Life in Israel does not lack things to worry about: Iranian nukes, tens of thousands of missiles in the hands of Hizbullah and Hamas. But at least the economy is strong - or so I thought.
Israel has weathered the storms of the last two years better than the G-7 countries to whose economies it is bound. Best-selling works like Start-Up Nation: The Story of Economic Miracle by Dan Senor and The Jerusalem Post's own Saul Singer, celebrate Israeli entrepreneurship and innovation.
And at one level, this country is an economic titan. It attracts 2.5 times more venture capital per person than the United States, 30 times more than Europe. It is the world leader in medical patents, and one of the leaders in biotech and clean-tech. More Israeli companies are listed on the NASDAQ than those of Europe, China and India combined.
Two recent tutorials with Prof. Dan Ben-David, director of the Taub Center, the country's leading non-security-oriented think tank, revealed that the foregoing is only part of the story. As phenomenal as the creativity of the hi-tech sector has proven, hi-tech has been unable to draw the rest of the economy in its wake.
One statistic captures the paradox of startling creativity coupled with economic stagnation. In 1990, the number of US-approved patents per capita in Israel was 6 percent lower than that of the G-7 countries; today it is 69% greater. Yet, in that same period, productivity measured by gross domestic product (GDP) went from 7% lower than the G-7 countries to 23% lower.
From 1948 to 1973, the economy was on a trajectory to overtake that of the US, despite the inefficiencies imposed by a socialist economy. Since then, it has been falling farther and farther behind. America's GDP per capita has gone from 39% greater than Israel's in 1973 to 61% greater today. During that period, poverty has worsened and income gaps sharpened considerably.
THE CAUSES of this relative economic decline are not hard to identify. For a country whose principal natural resource is its brainpower, we are doing a lousy job of developing that resource. Seventeen percent of Israelis in the prime age for working (25-54) dropped out before completing high school, as opposed to 11% of Americans.
Worse, our students are not learning much in school when they are there. On four out of the last five international exams in which our students participated, they finished last of the 25 most industrialized nations. The first time Israel participated in 1963, its students finished at the top.
Despite the disproportionate number of Nobel Prize winners produced, the country's leading universities are also failing to keep up. Since the mid-'70s, the population has doubled. Over the same span of time, the number of senior faculty positions at the Technion has grown by one. At the Hebrew University and Tel Aviv University, the situation is even worse - senior faculty positions decreased 14% and 21%, respectively.
As a consequence, Israel is experiencing the most serious brain drain of any Western country. From 2002-2004, the rate of emigration of academics doubled. Holders of academic degrees are 2.5 times as likely to emigrate as those without them. Those who can command higher salaries abroad - academics, research scientists, those in hi-tech, doctors - in short, the engine of the "economic miracle" - are leaving in ever-greater numbers.
Lack of investment in infrastructure serves as another brake on the economy. This country has half the number of cars per capita of the Western average, but congestion is three times as high. Every hour a truck driver spends stuck in traffic is a wasted hour, and the inefficiencies of the slow transport of goods are reflected in lower rates of productivity. The lack of rapid transport plays a major role in the overcrowding of the center of the country and the stagnation of the periphery.
ALL THESE problems have solutions. But underlying them is another systemic deficit that Prof. Ben-David describes as the most intractable of all: Our political system makes it difficult, if not impossible, for governments to engage in any long-range planning, or to implement such plans as it makes. No country faces so many threats to its existence as Israel, yet the prime minister is forced to spend an inordinate amount of his time and energy on coalition politics, as the recent attempt by Prime Minister Binyamin Netanyahu to lure away disenchanted MKs from Kadima demonstrates. (At any given moment, every MK without a deputy ministership or an important committee chairmanship is disenchanted.)
Opposition leader Tzipi Livni was being silly when she charged that Netanyahu should have been working on securing the release of Gilad Schalit rather than playing political chess, as if sitting by the phone waiting for an answer from Hamas would expedite his release. But the fact that so many MKs - who are elected without any personal mandate - are always available to be seduced by the proverbial Mitsubishi speaks volumes about our political system and the quality of its participants.
Every cabinet is composed of at least three or four ministers who view themselves as prime-minister-in-waiting, most from rival parties and some from within the prime minister's own. Less than half the ministers owe any political loyalty to the prime minister. Virtually every minister sees himself as more qualified for a "higher" ministry than the current incumbent, and much of his energy is spent on political jockeying to reach the next rung of the ladder, rather than actually overseeing the affairs of his ministry.
THE LATTER may be just as well, since rarely is a minister chosen because he possesses any expertise in the affairs of that ministry. Cabinets are bloated beyond recognition by the need to keep a perpetual set of cookies available to bribe MKs willing to jump if the prize is sweet enough.
Meanwhile, the few MKs who are not also ministers or deputy ministers are understaffed. They are allocated two assistants - a secretary and a political attachÃ© to keep up relations with party central committee members - but no one to develop expertise in any area of policy. And they have few research resources to draw upon in fashioning legislation.
One could cavil about the specific cases that Finance Minister Yuval Steinitz chose to make his point, but he was correct that the Supreme Court's jurisprudence injects another element of irrationality into government planning. There is a good reason that the power of the purse has always been said to belong to the legislature: Every allocation of funds for one purpose requires decreasing the slice of the pie available for other needs. Planning requires establishing priorities.
But when a court discovers some "right," especially one with a heavy price tag, that balancing cannot take place. Separating the power to spend from responsibility to pay for purchases, invites inevitable budgetary disaster. Just ask California, where citizens can initiate ballot measures entailing huge expenditures, without specifying how to pay for them. The result is economic chaos.
The first place for Israel to direct its brainpower is to devising a political system that permits a far greater degree of government cohesion and planning, and thereby attracts those motivated by more than their personal advancement.