Israel Economy Essay Example For Students

Israel Economy Essay I cant find the paper I actually turned in but this is where I got all my info from. It has has all the web addresses for works cited. (Op-Ed by Sever Plotzker, Yediot Ahronot, 26.10.98, p. B5 What the parties will gain: the economic aspect of the agreement. The second redeployment agreement can serve as a springboard for both the Israeli and Palestinian economies, separately and together. The greater beneficiaries, politically, economically and propaganda-wise, are the Palestinians. The agreement removes restrictions and solves hardships that have prevented growth and development in the Palestinian Authority. The influence of the Israeli economy has been lessened and will be expressed mainly in the change of atmosphere. In the coming months, the three countries Israel, Jordan and the Palestinian Authority will be considered by the international business community to be more stable and less dangerous and thus more attractive for investment. If investments arrive is another matter, depending on the global economic situation. President Clinton has promised Israel security aid, but no economic aid, to implement the a greement. The amount of the special aid will reach hundred of millions of dollars, Jerusalem believes. The expense must be approved by Congress. Will the second redeployment agreement have the power and spirit to pull the Israeli economy out of its recession and calm the foreign currency market? Doubtful. Much more is needed to do that an economic policy devoted to growth, a comprehensive Israeli-Palestinian-Arab peace, as well as a renewal of the concept of a New Middle East Economy. What are the economic advantages for the Palestinians from the second redeployment agreement? In a sentence, they will be less dependent on Israel and will stand more firmly on their own feet. * An international airport in Gaza will serve tourists, visitors and Palestinian importers and exporters, without Israeli intervention. * Safe passage between the two parts of the PA will, over time, enable the free flow of work, capital and initiative. * Industrial zones the first at the Karni crossing will p romote Palestinian high- tech, which is just starting out. Investors may come. * A port at Gaza, though not economically viable, will give a feeling of independence and remove the economic stranglehold that the Palestinians complain about. Construction work on the port will provide employment for many Palestinians. * A presidential visit by Bill Clinton in Gaza will be an important signal to the American business community to invest with the Palestinians; the president usually brings plenty of businessmen to such shows of friendship. * The United States will supply the Palestinian Authority with additional economic aid, totaling hundreds of millions of dollars. Although the PA has succeeded in improving its budgetary performance, establishing institutions for economic self-management and passing appropriate legislation and regulations, the international aid funds are being depleted. The Gulf states, hit by the fall in oil prices, have ceased giving aid. American funds, therefore, ar e vital. * Direct and indirect unemployment has fallen in the autonomous areas over the past year, and Palestinian GNP has accordingly risen. Palestinian workers have returned to Israel, alongside new employment opportunities in the Palestinian areas. Donor countries have transferred huge sums of money to infrastructure projects, in cooperation with the business community and under World Bank supervision. The most important and ambitious of these is Project Bethlehem 2000, a $330 million investment to develop tourist facilities in advance of the 2000th anniversary of Jesus birth. There would have been no chance of realizing the project without an agreement on the second redeployment. And what do we gain from it? A lot. Positive economic development in the Palestinian Authority will have positive political implications from Israels perspective: the level of hostility will be reduced, zealotry will retreat and the desire for cooperation will increase. It has been proved many times ove r that peace is good for business. http://www.israel-mfa.gov.il/mfa/go.asp?MFAH07nx0He who tills the land shall be satisfied with bread Israel attained the highest Gross Domestic Product (GDP) growth rate among Western (OECD) economies during 1990-96, averaging almost 6 percent during these years. In 1997 this fell to 1.90 percent. Its per capita GDP (today some $16,950), places it 21st among 200 countries in the world. Although a small country (population some 5.9 million), Israels international position in some areas of industrial and agricultural production capacity and exports is remarkable. Free trade agreements with Europe (the European Union and European Free Trade Association) and the United States facilitate Israels $32.5 billion of exports (goods and services, 1997) and its participation in international business enterprises, contributing to the countrys accelerated growth during the 1990-96 period.The shekel, Israels unit of currency, (valued at $0.25 in September 1998), was known as early as the second mil lennium BCE as a unit of weight for means of payment in gold and silver. It is recorded in the Bible that Abraham negotiated the purchase of a field and the cave that was therein, at Machpela (near Hebron), saying: I will give thee money for the field; take it of me, and I will bury my dead there. Ephron, the landowner, replied: The land is worth four hundred shekels of silverand Abraham weighed to Ephron four hundred shekels of silver, current money with the merchant (Genesis 23:13, 15-17). http://www.israel-mfa.gov.il/mfa/go.asp?MFAH00m50For the first 25 years, the economy reached a striking average growth rate in the GDP of about 10 percent annually, while at the same time absorbing several mass immigrations, building a modern economy, fighting four wars and maintaining security. This economic miracle is ascribed largely to the use made of economic aid received over the years, enabling mass capital investment in means of production, and to the countrys success in rapidly absorbing immigrants and involving them in productive settings. Between 1973 and 1979 the growth rate decreased (as in most industrialized countries, partly due to the oil crises of 1973/4 and 1979/80) to a yearly average of 3.8 percent and, in the 1980s, it dwindled to 3.1 percent. In 1990-96 it averaged 6 percent. In 1997 the total GDP grew by 1.9%, to $98.5 billion ($16,950 per capita), a 25-fold real increase since 1950. http://www.israel-mfa.gov.il/mfa/go.asp?MFAH00m60The achievements of the Israeli economy in the countrys first 50 years are no less impressive or fascinating than those in any other area of Israeli history. These achievements especially those in the early years of the state have amazed economic experts worldwide. From the very beginning, the country faced awesome challenges. The fledgling country found itself in a brutal war of existence and, at the same time, hundreds of thousands of refugees from the Holocaust in Europe and from persecution in Arab lands were knocking at the door of the newborn state, which did not even have enough tents to house them, let alone food to feed them. These challenges were enough to crush economies larger and stronger than that of Israel, which then was a country with a population of about 650,000 people living in an area of less than 8000 square miles (nearly 21,000 km2), most of it desert and rocky mountains. Looking back, it seems that the history of the Israeli economy like that of Israel, in general has been a story of recurring dangers and crises threatening to destroy it. The economys success in rescuing itself from all these crises, emerging each time stronger than it had been previously, is perhaps its biggest achievement. Each of the achievements described below, and it is not possible to list them all, is important in its own right. However, it is when they are considered together that they constitute building blocks in the countrys main economic achievement: Israels current economic strength, as testified to by its membership in the group of 25 countries with the highest per capita national income in the world, and Israels return in the 90s to the group of countries with the worlds highest rates of economic growth. http://www.israel-mfa.gov.il/mfa/go.asp?MFAH00uc0This requires a great deal of public resources in all countries. However, in Israels case, the resources required were even greater. This was not because the needs of immigrants were greater, but also because it became clear by the end of the 60s that it would be necessary to make efforts to rescue from poverty quite a few of the immigrant families that had arrived during the early years of the state. As a result of the lack of funds available when these immigrants arrived in Israel, their physical and social absorption had not always been successful. Thus, the Israeli economy had to allocate resources to deal with a variety of issues in the areas of housing, education, health and social rehabilitation. Again, the cost was high. This achievement entailed, or at least so it would seem, contravening a law of economic theory (based on the principle of the scarcity of resources) allowing the consumption of only as much as is produced because throughout Israels existence the economy has used more resources than it produced, despite the rapid growth in its national product. In national accounts terms, this is illustrated by the fact that the value of Israels imports has constantly been greater than the value of its exports. It was only due to the ability to finance this deficit (the annual difference between imports and exports) that the Israeli economy was able to meet all of the challenges cited above. How did it do this? Basically, it financed this annual deficit through tremendous financial assistance that the country succeeded in raising around the world. The annual trade deficit increased from $220 million in 1949 to about $12.9 billion in 1996 (all in nominal terms). Each year, Israels Finance Minister wo uld recruit resources to cover this annual deficit. A small portion of this money came in the form of investments by foreigners in businesses in Israel; an even smaller amount came from pensions and other income from abroad of individuals in Israel; a significant amount came from appeals organized by Jewish institutions, and a large part came in the form of loans from individuals (primarily in the framework of Israel Bonds), banks and governments. More than half of the required amount came from grants from friendly governments (first and foremost, the United States). Over the years, this imported capital to cover the annual deficits in foreign currency has totaled more than $120 billion (in nominal terms). Lee De Forest EssayIt would have been reasonable to assume that in a national economy such as that of Israel, which had to withstand the burdens described above and at the same time maintained one of the worlds highest rates of economic growth, there would be no resources left over for individuals to use to raise their standard of living, i.e., their private consumption. In fact, if the Israeli economy only had at its disposal the means resulting from its own product, the tremendous level of public consumption and the savings required to finance the investments necessary for continued GNP growth would have made this the case. However, as mentioned above, the economy benefited from a large capital import which allowed it to record its achievements. This left enough to allow private households to improve their standard of living. Until 1970, per capita private consumption rose by an average annual rate of some 4.7%, and has risen by about 3.2% since then. While there were a few years in which this consumption dropped, most of these during the second period, there have been more than 40 years in which per capita private consumption increased (at levels ranging from 1 to 11 percent), a noteworthy achievement. In this context, it is no less noteworthy that during this period the citizens of Israel showed restraint and did not spend all of their personal income. Rather, they behaved economically, saving a significant part of it thus contributing to the investment possibilities of the country and allowing the economy to become that much less reliant on imported capital. The rate of private savings in Israel is one of the highest in the world. During the countrys first decade, the proportion of private disposable income that was set aside as savings never dropped below 29%. At the beginning of the 60s, this ratio fell to 21%, but it then climbed up to 38% in 1972. In the following decade, the savings rate dropped to 34%, then to 29% in 1985 and 25% in 1996. As in all Western countries, a progressive income tax system in Israel serves to reduce inequality of income between individuals in the economy. This is accomplished by taking about half of the income of the richest individuals (those belonging to the highest deciles on the basis of income) while granting an exemption from income tax to those in the lowest income deciles. Income inequality is further reduced through a system of social transfer payments to complement income of those in need, using a variety of criteria, by the National Insurance Institute and other sources.In addition to this policy of reducing inequality by refraining from collecting taxes from those with low incomes and by providing them with financial assistance, the government also works to reduce inequality by directly providing services such as education, health and culture that, while benefiting the entire population, are of greater benefit to those with lower incomes. The amount spent on these social services, both in absolute terms and in terms of the proportion of the total public expenditure spent on these services, has risen over the years, especially in the past two decades, during which the defense burden, as a percentage of the national product, began to decline. However, not only has the real value of the budget for these services more than doubled over the course of the past decade with its weight in the average disposable income of households rising from 17% to 23% but the contribution that these services make to the reduction of inequality has increased, especially with the recent introduction of national health insurance in Israel. Thus, while the economic income of the lowest decile equals only 8% of the income of the highest decile (a slight improvement as compared with 6.6% 40 years ago), the payments that they receive and the fact that their income tax and national insurance payments equal less than 2% of that of the highest decile, raise their disposable income to 19% of that of the highest decile. When one also takes into account the services that are provided directly by the government, the inequality is reduced even further, raising the lowest deciles actual income (financial plus the value of services provided) to 27% of that of the highest decile. This is 3.4 times more than before government intervention. Of all the branches of the Israeli economy, industry has grown the most: its growth rate is higher than that of the total national product; industrial exports have increased more than total exports; and the number of people employed in industry has risen more than in any other branch of the economy. Furthermore, the future development of the Israeli economy depends on the growth of the industrial sector. In recent times, this sector has accounted for about 65% of the total export of goods and services, has received about 25% of the total investments in the economy, has produced 23% of the total national product and has employed about 22% of the total number of workers. These achievements in the manufacturing industry stand out, not only because of the fact that its product actually shrunk in the first three years of statehood (when public and economic attention was focused on the physical absorption of the new immigrants), but also in view of the pre-statehood Zionist policymakers id eological disregard of industry during the first decades of renewed Jewish settlement in the Land of Israel. These leaders saw agricultural settlements as the highest priority and gave this area of activity whatever financial support could be raised. In those years, industry was thought of, at best, as essential in order to serve agriculture. The status awarded to industry only improved during WWII when it made a significant contribution to the war effort of the Allies. Between 1950 and 1996, industrial exports rose from $13 million to $17.1 billion, a 167-fold increase (in real terms). The number of people employed in industry rose by four times, from 95,000 to 388,000. In the period 1952-1973, total industrial output grew at an average of about 12% per year, whereas during 1974-1996 it grew by an average of about 4% annually. The growth of the hi-tech section of industry is even more remarkable: 30 years ago it was 37% of the industrial output, compared to 56% a decade ago and 66% today. In 1970 hi-tech exports amounted to $540 million, or 20% of total industrial exports, whereas in 1996 they were 20 times larger exceeding $10 billion, or 60% of total industrial exports. Much of the fast growth of this section of industry may be attributed to the influx of highly skilled manpower arriving in Israel with the recent wave of immigration. Also, hi-tech industry in Israel enjoys generous RD public budget allocations and high rates of return on investments. It is no wonder that keen interest in Israeli hi-tech shares is shown in stock exchanges around the world. http://www.israel-mfa.gov.il/mfa/go.asp?MFAH00uc0Over the last few years, Israel has come to resemble Silicon Valley, and much of its innovation can be traced to the technical training its entrepreneurs received in the military. Indeed, with a total population of only six million, there are more than a hundred Nasdaq-listed companies based in Israel and an estimated 4,000 startups in the pipeline. Even optimists, however, such as Zeev Holtzman, chairman of Zinook and Giza Venture Capital, believe there will be a slowdown in the fourth quarter. But Holtzman thinks such a downtick will be more attributable to activity in foreign capital markets than the war. Holtzman sees the U.S. economy and the Nasdaq as the primary drivers of Israels technology sector. There is also a concern that the fighting may threaten investment in the research and development, Zinooks third-quarter report claims that of total money raised the largest chunk, 45 percent, went to research and development. At present, Israeli research centers are located far from the fighting. The televised clashes occur overwhelmingly in the Palestinian occupied West Bank. In other parts of the country, its business as usual. Still there is one looming threat to keep an eye on, is the electronic damage caused by a â€Å"cyber jihad.† Internet attacks have increased sharply, with all the recent fightings, forcing at least 40 sites to temporarily shut down, including Israels Ministry of Foreign Affairs and Defense Forces. IDefense Intelligence Services warns that other prime targets may include major Egyptian and U.S. government agencies, ATT, Yahoo! and CNN, some of whom have already been mentioned in message traffic monitored by iDefense. Bibliography: