm brewing off israel’s shores.
But unlike the weathermen, i can’t predict either its timing or its path. all i
can do is offer a few doom-and-gloom observations, which hopefully will totally
miss the mark.
Overshadowed by the dramatic social protests, Palestinian UN strategy and turkish belligerence, a serious israeli economic decline has
begun. the quarter-to-quarter annualized growth rate of its gross Domestic
Product (gDP) has dived from 7.4 percent (fourth quarter 2010) to only 3.3
percent (second quarter 2011). The slump in business GDP (which excludes
government) was even more dramatic for the same period, from 9.1 percent to 2.0
The causes? These are an almost total halt in business
investment, a major decline in consumer spending and a sharp fall in the growth
of exports. israeli consumers and business persons are worried by what they read
and see on tV and are just not spending. even real estate prices have stopped
rising, for the first time in memory.
For the past two decades, it was
export growth that drove much of israel’s prosperity. That growth is now
endangered. a fourth of israel’s exports are sold to the united states and a
third to the 27 european union nations. Both the us and eu economies are
stumbling; and, as a result, over half of israel’s sales abroad are at risk.
Moreover, in the first half of 2011 Israel sold, officially, almost $1 billion
in exports to Turkey (and probably, unofficially, much more, since defense
exports to turkey are not fully revealed). With turkish Prime Minister recep
tayyip erdogan vigorously seeking (and gaining) adulation in the arab world by
attacking israel, those exports will doubtless fall.
generated a whopping $8.3 billion trade deficit in the first half of this year.
nor is the export threat purely cyclical. There is strong evidence that
the vein of export gold israel struck in its ICT (information and computer
technology) industry is played out, as india, china and other nations build
their stock of R&D engineers. What will replace ict? What is the long-range
plan for restructuring and reinventing high-tech? there is none.
The Tel Aviv stock exchange, a leading indicator, has dropped by 24 percent since
January 1 and the ta 100 index is now under 1,000 for the first time in years.
Industrial production fell by 4 percent in June (latest figure available), and
inflation in July was 3.4 percent (annual), nearly double what it was a year
All this bad news occurs against a backdrop of daily self-adulation
by Finance Minister Yuval steinitz, whose main refrain to the social protesters
has been to claim how well he led israel through the aftermath of the 2007-9
global crisis. and it is true that israel’s unemployment rate, 5.5 percent, is
far lower than america’s chronic 9.1 percent rate, and its government budget
deficit, 2.6 percent of GDP is less than a third of america’s. But the storm
clouds are gathering. i see no evidence that israel’s leaders are preparing for
Before World War ii, Winston churchill warned his nation and the
world of the nazi threat to world peace. nobody listened until it was too late.
after leading Britain to victory, churchill then sat down and wrote a stunning
six-volume history of the war; the first volume was called “the gathering
I’m no churchill. and i would prefer that my country prepare
itself for the gathering storm than write later about why it failed to do
so. But i’m afraid israel’s politicians are far better at forming
committees of inquiry about failure than taking action to forestall such failure
and create success. in this, they are not alone; their counterparts in america
and europe are equally gifted. The writer is senior research associate, S.
Neaman Institute, Technion.