Flug: Israeli brainpower fueled growth for 37 years, but is hitting a wall

May 25, 2016 18:28


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Israel's brainpower - its human capital - helped fuel its growth from an agricultural economy to a high-tech leader. All that may be about to change because of misaligned, ineffective, and low-quality education, Bank of Israel Governor Karnit Flug warned Wednesday.

Speaking at the Israel Democracy Institute's Eli Hurwitz Conference in Jerusalem, Flug noted that almost half of Israel's economic growth from 1974 to 2011 was attributable to increases in human capital. According to an OECD study, however, human capital's contribution to growth was expected to be near zero in the next 15 years, among the lowest in the OECD.

"We do not have relative advantages compared to the rest of the world, other than human capital and our innovation and creativity." Flug said. "As such, these trends are worrisome."

Even now, Israel's GDP per capita - a measure of wealth and productivity per person - is 40% lower than that of the United States. Without changes, the gap would not only remain static, Flug said, but increase.

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