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Bennett gives 'Jpost' an inside look at the local economy
By JUAN DE LA ROCA
16/04/2014
A one-on-one interview with Economy Minister Naftali Bennett about free market, hi-tech and unemployment.
 
Economy Minister Naftali Bennett has the distinction of being the only head of the Economy Ministry who has had practical experience in running an industrial enterprise. He founded a successful start-up company called Cyota that developed anti-fraud technology, which was subsequently sold for $145 million. His appointment to the Economy Ministry (formerly called the Ministry of Industry, Trade and Labor) was warmly received by members of the business sector, who were well aware of his commercial track record. 

As a successful businessman, Bennett believes in a free market economy in which private enterprise is the engine of growth and individuals can give full rein to their skills and potential. While being a strong proponent of the free market concept, Bennett is also in favor of a tempered version where the less fortunate sectors of the population receive generous government assistance. 
 
He also believes that the way to fight inequality is to create a truly equitable education system in which all children, regardless of the economic circumstances of their parents, can receive a good education. 
At present, the local economy appears to be losing some of its dynamic impetus. Recent figures published by the Central Bureau of Statistics indicate that the while the economy is still growing, it is growing more slowly than in previous years. But the economy minister is not worried.
 
"The figures show a slower rate of growth, but the causes are not home grown,” says Bennett. “They are caused by the fall in exports, which are caused by the economic downturn in Europe and, to a lesser extent, the US. There seems to be an improvement in the economies of Europe and the US, and this will ensure that our exports will recover. Despite the very strong shekel and the current state of global trade, exports are holding their own. This means that we have good products at competitive prices, and demand for our products is there. When the economy recovers and demand increases, demand for our products will increase as well,” he says.
 
“I want to add that the science-oriented industry is the growth engine of our economy. The figures published for the last quarter of 2013 show that this sector of our economy is very strong, very dynamic," he says.
 
But the science-oriented industry is having difficulties. The chief scientist of the Economy Ministry says that his budget is insufficient. And the VC funds are having difficulty raising money for start-ups, which are the grassroots of the science-oriented industry. Are you worried?
No, I am not. There is no shortage of money to finance start-ups. Any start-up with a good technology and a potential market will have no problem finding funding. Israel has made a name for itself for the quality of its technologies and its marvelous ability to develop new technologies. We are an innovation powerhouse, and overseas investors are investing large sums of money in the local science-oriented industry. I make it a point to attract foreign investors from countries such as China and India. China has vast sums of money to invest overseas, and I am happy to say that some of that money is finding its way to Israel in general and the science-oriented industry in particular.
 
In the science-oriented industry, there seems to be a lack of vision because start-ups are sold as quickly as possible. There seems to be no desire to wait until a small start-up has developed into a large, strong company. We seem to have evolved from a start-up nation to an exit nation.
Israel is very good at innovation and entrepreneurship and less good at creating large companies, such as Checkpoint. The science-oriented industry in this country is revolving in nature. Entrepreneurs establish a company, sell it at some point, and with the money from the sale they establish another start-up company. Some of the employees who gained experience working in that particular start-up set up their own start-ups. This is a very positive development. 
There are other cases where a start-up was sold overseas, and the new owners retained some of their operations in Israel. My former company is a good example. When we sold our company overseas, we had 120 employees in Israel. Now that same company, though foreign owned, employs 400 people. So as you can see, that revolving process has its advantages.
 
But it also has its disadvantages. Some claim that it deepens the social divide because a large science- oriented company such as Teva or Nice has industrial facilities, but a start-up company does not. An industrial company can employ people with low levels of education, while a start-up company can employ only highly educated personnel, such as engineers and programmers.
That is true. But when a start-up industry develops, it creates other circles of employment such as restaurants, catering and cleaning. The issue of employment is something I am deeply involved in because is undergoing major changes. 
With regard to the connection between the science-oriented industry and employment of the less educated, I believe it has a big role to play. Not everyone can become an engineer or a programmer; but with our innovative abilities, we can develop technologies that can help low-tech companies, such as textile or food manufacturers, improve and simplify their production lines, making the production process less expensive and more efficient and make products of a higher quality. This way, the products can compete better in world markets, and we will have efficient and competitive low-tech production facilities that can provide employment to a wider sector of the workforce. These factories, equipped as they will be with the latest equipment, will be able to produce high-quality goods that will fetch good prices, increase the profitability of the companies, and enable them to pay their employees a good salary.
The whole issue of employment is critical for the well-being of the state. Long-term GDP growth is closely connected to our ability to expand the workforce to include Arab women and haredi men, who are very poorly represented in the labor force. We are trying hard to remedy this.
The unemployment rate in Israel is very low: 5.8 percent of the registered labor force. Despite this low level, the employment environment has been undergoing dramatic changes in the past several years. Thirty years ago, it was not uncommon for a young man or woman to find employment with a production company, a service company, a bank or hotel and expect to be employed for the rest of his or her working life. This is now a thing of the past. The fast tempo of change in the business world has affected job security. There is no job stability for the individual, and that is something we must all take into account. The rapid level of technological change also means that a person’s trade or expertise may become obsolete at any moment, which means that the potential of being dismissed is ever-present.
In Israel, we have the problem of low salaries, According to the Bank of Israel’s 2013 state of the economy survey, 25% of those employed receive the minimum salary specified by law or less. We have now improved the employment terms of one of the weakest groups of employees, cleaners who work for subcontractual employment companies.
As I said, we are deeply involved in including haredi men and Arab women in the workforce. We know they have cultural issues that prevent them from working; consequently, we have created a number of special employment centers that will help these people find suitable jobs. 
We have a program called the Voucher Plan whereby the Economy Ministry issues vouchers for hundreds of vocational schools that will enable haredi men to acquire a profession. We also have aid and government programs for Arab women to encourage more of them to enter the workforce. The goal is to double their employment rate from 25% to 50% in five years. 
Increasing the number of employed will decrease poverty, and that in itself is a good thing. I consider any steps taken to decrease the socioeconomic divide important because inequality creates instability; and in the geopolitical situation in which Israel finds itself, that is something we cannot afford.  
 
If the employment environment is unstable, it means that many will find themselves unemployed, with skills that are obsolete. How do you solve this problem?
Such people will have to take a course in a profession that is adapted to their abilities and level of education. Moreover, it is in demand. This can happen a few times during one’s working life, so one should be prepared for such a thing to happen. These people could also take the initiative and start a business of their own. At the ministry, we are very supportive of newly unemployed people’s establishing their own enterprises. We have set up a special fund of NIS 3 billion for those who want to set up small businesses of their own, which are administered by commercial banks. Those who want to set up a business submit a business plan to the Economy Ministry. To date, 50% of the applicants have been approved. Once a person is approved, he or she can go the relevant bank and obtain a loan that bears an 85% government guarantee. 
We are receiving applications all the time. When this fund is depleted, we will set up another one. There will always be money to finance the creation of small businesses.
This is very popular with Arab women, who can create a business and work from home. It is also very suitable for new olim with entrepreneurial skills. Setting up a small business has its risks, but it also has its rewards.
 
Your program is very free market oriented, but Israel is not a free market economy because there is no free-market competition.
It is not only a question of free-market competition; it is also a question government regulation. We are working hard to remedy the issues of an excessive regulatory regime and the lack of free-market competition. In 2013 we managed to stop further regulatory legislation, and this year we intend to revoke some of those regulations and liberate business from some of the more irksome regulations.
With regard to competition, we are working to extricate the economy from the stranglehold of over-centralization and the lack of true competition. We have broken the monopoly of Nesher in the cement market and are in the process decentralizing the food market to make it much more competitive. When we compare prices in February 2013 with prices in February 2014, we can see that prices are decreasing.
 
The exchange rate of currency is causing great hardships to exporters. Can it be regulated? 
The problems of the export industry are only partly due to the exchange rate. They are also caused by the economic downturn in the US and Western Europe, which constitute more than two-thirds of our export trade. There is very little we can do as far as the exchange rate is concerned because exchange rates -- and that includes the shekel -- are determined by the global money markets. And we cannot influence the global money markets with a combined daily turnover of nearly $4 trillion. The best way to help exporters in these circumstances is through aid that will somehow offset the effects of a very strong local currency on our export trade.
The best way to offset the effects of the weak economies in Western Europe and North America is by diversifying our export trade and decreasing our dependence on our traditional markets. I am trying hard to increase trade with the BRIC [Brazil, Russia, India and China] countries. For that reason, I am increasing our trade representation in China and India, even if it means reducing trade offices in the West. India and especially China are global economic powers. They are not only vast markets for our exports but also a source of investment funds.
 
 
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