As Israel’s 68th Independence Day approaches, we can look back at our achievements with pride, and look forward to our future with cautious optimism.
The Israeli economy has grown 180 percent over the past 20 years, while our population has increased by only 45%.
Our debt-to-GDP ratio is steadily falling, unemployment is lower than the OECD average and more and more Israelis are entering the workforce every day.
Our optimism regarding the bright future of the Israeli economy is based on a number of Israel’s relative advantages, namely: • Technology – Israel spends more money per capita on R&D than any other country in the world. 140 out of every 10,000 citizens work in R&D and cyber security.
• Exports – In a study carried out by Global Entrepreneurship Monitor, Israel was ranked the top country for export-oriented entrepreneurial activity.
• Demography – Israel has the youngest population of any OECD country (median age 31 and average age 42), the third most educated population that is growing faster than most other countries, and a positive migration rate.
• High credit rating – Israel has an extremely high credit rating, in part because it was never in arrears on debt payments to suppliers or foreign lenders.
It should be noted that in 1951, Israel’s foreign currency reserves dropped almost to zero. Some officials recommended declaring a moratorium, but finance minister Eliezer Kaplan and his director-general David Horowitz (who later became the first governor of the Bank of Israel) convinced prime minister David Ben-Gurion not to do so. Instead, a new economic policy was established in the form of Israel Bonds, advanced reparations talks were conducted with West Germany, government spending was no longer covered by the uncontrolled printing of cash, and a balanced budget was implemented, mainly by raising taxes and bringing about the depreciation of the shekel.
In its early years, the Israeli economy was characterized by an extremely high level of government intervention.
Of course, it was absolutely crucial for the government to invest heavily and for the long term in such a young country. And of course, if a country wants to prosper and develop, it must take risks, but only calculated risks, after it has carried out lengthy examinations of all the relevant issues. In the early years of the state, Israel absorbed hundreds of thousands of new immigrants, and spent enormous amounts of money to build roads and factories, with an emphasis on labor-intensive industries, such as the Ashdod Port, the National Water Carrier and Dead Sea Works.
In order to survive, the Jewish people were forced to develop a unique ability to adapt quickly to changes without forgoing our traditions. We succeeded in adapting ourselves to our new surroundings, while at the same time striving to change our environment.
These unique qualities have been passed down in our DNA. This desire and ability to create innovations, which has been transferred to us from our forefathers, is one of the reasons why the Israeli economy has been so successful over the past few decades.
We have been imbued with the ability to succeed and our government has enabled Israeli businesses and banks to develop in a competitive environment that is relatively free of government intervention.
Over the years, Israel’s business leaders have learned – often the hard way, i.e. after painful failures – that most of Israel’s successes have been private businesses that were given the freedom to grow. And most of our failures have been ventures in which the government showed excessive intervention.
Some of these failures, however, led to positive results since the challenges were interesting and exciting and the people involved learned so much along the way.
They were then able to apply this knowledge to other endeavors that in the end were successful.
The Israeli economy is quite small, and so in order for Israeli businesses to succeed they must strive to penetrate global markets. They do so by relying on their Israeli DNA and our high-quality workforce. Israel has already proven its ability to take advantage of our accumulated knowledge by developing some of the leading technologies in the world in the fields of irrigation, solar energy, desert farming, pharmaceuticals and medical technology. Israel expects to continue to excel in these and other fields in the coming decades.
The most profitable sector in the Israeli economy is the one that is the least regulated: high-tech. In my opinion, a significant factor in the incredible success the Israeli high-tech sector is that it has enjoyed relative freedom from government regulation compared with other industries. This freedom has allowed the high-tech industry to break through barriers more easily. That is not to say that Israel has not shown great innovation, talent and dedication in more traditional sectors, too.
Throughout Israel’s short history, we have managed to build a cadre of staff and managers who have an extremely high feeling of commitment and sense of solidarity compared with other countries. As a result, we must put our full trust in the management and board of directors’ of Israeli businesses since their level of commitment is generally very high. We must not make the mistaken assumption that increasing intervention will lead to greater competition and efficiency.
I believe that if we follow this direction, we will succeed in spurring economic growth, which has slowed in recent years. Granted, the current rate of growth of the Israeli economy is still greater than in most developed countries, and yet our potential is still much higher.
Translated by Hannah Hochner.
The author is chairman of the board of directors of Bank Hapoalim.