STATE OF ISRAEL

MINISTRY OF ECONOMY AND PLANNING

REGIONAL DEVELOPMENT IN ISRAEL

Dr. Raphael Bar-El
Director, National and Economic Planning Authority

November 1994

ABSTRACT:

1. The periphery as a focus for economic growth
2. A strategy: regional development
3. Implementation: external intervention measures
4. To be continued

INTRODUCTION:

THE NEED FOR DEVELOPMENT OF REMOTE REGIONS

1. Why is the periphery appropriate for economic and demographic growth?s
2. Why is demographic growth good for the peripheral areas?

A SHORT REVIEW OF PAST STRATEGIES AND LESSONS LEARNT

1. A short review: the case of the Galilees
2. Lessons learnt

A STRATEGY FOR THE DEVELOPMENT OF REMOTE REGIONS

1. Objectives to be achieved by strategys
2. Fundamental principles of the strategy for the development of remote regionss
3. Strategy concrete sectoral implicationss
4. Conclusion: strategy expected benefits

ABSTRACT

1. THE PERIPHERY AS A FOCUS FOR ECONOMIC GROWTH

Accommodating development and demographic growth requires additional economic and social structures. The center of Israel has already an extremely high demographic and economic density, which makes the addition of such new structures more problematic. The peripheral regions in Israel, the Galilee and the Negev, may offer adequate conditions: acceptable and not completely used basic infrastructure, available space for housing and economic activities, a not too spatially isolated location, and an existing labor force with diverse professional skills.

The remote regions could also benefit from such a role. This may provide a cure to old but still extremely serious problems in that regions: population dispersion, rural development, improving quality of life and attraction of population.

2. A STRATEGY: REGIONAL DEVELOPMENT

The approach to the solution of the remote regions development problems has always been sectoral: different policies for at least three sectors, the rural Jewish sector, the development towns and the Arab sector. We suggest one unified strategy, which would concentrate on the stimulation of economic growth poles. This would enable the achievement of the minimal threshold needed for the establishment of a more dynamic self-sustained and less peripheral type of economy. This in turn would enable the development of higher quality of jobs both in the industrial sector and in services. Such development would be beneficial not only to new populations and to the population of development towns, but also to the rural population and the Arab population by offering new economic opportunities.

3. IMPLEMENTATION: EXTERNAL INTERVENTION MEASURES

This is a typical case of market failure. The establishment of new economic structures cannot be triggered by pure market forces. External intervention by the Government is needed for the provision of basic conditions for new economic growth. The classical types of intervention should be considered: building of infrastructure, administrative measures and economic incentives for the attraction of new population and of new economic activities, help in local and regional organization, help in professional training and in entrepreneurial facilitation.

A last and important remark: the external intervention which is needed to stimulate this development implies heavy capital investments, although we argue that such investments are much more cost effective in the Galilee and in the Negev than in the center of Israel. The crucial criterion for the allocation of capital funds should be their potential contribution to regional economic development.

4. TO BE CONTINUED

The next step is a more specified analysis and investigation of details in the implementation of the suggested strategy. The following fields for further action are suggested:

a. Elaboration of a specific and detailed strategy for the development of the three types of sub-regions: the isolated development towns, the satellite towns and the growth poles.

b. Investigation of the roles which should be played by the various institutions involved in development and of the relationships between them: government ministries and local municipal authorities.

c. Elaboration of instruments for an effective attraction of population to the region. Analysis of professional needs and of adaptability of various labor force groups.

d. Evaluation of means for the encouraging of new entrepreneurs and business start-ups.

e. Evaluation on needs for support services to region-wide business. This would include both business management training and counselling services, as well as financial assistance.

f. Investigation of needs for a region-wide organization.

INTRODUCTION: THE NEED FOR DEVELOPMENT OF REMOTE REGIONS

1. WHY IS THE PERIPHERY APPROPRIATE FOR ECONOMIC AND DEMOGRAPHIC GROWTH?

Israel has had a quite rapid demographic growth in the last few years. It is also expected to continue growing at a rate of about 2.3% a year in the next few years, as a result of natural growth and of the continuation of a steady flow of immigration.

Absorbing small numbers of immigrants may be much less complicated since existing economic activities and social life provide basic features such as abundant and diversified supply of jobs, various housing opportunities, etc. When the number of immigrants is relatively large, the structures are no longer sufficient, and there is a need to build new factories or industrial parks, infrastructure and services such as schools or health facilities, etc. In such a case, peripheral regions such as the Galilee or the Negev may be in and advantageous position. The main reasons are the following:

a. Infrastructure and fixed capital are generally less utilized in the periphery than in the center. Consequently, the cost of economic development would be lower.

b. Even at the stage where new infrastructure has to be built and new economic activities have to be initiated, their cost may be lower at the periphery as a result of lower prices of land and other factors, and as a result of special incentives which are usually offered at the periphery.

c. The new immigrants bring with them considerable human capital. The immigration process involves a loss in this capital, as a consequence of the fact that many professionals cannot make use of skills they have acquired, or, in more extreme cases, as a consequence of the need to change professions. It seems that this loss is lower if the immigrants act as agents of change in a new environment such as the Galilee or the Negev, than in the case where they have to adapt themselves to an existing environment in the center.

d. In Israel, the so-called peripheral regions are well adapted to the needs of a high quality labor force since they are relatively close to the large urban centers, enjoy a relatively high level of physical development, and have a relatively educated labor force.

2. WHY IS DEMOGRAPHIC GROWTH GOOD FOR THE PERIPHERAL AREAS?

The Galilee and the Negev suffer from many developmental problems, which were not solved in spite of numerous efforts and the vast infusion of capital which was invested in those regions over many years. Nonetheless, they still have many of the characteristics of a periphery: they still depend heavily on the core economy and on administrative decisions taken by government, and they have not attracted any substantial volume of population. This stagnation could be ended by the attraction of population to the region. The contribution of the promotion of such regions to the creation of a growth dynamism can be explained by two main factors:

a. A large population in the region could supply the necessary threshold for the creation of an economic growth pole, through the availability of new markets and the basis for new economic activities. b. The human capital embodied in the new immigrants who can be attracted to the regions is an extremely important economic asset which can provide the basis for a dynamic economic growth. Although the Negev has some natural resources, the Galilee lacks them, and therefore the creation of a significant source of highly skilled workers may enable the development of high technology economic activities.

A SHORT REVIEW OF PAST STRATEGIES AND LESSONS LEARNT

1. A SHORT REVIEW: THE CASE OF THE GALILEE

The mountainous Galilee which lies at the core of the Galilee has always been closely linked with the history of the Jewish people from biblical till present times. In fact some Jewish settlements persisted in the area during the 2000 years of Diaspora. Till Independence some Jewish settlements were established on the fringes of the mountainous area which was mainly settled by Arab and Druze villages. This fact caused the U.N assembly on November 29, 1947 when it decided to partition British Mandatory Palestine into three independent political entities – Jewish, Arab and international states – to include all of the Galilee in the proposed Arab one. After the 1948 War of Independence, the government of Israel defined the Galilee officially as the Northern District of Israel, comprising the Akko, Safed, Yizra’el and Kineret sub-districts. Though some of the Arab population in the mountainous Galilee had fled during the war, the majority remained and constituted the largest minorities populated area in Israel.

The area at the core of the Galilee which falls mainly into the Akko and Safed sub-districts has caused concerns to all Israeli governments till today. The main concerns can be listed as follows:

1. Security at the border between Lebanon and Israel and within the area.

2. Sparseness of agricultural villages.

3. The mountainous character of the area with its very limited availability of arable land and water resources and its relatively large distance from the economic centers, which restrict the development of economic activities.

The strategy which was adopted for the solution of those problems and implemented during the state’s first years of existence was the establishment on the border and within the area of some 20 settlements whose sources of income would come from agriculture, forestry and work in land reclamation. By 1960 experience showed that it was essential to bolster the income sources of these settlements – kibbutzim and moshavim – by allocating them additional arable land and water resources in the coastal plain and Hula valley as well as by constructing large poultry raising facilities with adequate production quotas in the individual settlements.

This approach sufficed to keep the settlers in place but was a far cry from solving the problems which became more acute as the minorities population continued to increase and spread out into unoccupied government owned lands.

As a consequence, the prevailing strategy was not changed but reinforced in the later 50’s and the 60’s by the addition of urban development. In 1962 a development plan for the establishment of 5 new rural settlements on the Lebanese border, as well as a few more within the area and the establishment of the town Karmiel was prepared. Urban development was expected to attract larger numbers of people and provide an alternative to the restricted employment opportunities offered in agriculture. The law of capital incentives was expected to attract to the region investments in industrial activities. It did and the intensity of industrialization of the Galilee is quite remarkable. However, the types of industrial activities which were attracted to the Galilee were typical periphery manufacturing activities, mainly textiles and food production These provide quite adequate jobs to the first generation of new immigrants who came to the Galilee, but not to a better educated second generation. The approach of capital incentives which was adopted was not successful in the attraction of better quality types of industrial activities and therefore its impact was limited in terms of quantities of supplied jobs as well as in terms of their quality. The increasing income gap between the Jewish settlements and the rest of the country coupled with Jewish out-migration from the area.

The increasing encroachment of minorities on government land by non-licensed construction of houses, the mounting tension between the Arab and Jewish population in the Galilee as well as the terrorist activities from across the border, induced the government to reevaluate its strategy of intervention. By the middle of the 1970’s plans were made to establish industrial parks in various urban locations in the Galilee and to settle "industrial villages" in the Segev and Tefen rural blocs, each bloc with its respective community service center. The implementation of these plans in the second half of the 1970’s entailed the appropriation of lands which the minority population considered as theirs.

In 1978, the government took decision for the construction of 30 ‘mizpim’

(pre-settlements) on government lands in the Galilee. This act had the dual purpose of increasing the density of the Jewish settlements network in the area and of preventing further encroachment on government lands. Implementation continued into the 80’s and triggered heavy investments in infrastructure of roads, communications etc. By 1985 there were 143 Jewish settlements in the Akko and Safed sub-districts as compared to 104 in 1975. The number of minorities settlements remained at about 40 but their population increased from some 140000 to 200000, while the Jewish population in the same area and period increased from some 140000 to around 170000.

2. LESSONS LEARNT

The basic strategy for the development of remote regions has always been oriented towards settling land and dispersing population. The expression of such a strategy can be seen in two main fields of action: the dispersion of villages in the area, and the attraction of new populations, mainly to local towns. The difficulty in the implementation of such a strategy and the low levels of success may be attributed to two main factors:

1. The lack of a sound economic base: agricultural resources are extremely limited; building dispersed villages implies high costs (in construction as well as in provision of infrastructures and services); and the attraction of urban types of economic activities is impeded by the lack of any significant relative advantage.

2. The disintegrated approach to development: the need to give higher priorities to certain sectors has lead to inefficient economic measures. In very broad terms, if we consider as the three main economic and demographic elements of the region the Jewish rural sector, the Jewish urban sector, and the Arab (rural and urban) sector:

a. The preference given in many cases to the Jewish rural sector, oriented towards a better spatial dispersion, has led to heavy investments with questionable economic justification. Given the limitations of agricultural resources, such heavy investments in scattered locations may have provided better economic results if they were concentrated in the urban sector. The profits of rural dispersion should therefore be evaluated in terms of the economic cost which result from the preference over the urban sector.

b. The preference given to the Jewish sector as a whole in relation to the Arab sector is a direct and clear result of the policy of attraction of more Jewish population to the region. This preference is realized by the allocation of funds by the Jewish Agency to the Jewish sector and by the development actions taken by the government. Without entering here into any discussions of values and equality principles, and assuming that governments have the legitimate right to give preference to certain population groups (as they all do), the implementation of this approach has been economically inefficient in the case of the development of the Galilee. Even ignoring the political frictions which are caused by this approach and the hard discrimination feeling of the Arab population, the basic elementary rules of regional development require an adequate consideration of all economic elements of the region. The Arab sector is a very substantive element, and its integration in any development effort is a must, even if the primary objective of the effort is to promote the Jewish sector.

A STRATEGY FOR THE DEVELOPMENT OF REMOTE REGIONS

The elaboration of a strategy for the development of the remote regions will be done in a few stages. First, we shall set the general orientation of the strategy by identifying the main objectives to be achieved by the strategy. Second, the main principles of the strategy will be derived from the objective function identified at the first stage and from the specific conditions which prevail in the region. A last stage will be to translate those strategy principles into main fields for concrete action.

1. OBJECTIVES TO BE ACHIEVED BY STRATEGY

The efficiency of any development strategy should naturally be evaluated in terms of its contribution to the achievement of given objectives. The determination of a strategy should therefore be preceded by a clear identification of an objective function which is expected to be optimized. There is no aspiration here for a mathematical exact expression of an objective function, but the main objectives to be achieved by the strategy should be at least clearly defined, and be used as criteria variables for the elaboration of the strategy.

Lessons learnt from past experience and the appearance of new needs now lead us to the definition of a quite clear orientation. The objective function of any strategy for the development of the remote regions should apparently cover three main fields: the integration of new populations, the achievement of demographic balance and the provision of a basis for a steady and harmonious (involving all main population groups) economic growth. We shall next elaborate on each one of these objectives.

a. Integration of new immigrants

Medium and long run estimates show significant rates of immigrants for the next years. Without entering into the discussions of the advantages and disadvantages of absorbing those immigrants in the urban centers or in the periphery, it seems that the necessity to orient growing proportions of them to the periphery will be anyway dictated by objective conditions. The potential physical capacity of absorption of the urban centers is limited and therefore the role played by the periphery will naturally increase.

b. Demographic balance

The objective of achieving a better demographic balance and the objective of absorbing immigrants are of course complementary. Data show that the Northern district holds an almost stable portion of the Israel population

(between 15% and 17%), but that the composition of that population has drastically changed. The Jewish part of the population, is steadily decreasing, and today Jews are already a minority in the Northern district. This is specifically true in the sub-region of Yizra’el and in the sub-region of Akko. This situation is a result of two steady phenomena: a higher natural growth of the non-Jewish population, and migration of the Jewish population out of this region.

c. Economic structure

As was stated in a preceding section, an important lesson learnt from past experience is that no solid economic structure exists in the Galilee to support its development: any measures for the attraction of immigrants and of Israeli population for a more balanced demographic balance may be inefficient if there is no economic steady basis for their absorption.

Let us present here a few important issues related to economic structures, which should be considered in the conception of any new strategy for the development of the Galilee.

(1) Quality of labor force

The lack of any significant advantage in natural resources and therefore of any relative advantage in the Galilee offers a challenging role to the factor of production labor force. A substantive advantage in human capital could facilitate better economic opportunities, while the predominance of low skilled labor force stimulates a peripheral type of economy in the region.

Statistical data indicate in general terms a lower level of human capital in the Galilee that in Israel as a whole. However, the general level of the labor force of the Galilee is still quite high, and anyway much higher than the levels which are found in most peripheral regions all around the world: examples are a substantive ratio of owners of high school and academic degrees, and a high ratio of skilled manufacturing workers.

(2) Employment quantitative supply

There is a clear and persistent problem of employment supply which should be basically solved in order to permit the region to play a serious role in the achievement of national development targets and in the integration of immigrants. In this respect, the economic behavior in the Galilee is the typical behavior of peripheral regions: economic activities are not naturally attracted, and special incentives are required, although they are not always effective.

Unemployment rates are generally more than 50% higher in the remote regions than in Israel as a whole. Moreover, the economic situation in the peripheral regions is much more sensible to national economic fluctuations than in the urban centers: an analysis of the economic recession in the 60’s has already shown that the results are much more severe in the development towns than in other places. The economic situation in the last years indicates exactly similar trends.

(3) Employment qualitative supply

In terms of basic economic structures, there is no apparent very profound difference between the Galilee and the rest of Israel. Data from the last Labor Force Survey show almost similar rates of employment in the various economic branches: for example 25% in manufacturing in the Northern district in comparison with 23% in Israel, 26% in public services as compared with 30%, and 13% in agriculture as compared with 6%. Even the apparently bigger difference in the agricultural sector is easily explained the higher frequency of rural settlements in the Galilee, and is nothing similar to the extremely high rates of agricultural employment in peripheral regions in the world. The basic economic structure of the Galilee is therefore closest to one of an urban economy than to one of a rural peripheral economy.

However, the quality of employment offered is much lower than in the urban centers. A most important indicator is the ratio of mature manufacturing activities: the relative weight (indicated through location quotients) of industrial branches such as textiles and food is at least twice higher in the Galilee than in the urban centers, and therefore the frequency of more advanced technologies is much lower. Such a difference could be understood if the quality of labor force was much lower in the Galilee, but as we have seen in a previous section, this is not the case. As a result, there is a clear disharmony between the jobs which are offered and the potential contribution of labor force. The consequence is a less effective use of the prevailing supply of human capital (employment of over-qualified workers), and higher levels of unemployment which may lead to migration to other regions. This disharmony is strongly expressed by the following simple data from the Monthly Report of the Employment Office for March 1990. Out of all jobs offered to unemployed people in Israel, 14% were not accepted by them; the rate in the Galilee is more than twice higher, 30%. The addition of new immigrants to the population of the Galilee may only intensify this problem, because of the relatively high levels of professional skills amongst them. Any strategy for the development of the Galilee should therefore be oriented towards the solution of this distortion, and it therefore should enable the stimulation of higher quality of jobs.

(4) Sectoral integration

With all its being relatively well advanced in terms of its infrastructures, its labor force, its accessibility to a modern and technologically advanced economy in Israel, the Galilee shows a sectoral disintegration which mostly characterizes real backward economies in the Third World. The severely criticized dualistic system of third world countries has been extended in the Galilee to what could be called a ‘trilistic’ system. As a consequence of various historical and political reasons, three different economic systems operate now in the Galilee with quite weak relationships between them: that of the rural Jewish sector, that of the urban Jewish sector, and that of the Arab sector. Separate approaches and interventions into those sectors may be identified in a wide variety of fields, such as the investments in infrastructures, the provision of capital incentives. Even in fields in which there are some contacts such as employment, the flow of workers from a sector to another is not quite free, because of ideological limitations and because of the preference given by each sector to its own workers.

There are at least two good reasons why any strategy for the development of the Galilee should be oriented towards a higher degree of integration between the three sectors. One is a purely economic one: the lack of an economic mass is one of the most important constraints which prevent a dynamic development of the Galilee, and the segmentation of the economy contributes heavily to that. A better integration of the economy of those three sectors are a necessary conditions for the provision of the minimal threshold needed for a more dynamic development in the Galilee.

(5) Spatial economic layout

The disintegration of the regional economy of the Galilee, and the resulting differential development types in its various areas lead to an inefficient spatial layout of economic activities. This is expressed by a problematic mobility of labor force from places of living to places of work.

Statistical data provide a clear indication of the low mobility of the Jewish labor force of the Galilee, probably both in the rural and the urban sector. While an acceptable proportion of the Arab population walks to work, the Jewish population has a tendency for a more spatially narrow employment market. Workers in villages tend to develop their own economic activities in the village as far as possible, while the labor force of the development towns tend to seek work mainly in their own towns, and less in other towns, or even less in other economic sectors such as the rural sector and the Arab sector. The creation of a more integrated regional economy would lead to a more efficient economic spatial layout, with a more acceptable pattern of mobility from living places to working places.

2. FUNDAMENTAL PRINCIPLES OF THE STRATEGY FOR THE DEVELOPMENT OF REMOTE REGIONS

A strategy for the development of the Galilee or of the Negev must be evaluated as a function of the goals formulated above and of specific conditions of the region. One of the most important constraints in a development strategy is the existence of conflicts between various development objectives. It may appear, for example that the economic development of the Arab sector and the creation of a demographic population balance are two conflicting objectives, requiring different development strategies. The regional development strategy submitted here is expected to have complementary influences upon all goals included above. In other words, there is a positive feedback between the attraction of immigrants to the Galilee, the creation of a more balanced demographic pattern, and the economic development of both the Arab and the Jewish sectors.

A basic premise of the submitted strategy is that the Galilee or the Negev should not be considered anymore as a peripheral region, or as an isolate economy which need answers for specific local problems. The main concept behind the principles of the devised strategy is the stimulation of the establishment of the foundations for a healthy free self sustained urban based growth economy in the region. Four main principles are submitted, as follows.

(1) A switch from a peripheral economy to a nationally integrated regional economy

At relatively low levels of economic development in a country, the development of a peripheral region is achieved on the basis of the promotion of a regional economy: development of its agricultural potential, of agricultural related industrial activities, and of region oriented types of activities such as construction, production for local consumption, etc. At this stage, activities in the sector of services are restricted mainly to local needs, and do not cover most of public and financial services. Industrial activities which are attracted to the region are generally characterized by mature type of activities (such as textiles). This economic pattern describes quite accurately the situation in the Galilee and in the Negev (excluding the Dead Sea region), since the establishment of the State of Israel and until the last few years, both in the rural and in the urban sectors, both in the Jewish and even more in the Arab sector.

Higher levels of economic development in the country involve normally a switch from the mainly regionally integrated pattern to a more nationally integrated pattern of development. This means a lower relative weight to agricultural and agricultural related activities, and to mature types of manufacturing activities. Economic activity in the region should reach instead higher levels of integration with the national economy, producing for national or international markets and entering into activities with higher technological levels.

Peripheral regions are already showing a few indications of first steps into the phase of nationally integrated economies. Some of the signs are the higher proportions of rural populations based on non-agricultural activities, the beginning growth of small- scale rural technologically advanced activities in industry or in services, the resentment of young labor force from employment in traditional types of industry and their demand for higher quality jobs, etc.

The approach should therefore be to facilitate this switch of the peripheral region to the second phase of economic growth, by helping it develop the necessary ingredients for its transformation into a growth pole, integrated in national economic structures. The following principles are directly derived from this approach.

(2) Spatial layout: a higher urbanization level

The Galilee and the Negev should be ‘urbanized’, meaning changing the prevailing rural pattern (many villages and small towns) into a more urban pattern, in which the villages are the hinterland of a growing urban center. This would be accomplished by choosing one or more potential centers and stimulate there a higher population growth and the development of basic social and economic infrastructures: housing, industrial parks, commercial centers, etc. Such a help would make costs lower and the attractiveness of the city higher. The size of the city should reach at least the minimum of 50,000 or 60,000 inhabitants, which could provide the necessary threshold for the development of many types of urban activities. In the Negev, the city of Beer-Sheva should be supported to play the role of a main urban center, as already agreed in the last comprehensive plan known as "Tama 31".

(3) Spatial layout: a better transportation network

The peripheral aspect should be ‘shrunken’ by the development of an advanced transportation infrastructure. A good transportation system should connect main cities in the region both with their periphery and with the national urban centers. Better roads and better transportation facilities can substantively decrease communication time and thus ease the mobility of production factors (including labor force) within the region and between the region and the center.

(4) A unified intervention approach

What should be the role of government in the implementation of such a strategy? The external intervention should be oriented towards the facilitation of the processes which are described above, with as little involvement as possible in the implementation of direct business ventures. Three main elements should characterize the external intervention, as follows.

First, a unified intervention approach should be adopted, replacing for the sectoral intervention which is in use now. This means that no separate policies should be used for the rural area, the development towns and the Arab sector. Such a unified approach would result in a quite different evaluation of measures and decision making as compared with the present approach. A concrete probable main effect could be the decision not to invest in infrastructures for a village and prefer an investment in a town. Another effect may be the provision of higher incentives for the development of economic activities in an Arab big settlement for the strengthening of a regional economic basis.

Second, the external intervention should be mainly oriented towards the creation of facilities for the economic development of the region. The concrete translation of this postulate is the stimulation of the establishment of heavy economic central infrastructures instead of help for the survival of specific elements in the region such as a village, an agricultural product, or a specific industry.

An important concrete implication of such an approach is that financial resources should be oriented more towards production objectives such as the facilitation of employment creation, than towards social objectives such as the building of housing. Housing construction should be evaluated mainly in terms of its contribution to the attraction of population and to the strengthening of the potential for economic growth. If the attraction of new populations of immigrants (or of veteran Israelis) depends mainly on the availability of jobs, an efficient policy could be the investment of most available resources in economic infrastructures and capital incentives. In this case, housing incentives should be restricted to help with less capital consuming patterns, such as the supply of temporary housing, caravans, etc.

Third, this top-down type of intervention should be complemented by bottom-up types of measures, mainly in the field of the stimulation of skills and entrepreneurship. The integration of a region into the national economy requires not only the adaptation of its capital infrastructures, but also the adaptation of its human capital. Two main types of intervention are required: the improvement of professional training, and the development of entrepreneurial abilities of the local labor force. This is specially true for the labor force of immigrants who dispose of a highly skilled level but which may need professional adaptation and help in the initiation of entrepreneurial ventures.

3. STRATEGY – CONCRETE SECTORAL IMPLICATIONS

The strategy submitted above implies drastic changes in the economic and probably social structures of the Galilee and the Negev. Those changes result from the approach which preaches for a more unified and concentrated development. In general terms, this simply means, on the negative side, that the approach of special help to specific sectors or population groups should loose its existing high intensity, in favor of help to growth centers. This apparently means almost abandoning and damaging some of the components of the region such as Jewish villages, non central development towns, and attributing higher preferences to a few towns which would be indicated as growth centers. It should not necessarily be so. Let us indicate in some details the concrete implications of such a strategy upon three main sectoral groups: the development towns and the population of immigrants which is expected to be attracted to them, the rural population, and the Arab population.

a. Development towns and new immigrants

If we adopt the definition of urban settlements used by the Central Bureau of Statistics, which considers as urban any settlement with a population of at least 2000 inhabitants, the Galilee for example has no less than 14 urban Jewish settlements, that in addition to 44 Arab settlements. Out of the 14 urban places, 4 have a population of less than 10,000 inhabitants and could be considered as extremely small, 4 others have a medium size population between 10,000 and 20,000 inhabitants, and 6 have a relatively large population. Those include the coast towns of Akko (with a substantive Arab population) and Nahariya, the leisure town of Tiberias, the valley town of Afula, and only two towns situated in the interior of the Galilee itself: Karmiel and Upper Nazareth.

The recommended strategy advocates the concentration in a few growth poles. There is therefore no way to consider the 14 development towns as growth poles, and a discriminating selection will have to be made. The selection of towns which can play the role of a growth pole and the definition of relevant criteria for that selection will be made in a later section of this paper. However, it should already clear that the selected towns for central economic growth will necessarily enjoy a more rapid population growth, and an economic structure mainly based on higher technology industrial activities, more growth and less manufacturing activities, public services, commercial and cultural services. The other towns will have the character of "satellites": a lower intensity of services and a higher dependence upon central services offered at the growth pole, industrial activities derived from opportunities created by the central industrial activity in the growth pole, and still probably in addition, mature peripheral types of industrial activity, depending on specific conditions in each place.

The absorption of immigrants would happen in all parts of the Galilee and the Negev, but naturally they would be the main source for the population growth of the main centers. No prediction can yet me made about the specific types of economic activities which shall develop in those centers, and they shall probably be highly influenced by the types of skills brought by the immigrants. However, in more general terms it can already stated, on the basis of available statistics, that the human capital invested in the immigrants is appropriate to the trends of economic development which are expected to take place.

About three quarters of the immigrants who have a profession are concentrated in the highest ranks of skills: scientists and academicians

(most of them engineers), liberal arts and technicians. The rate of such workers is much lower in the Israeli population (29%).

This professional structure is probably even more appropriate to the needs of the Israeli economic development in the future than the professional structure of the Israeli labor force as a whole. An analysis of patterns of economic development in the World economy and of the trends of the Israeli economy shows a growing tendency towards higher technologies. In a proposal recently formulated by H. Branover (1990) for the development of a model absorption project in Ofakim, it is stated that "it is imperative to adopt a different, non-conventional method in establishing a business project… Research and development groups are set up in certain chosen areas of expertise. Preference should be given to areas in which Russian science and technology is especially advanced. It is widely accepted that for instance Russia has world superiority in non-linear mechanics, mathematics, aerodynamics, energy, inorganic chemistry, metallurgy, some areas of material engineering, etc.. After a short initial period of consolidation these groups are able to offer R&D services to local and overseas technological companies… The substantially lower cost of R&D in Israel in comparison with the United States, and even more so with Continental Europe, increases considerably the competitive advantages of these groups, providing a suitable basis for the marketability of their services… While involved in selling R&D services those groups start selecting and developing a limited number of their own products which, after they are developed, can be manufactured by the company itself or given over under licensing agreements to existing industries (in the latter case the company serves as a project incubator)." (pp. 5,6).

It is important to reiterate that this requires the participation of Israeli veterans at least in entrepreneurship, and that "the absorption of new immigrant scientists and engineers has to go in parallel with their retraining, to learn technical and common languages, western standards, terminology, non-communist economies, finance, marketing, etc." (p.5).

A development plan for the absorption of immigration recently devised by Raanan Weitz and a team from the Development Study Center and the Settlement Department of the Jewish Agency (1990) identifies two main places in the Galilee: Karmiel and Safed. Those would be able to absorb 20,000 families. The "Tama 31" plan mentioned above identifies one main place in the Negev: Beer-Sheva.

b. The rural Jewish sector

Agricultural activity is extremely limited by the constraints of production factors and market, and any development of this economic sector can only make a marginal contribution to the development of the region. Besides the well-known financial crisis in agriculture, the most important and acute problem of labor force in moshavim and kibbutzim is the need for non agricultural employment, outside the villages. All new villages in the last years are not based on any agricultural activities.

Economic rural development in the last years is more and more based on non-agricultural activities. The experience of rural industrialization is not anymore limited only to kibbutzim as it was in the past, and has significantly increased in non-agricultural moshavim and communal settlements (yeshuvim kehilatiim). The relatively highly educated and skilled labor force in those rural settlements have been able to develop quite technologically advanced types of industrial activities. Those significantly differ from the peripheral types of mature industries, and are characterized by a quite high technological level.

Furthermore, there is a tendency for more privately oriented industrial activity, instead of the classical cooperative activity developed in the kibbutz. As result, economic behavior of rural labor force is more independent and less influenced by organizational or ideological constraints imposed by the village institutions.

However, this trend of privatization of the economic activity of rural labor force implies difficulties in the development of industrial activities of a reasonable size, like those which could be developed by the kibbutz. As a result economic development of those villages is restricted to small scale activities, sub-contracting and services to industry (examples are "Shemer Metals" in Koranit and "Tadbeek" in Manof).

Because of the small size and the relative scarceness of industrial activities, the more educated and skilled labor force have to seek employment in bigger industrial centers, such as Karmiel or Haifa, which may offer a wider variety of jobs. Those who do work within the rural area must in many cases compromise and accept jobs which do not fit their qualifications. This of course implies a loss of human capital. The development of urban growth poles within the remote regions would therefore not only not harm the rural economic development, but it would also stimulate it by offering better jobs to a highly qualified labor force. The types of rural settlements which are most frequent today, and the diminution of organizational and ideological constraints facilitate this harmony and identity of interests between rural development and the stimulation of urban local growth poles.

In addition to the supply of jobs for the rural population, the development of urban growth poles may have two other positive contributions to the development of the rural sector, as follows.

One is the attraction of population from the center of Israel to the Galilee and the Negev. High quality labor force which has wanted to change his life style and live in the rural area and could not do so because of the lack of adequate employment would now be able to do so. A simple indication is that most of the population which came to the existing new villages has come from nearer urban centers such as Haifa, while keeping their jobs.

Another contribution is the creation of higher economic activities in the villages themselves which could result from the proximity to stronger economic centers.

c. The Arab sector

In spite of a general trend of economic development, the situation in the Arab sector has always been in average much worse than that of the Jewish sector. In the last few years, this situation has seriously deteriorated as a result of the Israeli economic recession. A rate of unemployment of 20% is quite frequent in many Arab villages. The general feeling in the Arab sector is that the unemployment problem will aggravate even more as a result of the mass immigration from the Soviet Union.

This situation increases discrimination feelings amongst the Arab population and causes higher tensions with the Jewish population. Those feelings are specially increased by the suspicion that most of economic resources will be allocated to the incoming immigrants, and that there income sources will be threatened.

An important potential for the solution of this situation is apparently the development of industrial activities. Many recent research studies have indicated the existence of much capital resources in the hands of Arab business people who do not use them for economic activities. Potential investors were not attracted until now to the field of industrial activity, much probably as a result of the lack of minimal required conditions in the Arab region. Specifically in the Galilee, the Arab labor force includes many young and highly educated people who are not provided with the opportunity to find adequate employment and therefore to contribute to the industrial development of the region.

The availability of both the resources of labor force and capital is a condition for the development of modern industrial activities. The fact that capital accumulation in the Arab sector is not used for industrial development is explained by the lack of an adequate infrastructure in the Arab villages. The development of a better infrastructure would therefore stimulate a more efficient use of existing capital resources.

The solution of all infrastructure problems in the Arab villages is not feasible in the near future. Therefore, an alternative feasible solution may be the development of collective industrial parks which would serve a group of Arab villages, or of Arab and Jewish villages. Ideas in that direction have been suggested by a few Arab leaders and are quite coherent with the general strategy suggested here for a concentrated growth pole approach. Such a solution should provide a feeling of trust amongst the Arab population that their resources can be used for their own interests. This would considerably increase the investments of Arab capital, and therefore contribute to the development of the Arab sector as well as that of the whole region.

4. CONCLUSION: STRATEGY EXPECTED BENEFITS

(1) The supply of reasonable economic and social conditions in a city can permit the attraction of new populations to the region, both of immigrants and Israeli veterans. This may provide at least a partial answer to two of the most acute problems faced by the Jewish Agency and by the Government of Israel today: the problem of absorption of masses of immigrants, and the demographic problem of the Galilee.

(2) The stimulation of a growth pole opens economic opportunities and offers a much wider variety of jobs than many small cities, because of the threshold argument. One example is the ability of various types of services to exist or to offer a better quality only beyond a minimal mass of demand (such as higher levels of education, recreational services, certain public services, etc.). Another example is the need of certain types of technologically advanced industrial activities for a substantive supply of qualified labor force.

(3) Furthermore, the creation of new masses of population naturally implies the appearance of new economic systems. Being a part of a rapidly growing town, the new immigrants can influence its economic raising structure through the professional assets they brought with them, and therefore reduce the needs for professional conversion and minimize loss of human capital.

(4) A better communication infrastructure increases the mobility of labor force, and therefore significantly increases the supply and variety of job opportunities which can be considered by the local population. It also facilitates the ability of economic activities to exist outside the main urban centers. In sum, a better communication infrastructure would facilitate the attraction of investments to the city, the employment of local labor force outside the city, and the employment of outside workers in the city, or in other words, a better integration of the city in the national economy.

(5) The existence of a relatively big city and of a good transportation network would also provide a reasonable solution to the employment problems in the rural area, from two aspects. One is the supply of bigger quantities and of a wider variety of jobs for the rural labor force. A second one is the basic infrastructure offered by the city for the development of economic initiatives by the rural labor force in technologically advanced fields.

(6) The integration of the Arab sector in the process of economic development can benefit both the Arab sector itself by enabling it to make a more efficient use of its economic potential, and the Jewish sector by providing larger scales for economic activities in the region. The State of Israel as a whole would benefit from a better regional economic integration and most probably from the diminution of conflict potentials between the Jewish and the Arab sector.