Last Chance to Become an Economic Superpower

Immediately after the new government is convened, Israel will stand before a historic opportunity to initiate rapid growth to turn into one of the 15 most developed countries within 15 years.
This challenge is not a luxury, it's a necessity. At a minimum, Israel must grow 4% per capita for a decade. The gap in quality of life between Israel and developed countries is dangerous. Our business sector is among the world's best, and our population is rich in skills and education. At the same time, the quality of life and the quality of public services in Israel are low, and for many, emigration is an opportunity to improve their lot.

Furthermore, the foundations of Israel's economy are weak. The security burden is heavy, the labor force participation rate is low, the education system is failing its students, and municipal government is often ineffective and corrupt. As a result, the quality of life may deteriorate further and emigration could become an existential threat.

Unfortunately, the election proved that Israel is neither ready nor wants a socio-economic leapfrog. While macro-economic stability and structural reforms in the Israel Lands Administration, the Israel Electric Company, and Israel's ports are necessary, other issues essential to the leapfrog agenda are not parts of the discussion.

The public sector is the key. Among other things, an agreed vision championed by a committed elite that understands the complexity of the challenge, a societal commitment to savings and investment, and consensus among the major political parties to ensure continuity are needed.

In addition, there are several immediate and practical steps that need to be taken. Firstly, Israel needs industrial policy that exploits its unique characteristics (such as the defense establishment, its many historical sites, and the Jewish world) in light of powerful global trends, (such as the rise of China, India, and Africa or the ageing populations of Europe and the United States.) Secondly, an agreement between unions, employers, and the government that ensures continued growth by permitting flexibility is needed. Thirdly, Israel needs regional development led by municipal governments. To do so, smaller townships should be united, authority should be decentralized to heads of local authorities, and Israel should continue to combat corruption.

The rare opportunity available to Israel stems from a combination of three circumstances: the new government will likely enjoy stability for two years, the relationship between the Histadrut chairman, Ofer Eini, and the President of the Manufacturers Association, Shraga Brosh may clear the path for creating agreement, and the economic crisis creates a deep willingness to compromise on all sides.

Therefore, the day after the government convenes, the Prime Minister should define making Israel one of the 15 leading countries as a national goal and lay the foundations for its realization. After macro-economic stability is achieved, the Prime Minister should appoint a task force to design a unique, global industrial policy, invite Eini and Brosh to meet with the Minister of Finance to form a pact on labor market policy, and the Minister of Interior should prepare the local authorities to advance regional growth. If this occurs, then Israel will have committed itself to leapfrogging.

This article was published in The Marker on February 24th , 2009.