ECONOMY: Challenges and Achievements

 

Aliya  (immigration)-Photo from exhibit Vibrant Israel produced by the Israel Ministry of Foreign Affairs,1997

 

INTRODUCTION | CHALLENGES & ACHIEVEMENTS | MAJOR REFORMS | NATIONAL ECONOMY | ECONOMIC PICTURE | ECONOMIC SECTORS

Israel’s most striking economic achievement is the rate at which it has developed while simultaneously dealing with the following enormously expensive challenges:

• Maintaining national security: Israel now spends around 8 percent (as against over 25% in the 1970s and 23% in 1980) of its GDP on defense. Even in eras of relative calm, Israel must retain a strong deterrent capability.

• Absorbing large numbers of immigrants: The "ingathering of the exiles" is practically the raison d’etre of the Jewish state. Since its inception, Israel has absorbed more than 3 million immigrants, more than five times the number of Jews living in the country when it attained independence in 1948. In its first four years alone, Israel’s population more than doubled as 700,000 immigrants, mostly refugees from postwar Europe and Arab states, poured into the country.

Since 1990 another wave of 1.2 million immigrants (940,000 from the former Soviet Union alone), required enormous outlays for their physical and social absorption. However, much faster than the previous waves of immigration, these newcomers soon contributed to accelerating the GDP growth – though also temporarily increasing unemployment to an 11.2 percent high in 1992. This was gradually reduced to below 6 percent before the financial crisis struck.

• Establishing a modern economic infrastructure: Although basic networks of roads, transportation, port facilities, water, electricity, and communications existed in 1948, they were far from adequate, requiring enormous outlays for their development and expansion. Without this huge investment in communications and transportation, much of the expedited growth of the economy could have never occurred.

• Providing a high level of public services (health, education, welfare, etc.): As Israel is committed to ensuring the well-being of its population (with special concern for the weaker elements in the society) a continuously growing proportion of its resources had been devoted to meet these obligations. Recent budgets have placed a special emphasis on education and other programs aimed at investing in the country’s future workforce while helping to close the income gap.

GovXParagraph3

In its first 25 years, the Israeli economy achieved a striking average GDP growth rate of close to about 10 percent annually, while at the same time absorbing waves of mass immigration, building a modern infrastructure and economy almost from scratch, fighting four wars, and maintaining security. This was considered to be ‘an economic miracle.’ In actual fact, it should be ascribed largely to the resourceful use of substantial capital imports over the years – first and foremost, the mass investment in means of production – coupled with the country’s success in rapidly and productively absorbing immigrants.

During the following six years, however, 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. In the 1980s, it dwindled further to 3.1 percent. Then, the 1990s saw an average annual growth rate of more than 5 percent in the GDP (even reaching 7.7 percent in 2000) and back to 5.2 percent in the mid 2000’s.

The economic growth rate in Israel in 2006 was relatively high compared with the growth rate in other developed countries. The average growth of the GDP in the 30 OECD countries totaled 3.2% in 2006 and was 1.9% lower than the growth rate in Israel.

Of course, such growth rates were impossible to achieve during the global recession, but Israel was one of the few developed economies to achieve positive growth (0.7 percent) in 2009. As the global economy began to recover, statistics indicated that growth rates were getting back to normal  around 3 percent in early 2010.

The GDP per capita grew by more than 60 percent in the course of the last decade of the 20th century, reaching an annual level of close to $25,800 in 2007 and $27,143 in 2008.