Back in 1992, during Bill Clinton’s presidential campaign, James Carville coined that famous phrase: ”It’s the economy, stupid.”
I was reminded of this during the recent Eli Hurvitz Conference on Economy and Society for 2023 in Jerusalem. I have attended numerous economic conferences but never have I experienced such a somber atmosphere as during this most recent one, sponsored by the Israel Democracy Institute.
The conference, now in its 30th year, focuses on long-term strategic issues of the highest importance to the state and government. One by one, top Israeli economists and hi-tech entrepreneurs repeated doom and gloom scenarios on the podium and in the hallways.
Will judicial reform bring doom and gloom to Israel's economy?
Prof. Itai Ater’s research for the IDI predicted serious damage to the Israeli economy through one-sided judicial reforms and linking economic growth to independent legislative and governing branches.
Prof. Eugene Kandel predicted “irreversible damage and rise in unemployment” in the course of this year. Dr. Yossi Vardi, one of the most prominent founders of Israeli hi-tech, called what is happening now in Israel, ”the fastest destruction of wealth during the last six months of legal reform.”
Michael Eisenberg, founder of the Aleph venture capital fund, called what is happening “a tsunami of canceled investments and brain drain.”
Shira Greenberg, the outgoing chief economist in the Finance Ministry, called it: “the biggest risk to the Israeli economy to date.” And the former director-general of the ministry, Ram Belinkov, described her economic forecast as “a loud voice against the backdrop of the silence of the lambs,” hinting at the more subdued tone of other Treasury officials.
All speakers pointed to the ongoing devaluation of the Israeli currency. The shekel has lost more than 10% of its value since December last year, contributing to a rise in inflation and to the high cost of living – as the country imports more raw materials and machinery.
Alan Feld, co-founder of Vintage Fund, said: “In all the 29 years that I’ve been here, I’ve never been so worried about the future of Israeli hi-tech as I am now.”
He went on to say that 2023 may be the worst year for fundraising for investments here since the 2008 economic crisis.
The graph presented by the governor of the Bank of Israel, Prof. Amir Yaron, was very clear in linking the proposed legal reform to the rise in interest rates and the fast decline of the Israeli currency against the dollar.
The most dire forecast at the conference was issued by Prof. Zvi Eckstein, the dean of the Tiomkin School of Economics at Reichman University – and a former deputy governor of the Bank of Israel. He predicted a plunge in foreign investments in Israeli technology from $17 billion in 2020/22 to $3.5 billion in 2023/25.
It seemed as though the only optimist in the room was Finance Minister Bezalel Smotrich, who views Israel as an island of stability and blames external causes such as the pandemic, the war in Ukraine, and a risky global economy for the economic slowdown.
How can one bridge the gap between the finance minister’s rosy view of Israel and the gloomy outlook of numerous economists worldwide? Ultimately, the financial markets penalize economic uncertainty. Startup Blink 2023 ranked Israel in 16th place in global innovation in 2022. Hi-tech contributed some 17% of GDP.
The stars are aligned in favor of our start-up nation, so long as the present government heeds the advice of the entrepreneurs who provide Israel’s engine of growth – and doesn’t let politics get in the way. ■
Shoshana Tita is a writer and the director of Torah Life Center of Potomac, Maryland, and lives in Jerusalem.