Two questions about Israel’s economy

The World Economic Forum has recently published its annual study of world economies. The Global Competitiveness Report, full data edition, 2012, attempts to provide useful portraits of a nation’s economic environment and its ability to achieve sustained levels of growth. It ranks 144 nations according to a series of categories, using a specified methodology.

If you ‘Google’ The Global Competitiveness Report, you can find a PDF file with the entire report. Read it. You can do your own analysis.

Our concern today is Israel, which ranked 26^th for 2012--and 22^nd  the year before. For our purpose here, we focus only on the Executive Opinion Survey, which is exactly what it sounds like—a survey of executives in each country’s business community. The survey contains fourteen sections, including, overall perception of your economy, government and public institutions, innovation and technology, education and human capital, corruption, ethics and social responsibility. Naturally, a survey of individuals will be subjective. But these responses are aggregated, then scored according to specific rules. A standardized methodology is employed. Protocol guidelines are imposed.

 If you live in Israel, you may not be surprised by some of the rankings. Still, take a look at the findings. Then, be prepared to answer two questions.

First, some numbers:

In the area entitled, Innovation, here is where Israel ranks in several categories:

Innovation:

                -Capacity for innovation—6^th.

               -Company spending on Research & Development—6^th

               -Government procurement of advanced tech products—6^th

               -Availability of scientists and engineers—9^th    

               -University-industry collaboration in Research & Development—8^th

               -patent applications/population—4^th

               -Quality of scientific research institutions—1^st

In the section titled, Business Sophistication:

               -Extent of marketing—12^th

               -Control of international distribution—9^th

               -production process sophistication—10^th

               -Willingness to delegate authority—19^th

In the section, Goods and Market Efficiency:

               -effectiveness of anti-monopoly policy—69^th

               -extent and effect of taxation—73^rd

               -Number of procedures to start a business—29^th

               -Number of days to start a business—109^th

               -prevalence of trade barriers—40^th

               -burdens of customs procedures—47^th

               -imports as percentage of GDP—87^th

               -degree of customer orientation—55th

In the section, Institutions:

               -public trust in politicians—59^th

               -irregular payments and bribes—31^st

               -favouritism in decisions by government officials—46^th

               -wastefulness of government spending—56^th

               -burden of government regulations-90^th

               -efficiency of legal framework in settling disputes—46^th

               -efficiency of legal framework in challenging regulations—57^th

               -transparency of government policymaking—54^th

               -ethical behaviour of firms—32^nd

               -business costs of crime and violence—36^th

               -organized crime—55^th

               -reliability of police services—48^th

                      -strength of investor protection—5th

               -business costs of terrorism—128^th

 

Misc.:

               -quality of primary education—71^st

               -life expectancy, years—8^th

               -infant mortality—21^st

               -availability of latest technologies—22^nd

               -individuals using the internet (%)—34th

               -broadband internet subscriptions, per population—25th

               -international internet bandwidth, kb/s per user—80^th

               -mobile broadband subscriptions, per population—24th

 

How we look at this Report depends upon who does the looking. This Report is not perfect. Readers familiar with it can identify its shortcomings.

Still, we might make some observations.

First, Israel has reason to be proud. Any ranking of 15 or higher gets highlighted in the Report, and for good reason. The world is a competitive place; fifteenth or better means, essentially, a top-ten per cent placement—a high honour indeed.

Israel places high where we might expect: R&D, Innovation and the quality of science research; you can see the other top-fifteen placements above.

But if Israel wants to become truly a first-class world competitor, she cannot compete with her hands tied. She cannot be ‘first class’ if she continues to rank 47th or worse in such areas as effective anti-monopoly policy, burdens of customs procedures, public trust in politicians, wasteful government spending, burden of government regulations, efficiency of legal framework in challenging regulations, transparency of government policy-making and the intrusiveness of organized crime.

Israel has a Socialist legacy from her founding fathers. Is the practical impact of that legacy a stifling bureaucracy and poor market efficiencies?

Whatever the philosophical issues, If Israel wants to be counted as ‘first-class’, she must secure more top ten per cent rankings—and she must certainly improve her worst rankings.

The question is, can Israel do that? To answer this, you’ve got to ask those two questions referred to above:

 1. Do you see any kind of public or private dialogue that focuses on improvement?

2. Do policy-makers and business-leaders give you the impression that they want change?

There are a lot of issues here. Some, like number of days to start a business or burden of government regulations, should be a public embarrassment.

Other issues, like public education, should be a scandal.

These weaknesses are not new. They did not appear yesterday. They will not go away tomorrow. One thing, however, is certain: if we do not advance, we will fall behind.

We have already fallen from 22^nd to 26^th.

Care to guess why?