BY AL SHAMS / AJT//
Israeli economist Pinchas Landau was the featured speaker at the American-Israel Chamber of Commerce Southeast Region’s recent function. Southland law firm partner Mike Voynick and Brad Young with State of Israel Bonds sponsored the event.
The guest of honor focused his remarks on the Jewish State’s economic prospects for the coming year. Here are some of Landau’s key points from the day – of interest are the steps Israel has taken to deal with its economic challenges and how similar issues are being handled today in the U.S.
Fiscal Policy – In the Jewish State, this key issue is not left to the whims of politicians; instead, it is in effect “outsourced” to a group of professional economists.
Meanwhile, the U.S. is currently mired in constant political haggling regarding budgets, deficits, tax policy and entitlements, all of it largely driven by well-financed special interest groups.
Monetary Policy – Stanley Fischer, a U.S.-educated economist, currently serves as Israel’s central banker. He is widely admired around the world for his sensible, independent approach to Israel’s policy of monetary growth.
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Fischer will be retiring soon, and there is much debate over his successor. Whoever is appointed will have “big shoes to fill,” and will have a major impact on the country’s future growth.
Structural Reform – During periods of crisis, the affected parties showed effective leadership and cooperation to initiate pension and tax reform.
Also, the labor market has seen major changes. After the collapse of the Soviet Union, approximately 500,000 highly educated and trained Jews immigrated to Israel. In many areas, they possessed technical and scientific skills superior to their Western counterparts, and combining these talents with the opportunities of the capitalist system has resulted in enormous economic growth, especially in the high-tech sector.
And what’s more, Israel has seen significant improvement in the percent of citizens participating in the labor market at the same time as an increase in the skill level required to work; in effect, a double-barrel boon.
Unfortunately for the U.S., here many skilled jobs are being exported, and new jobs most often show up in low-paying service sectors.
Financial Sector – Through his influence of the country’s central bank, Fischer has been able to keep financial institutions under control. Banks have been guided towards sensible leverage and avoiding risky ventures.
That contrasts starkly, of course, with the enormous short-term focus and misallocation of banking assets in the U.S. during the past 10 years.
Capital Market Reform – As a result of the aforementioned conditions, Israel has been able to develop broad and deep capital markets. This has allowed many companies to be financed with funds internal to the country.
During the last 20 years, Israel has gone from being a worldwide debtor to its private sector being a net creditor. This has allowed the corporate and individual sectors to make investments within and outside the country at a time when much of the world is short of capital.
Simultaneously, the government of Israel continues to borrow from abroad to finance a variety of infrastructure programs. These improvements – which can only be undertaken by the government – lead to huge gains in the productivity and efficiency of the economy.
Used wisely, debt can result in a country raising its economic efficiency and, hence, its living standards. In an excellent example, a young U.S. borrowed extensively from Europe to finance the development of canals, ports, bridges and railroads.
Pragmatism – In general, Israel’s leaders have been driven by what works for the country and what is in the citizens’ best interest. Such practice has yielded far better results than adhering a fixed ideology or catering to special-interest groups.
As a whole, the last 15 to 20 years have brought Israel enormous growth in living standards as a result of sensible pro-growth policies and strong, effective leadership, and these factors should continue to benefit Israel in the future.
Potential Concerns – Some economists are concerned that because Israel’s entrepreneurs and venture capitalists have enjoyed great success, their appetite for further gains and risks has diminished. Another concern is that the country will sell its R&D intellectual property and not fully capitalize on its wealth creation potential through the manufacture of goods and services.
To temper these concerns, Landau considers the fact that Israel – among all advanced countries – devotes a greater percent of its resources toward medical research, medical devices and biotechnology. This promises to be a sector that might well lead to great wealth creation while not requiring a vast amount of physical assets.
Energy – Several years ago, Israel found huge reserves of natural gas in its offshore waters. Within a few years, the country will become energy independent and could become an energy exporter to others in the region.
“This will be a game-changer for the country,” Landau said.
He thinks this could even lead to an enormous capital surplus for the country, but those would be funds that he knows must be invested wisely.
In summary, Landau highlighted how Israel has accomplished and contributed much in its short history. The pace only has quickened during the past two decades years, and the next 20 years look to be very exciting and very rewarding.
To read more of Pinchas Landau’s views on Israel and the economy, visit jerusalemview.blogspot.com.