Principles and Guidelines for Achieving a Socioeconomic Leapfrog - Version B

Achieving sustainable high growth that would allow Israel to close the gap in quality of life with most developed nations – is not a luxury. It is a necessity.

Executive Summary

Israel's inferior position in the global competition for human capital may cause the collapse of its social and economic foundations - There is a disparity between Israel's excellent human capital and the quality of its private sector, on the one hand, and the mediocre quality of life Israel offers its citizens in comparison to the leading developed countries, on the other hand. Hence, currently, Israel is one of the world's leading exporters of human capital. If this disparity grows, Israel may be vulnerable to emigration of a critical mass of its qualified and educated members of the society, leading to erosion and even collapse of the backbone of its society.

Therefore, Israel's leapfrogging - achieving sustainable high growth that would allow Israel to close the gap in quality of life with most developed nations - is not a luxury. It is a necessity.

Nevertheless. Israel is not organized for leapfrogging. Its public sphere and discourse are focused on macro-economic stability and moderate growth but not on leapfrogging.

Therefore the Reut-Institute has embraced the ISRAEL 15 Vision, which calls for Israel to become one of the fifteen leading countries in terms of quality of life within fifteen years, to inspire its work in the areas of economic and social development. In order to realize this vision, Israel's social and economic performance must leap to a point where it catches up with the most developed nations.

The 'leapfrog' occurs when average annual real GDP growth exceeds 3.5% for at least eight years. In order to be considered an 'economic miracle', average 7% real growth needs to be sustained for at least 25 years. Thirteen countries have achieved this feat, among them: Singapore, Japan, South Korea and Brazil. Israel also leapt between 1951 and 1972. During this period we enjoyed average annual real growth of 5.5%.

Sustainable high growth is a necessary condition for leapfrogging, but insufficient - As mentioned, in order to be considered a leapfrog, growth has to be sustained at a level of 3.5% for 8 years. Another necessary condition for a leapfrog is 'inclusiveness' i.e. that it leads to an improvement in the quality of life of all citizens.

There is no 'recipe' for leapfrogging. Each country that leapt shaped its economic and social path according to its own unique history, social structure, system of government and unique assets and burdens.

The Key to Leapfrogging: The Capacity to Transform

Leapfrogging entails accelerating the pace of the socioeconomic change - Leapfrogging is characterized by an acceleration of the pace of change in the makeup of products and services, which is tantamount to acceleration of social change. Therefore it requires the establishment of institutions that allow for and support rapid change in the social and economic environment.

The public sector is the engine of leapfrog. The ability of a nation to leap is determined by its values, leadership, institutions, politics and policies.

The common denominator among the countries that leapfrogged is:

Vision - In most of the countries that leapt there was a vision of economic and social development, which mobilized all sectors of society.

Leadership by committed elite - Leapfrogging entails multiple adaptations of values, priorities and institutions and therefore requires leadership. Due to its complexity and duration (minimum of eight years), propelling a leapfrog is beyond the ability of a single leader and requires the commitment of an entire elite in positions of influence, authority or leadership. This elite must include elected officials and civil servants on the national and municipal levels, business people, leaders of nonprofits and philanthropies, academics or from the media.

Inclusive growth: enlarging the pie and sharing it with the whole society - Leapfrogging requires achieving high sustainable growth and making it inclusive.

Institutions that enhance the capacity to transform - Sustaining high growth require strengthening the capacity of a society to withstand accelerated change. Hence, institutions that effectively regulate interactions among the major sectors of society are key to leapfrogging.

Global and unique development policy - 'Development policy' refers to a concerted effort to allow rapid growth of a specific industry. Such development policy may include legislation, regulation, infrastructure, training of human capital, trade relations or investments. Leapfrogging requires focusing development policy on exhausting a nation's unique assets or strong and stable global trends.

Labor market suited to cope with rapid growth and changes. Protecting the worker and not the job - Another essential condition for leapfrogging is adjusting labor market to rapid growth. This requires labor, government and employers to work together to increase the flexibility in the labor market, on the one hand, while allowing workers to increase their human capital, on the other hand.

Growth diagnostics - Every country faces a different mixture of constraints on its economic development. Countries that leapt effectively identified and addressed the binding constraints of their development.

Few elite units - The story of leapfrogging is often propelled by a small number of highly professional and committed units in the public sector that focus on designing and implementing policy and solving problems.

Local and regional development - Top-down government policy needs to be integrated with bottom-up growth generated by different regions. Therefore, it is important to allow leaderships of local governments, business, nonprofits and philanthropies design and implement policies for local and regional development.

National Mobilization - Social and economic development must become a national project that transcends the traditional professional leadership in central banks or government ministries to all key sectors of society.

Guidelines and Principles for a Leapfrog in Israel

Based on the above, in order to set in motion an Israeli socioeconomic leapfrog, the following guidelines and principles should be implemented:

  1. Adopting the ISRAEL 15 Vision as a national vision for Israel's social and economic development.
  2. Designating a 'Central brain' whose roles will be to assess Israel's national performance and to identify global trends and analyze their significance to Israel.
  3. Identifying and nurturing elite units in the public sector in areas that are essential for leapfrogging. These may include, for example, units that deal with law enforcement, foreign investments or exports. Structural reforms in sectors that are critical for leapfrogging such as in seaports and airports, in the courts, planning and zoning and development.
  4. Forging round table agreements on labor market - These agreements should aim to increase flexibility of the labor, as well as to increase the human capital of workers.
  5. Inclusion of Ultra-Orthodox and Arabs in the labor market. Israel suffers from a particularly low level of participation in the labor force. Hence, the inclusion of the ultra orthodox community and the Arab Israeli sector into the labor force must become a national project.
  6. Exploiting Israel's unique assets and transforming them into engines of growth such as the Jewish world and Israeli Diaspora, the Holy Land, the defense establishment and industry and Israel's unique experience in greening the desert.
  7. Fostering local and regional economic development - Israel should lay the foundations for socio-economic development at the level of local governments by measures such as integration of small local authorities; fighting corruption; empowering local leadership; and establishing a national policy to support such development.
  8. Unique and global development policy - In order to leapfrog, Israel must implement a development policy that will exhaust the areas that may become the engines of Israel's rapid growth. In this context, the Reut Institute identifies the following global trends as potential engines of Israel's future development: The rise of China and India; the move towards clean energy and oil substitutes; the water crisis and the growing need for desalination, recycling and management; the effects of global warming; the growing need for homeland security; economic growth and social change in Africa; growing demand for food security; and the ageing of population in Europe and the United States.

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