Seven years ago this month, on September 15, 2008, Lehman Brothers, the fourth-largest investment bank in the US, announced that it was no longer able to meet its obligations. Lehman Brothers’ bankruptcy is thought to have played a major role in the global financial crisis that took place in the previous decade.
Although the crisis has not completely abated and its ramifications can still be felt in the global economy, we can safely say that the Israeli economy has suffered less than those of most developed countries.
Israel’s growth rate continued to be relatively high during most of the ensuing years despite the extensive military operations that brought about a temporary reduction in the volume of economic activity.
The unemployment rate in Israel – especially among young people – remains among the lowest of developed nations.
And at the height of the crisis, Israel was accepted as a member of the OECD, formal international recognition as a developed nation.
One of the main reasons the Israeli economy has remained so resilient throughout the years of the global economic crisis is the country’s incredibly stable banking system. No Israeli bank has needed any government assistance or been forced to seek protection from creditors. In contrast, the governments and central banks in the US, the UK, Spain, Italy and, of course, Greece have been forced to intervene to save their banks from collapsing.
These actions have had a negative effect on those countries’ economies and citizens, while the resilience of Israel’s banking system has had a positive effect on the overall economy.
This resilience during the critical years has enabled Israel to progress and grow relatively more quickly than most other developed countries.
Over the past few decades, Israel’s special relationship with the US has played an extremely important role in Israel’s economic success. In 1985, when Israel was suffering from galloping hyperinflation, US support was vital to its plan to extricate itself from the abyss, and in no time at all, its economy picked up speed and even reached new heights.
Believe it or not, in 1985, the ratio of Israel’s GDP to its external debt was 280 percent, whereas today it is 67%. This ratio, in conjunction with Israel’s stable banking system, has enabled the country to raise funds at a lower rate than other nations.
The ties between Israel and the US did not develop in a vacuum.
They were nurtured for years by Israeli and American leaders alike, as well as by the American Jewish community.
American concern, loyalty and love for Israel have been an incredible asset whose worth cannot be overstated and has been reflected in a solid relationship regarding security, political and economic matters.
I believe this is also the proper forum to mention Israel Bonds, the US underwriter of debt securities, which since 1950 has been raising money for development of the state and is an important symbol of the friendship between the two largest Jewish communities in the world. It’s no coincidence that the word “bond” has two meanings: connection or alliance, as well as debt security.
One of the biggest changes the Israeli economy has undergone since 1985 is the development of the country’s hi-tech sector, which has earned it the nickname “Start-up Nation.”
After Silicon Valley, Israel has the highest number of start-ups in the world. Every year, about 800 new technology enterprises are created with backing from investors. These lucrative businesses provide tens of thousands of people with high-paying jobs and have generated hundreds of billions of dollars from successful exits.
Everyone is in agreement that as the 21st century progresses, technology increasingly affects our daily lives. Israeli companies in the fields of communications, computing, cybertech, pharmaceuticals and medical information have positioned themselves at the top, and in the end their successes are our successes.
We should take pride in the fact that the Global Competitiveness Index has ranked Israel among the top countries with regard to investing in R&D, information technology skills, quality of scientific research institutions, per-capita patents and innovation. But there is no guarantee that we will retain this rating in the coming decades.
We must not rest on our laurels or delude ourselves that our past successes will ensure our future prosperity. The global economy has not yet stabilized. The rise of emerging and eastern markets has deeply altered production and consumerism, and has caused the economic ripples to come faster and stronger than in the past. Indeed, we are now witness to economic shocks in China, the second largest economy in the world, that are negatively impacting markets the world over.
As an exceptionally export-oriented country (40% of our GDP derives from exports), Israel is more highly exposed than other countries to shocks that occur in the global economy, to its foreign relations with other countries, and to geopolitical changes in the region. In addition, we must not forget that the world is not scared of discovering new opportunities. Many countries, both emerging and developing markets, understand that to stay in the forefront of economic and technological innovations, suitable conditions must be created. Treading water is not good enough – we must always be surging ahead.
If Israel wants to continue progressing and growing as a global start-up giant, it must continue with its innovations.
All companies, regardless of how small or traditional they might be, must successfully integrate innovation if they want to increase productivity and bring salaries up. Innovation will create new jobs and a better future for future generations.
To achieve this, we need a knowledge-based educational orientation that will enable the maximum number of young people to find higher-paying jobs and provide people with a professional challenge. The only way to achieve this is by building an educational system that promotes such a philosophy.
This might be quite a challenge, but we do not need to alter the system overnight.
Leaders in the field of education, though, do need to take a deep breath and jump in. They must have the wisdom and courage to make the correct decisions; the fruits of their efforts will become visible only in years to come.
On international tests such as the OECD’s PISA and the Trends in International Mathematics and Science Study, which assess educational achievement, Israeli students have unfortunately performed poorly, to put it mildly. Israel did not even rank in the top 10 nations in reading, mathematics or science. While Israel does have a higher percentage than European countries of students who are defined as excellent, our students’ average is considerably lower.
I view this as a true threat to the future of Israeli society. It is no less severe than the security threats we face. But we can also look at this situation in a positive manner: If our leaders are aware of the dangers of this situation, they will realize that this is an opportunity to deal with and solve the problem.
The first step is to recognize and accept the situation – not in words, but with actions.
Education is the key to economic growth and the only way we will be able to secure the future of generations to come.Translated by Hannah Hochner.