Last week, the Cabinet passed an uncommon resolution to delay new construction in Judea and Samaria for ten months. This is a one-time-only, temporary decision.
I know you’re all interested in economics, but there are some journalists here tonight who are interested in something else. So if you’ll allow me to address them for a moment, they’ll be able to go – and then we can talk about economics.
Last week, the Cabinet passed an uncommon resolution to delay new construction in Judea and Samaria for ten months. We did this after broad consideration of our national interest and because we want to revive the peace negotiations with the Palestinians. I want to clarify that we have no intention of impeding the normal, daily life of the people living there. Our decision does not cover the 2,500 homes already under construction or the 492 other ones that were recently approved. Nor does it apply to classrooms, kindergartens, synagogues or other public buildings that will be built during this period. Still, I know this decision not to approve new construction is difficult. It’s hard for the residents of Judea and Samaria. And it’s very hard for me personally.
The people living in Judea and Samaria are an integral part of our nation. They contribute, they perform public service and they volunteer. They are our brothers and sisters. And that’s why I want to tell not only them, but all Israelis, our Palestinian neighbors and the entire international community exactly the same thing that I said explicitly to leaders around the world: this is a one-time-only, temporary decision. As the Cabinet decision reads, and I have made clear in both public and private, we resume construction at the end of this period.
The future of settlement in Judea and Samaria will be decided by a permanent peace agreement and nothing else. We have to start peace negotiations so they can be completed, and I hope the Palestinians will stop refusing to begin talks. They need peace as much as we do.
We need economic growth too. The state of the economy was pretty uncertain just a year ago. Some even compared it to a plane doing a nosedive. They said that it had to be stopped and that we need to change course. That’s basically what we did, but our goal is not just to stop the dive, but to take off again – and this will mean making a number of changes. We have to continue our reform of the capital market and strengthen our main growth engine: high technology. Lost of changes will have to be made in this field, but even that won’t be enough.
The main thing we’re going to do, immediately, is make a fundamental change with regard to asset registration, in the planning and licensing of construction. Like me, you might be wondering how we can lead the world in per capita production of knowledge-based technologies and still trail behind in per capita income. After all, more than any other country in the world, our economy is driven by our "know-how". This is the component that contributes the most to our economy.
There are a number of answers. One of them is the sins of the past. We had numerous problems in the past to weigh us down. The ratio of debt to GDP reflects this.
But we’ve got good news on this front: we’ve managed to bring the ratio down. Aaron Fogel mentioned the discussions we had when I was Finance Minister back in 2003, when our debt/GDP ratio was over 100%. Now, it’s come down by more than 20%. Meanwhile, the ratio of other countries has since worsened. It doesn’t make me feel better, but at least we’ve managed to prove that we could turn things around in a short period of time. It’s a sign of the future. This will change the landscape of the Israeli economy. And we’ll continue to reduce our national debt, but this won’t be enough by itself. We also have to join the club of developed countries, a process that is already underway. Even during my first tenure as prime minister, I set the goal of Israel becoming a member of the OECD.
Finance Minister Yuval Steinitz is leading our important efforts to keep modernizing the economy – passing the two-year budget, and initiating many other steps. We are working hard to be accepted into the OECD and I hope we will achieve success soon, even before your next conference comes around.
Why is this so important? Because we want an influx of investment. It’s not just that we want to be a member of the club for prestige or because of its high standards. That’s all well and good, but they’re not the only reasons. The main reason is that the large reservoir of investment funds around the world are guided by the simple criterion that they can only invest in developed countries. In OECD countries. Once we’re in that category, the door will be open for a great deal of money that can potentially flow into the Israeli economy.
We need investment, and investment will come only if we can guarantee stability. Our economy has shown that kind of guaranteed stability over the past eight months, but we have to continue with our plan for the coming months. If you were to reconvene in another six months, you would see what I mean. In fact, I think that you, as journalists covering the economy, should meet every half-year. Incidentally, I think that the expanded economic coverage has been great for Israel and for its global competitiveness. It’s important that the economic debate takes center stage in the Israeli experience and especially in our school system.
In any event, what we are planning is nothing less than revolutionary. We are already revolutionizing planning and construction procedures, and it’s important to understand why we’re doing this. One of our greatest resources – land – is all tied up. I read a number of books by Hernando de Soto, who wrote that land is a huge resource – but also a "dead" one if it’s locked up. Of course, the value of land depends on location. The fortune of the richest people in the world might be able to buy two or three blocks in Manhattan. Land has tremendous value. But if it’s blocked, the value can’t be realized.
To a large extent, the land in our country is blocked. The World Bank said as much in its report “Doing Business”. We’re ranked 120th in licensing for construction. On the upside, we had been placed 160th in asset registration, but have jumped to 147th, somewhere between Angola and Zimbabwe. I think we’re ahead of Bolivia. Of course, I have great respect for these countries, but we aspire to keep improving our ranking.
All these things together hamper our economic activity. And the 5% growth we’ve had over the past several years has owed to the reforms we’ve succeeded in implementing – but the real estate market has been excluded. So we now have an opportunity to meet this demand, but there is still great uncertainty because it takes so long to get anything done.
I asked my staff for a presentation on the steps it takes to get a building permit in the State of Israel – on one slide. It turned out to be a very crowded slide. So we continued to a second slide, and then a third and a fourth. There were dozens of steps and all kinds of arrows pointing in every direction because of the appeals process. They ended up going around in circles. It’s agonizing not only for entrepreneurs, but for everybody. It makes economic growth impossible and creates uncertainty and additional cost for investors.
It limits the amount of land available for construction. It increases the price of housing. And it aggravates social tensions. There is almost no construction in peripheral areas and the gaps just grow wider. Property is the most valuable asset that people possess and when there’s no construction on the periphery, land there has no value and social gaps increase between different parts of the country. So our new policy is not just an economic one, but will also create momentum for social change.
During the previous Knesset session, we passed the Israel Land Administration Law. This is an essential step in our reform program, although, again, not enough to stand alone. It was so critical that I risked my government’s future just to pass it. We knew that the whole train would be derailed if we could not take this first step.
What do we have planned for the coming year? Hundreds of thousands of Israelis are going to get a questionnaire in the mail or by e-mail. We’re going to ask them whether they want to change the status of their property. Apartment owners and property owners, all in one shot.
We’re already changing the situation regarding the registration of assets. And with the Israel Land Administration Law, we’re increasing the availability of land. Additionally, once every week or two, I sit with a team of ministers and professionals to advance major changes in the function of the municipal committees and the district committees. It’s all done with full transparency, even though nobody’s paying attention. We’ll be shortening and simplifying procedures, and increasing transparency. And Let me be clear: we have no reason to interfere with the environment or competent administrative practice. On the contrary.
Every new reform begins with one simple question: why does it take so long to get a construction permit? Why does it take so long to plan a road or a railway? Why does it take years? It would never take this long to plan a project in the private sector. What military would take years to plan an operation? What corporation would take years to plan its next move? Do we have this anywhere else except the public sector? It takes years. How hard is it to plan? Every process can t be shortened. I’ve never understood this.
When I entered the public sector, they explained that things like these take years because there are a number of steps and because people always have objections. I asked why the process couldn’t be shortened, and why every department in every ministry should have veto privileges in this endless chain of decision-making.” The answer is that nothing is preventing us from simplifying these processes. It won’t harm our national interests. So we’re making these changes; we’re i bringing a revolution to the planning, licensing and construction bureaucracy in the State of Israel. Including the expropriation of land for roads. All these changes will provide an impetus to the development of the Negev and the Galilee.
We’re making huge investments in infrastructure. People don’t believe that it will really happen, but getting permission will soon be as simple as making a request, posting it on the internet and getting started. And not just for building a balcony or a gazebo, or adding another 25 meters to their apartment, but for lots of other things. It’s going to happen. Some things will take 45 days, others 90 days. There are lots of surprises in store, but they’re not actually surprises. The public just doesn’t believe that we’re going to do away with these tedious steps, all of this bureaucracy.
I’m speaking from experience, because I know that after these things happen – after there is a Highway 6, for example – people ask themselves how they survived without them. There was another Highway 6 last time I was prime minister, involving foreign currency. In1996-1997, people warned me, as the prime minister, that it would be a disaster to open the currency markets. I thought it would be a disaster if we didn’t.
I have to thank Stanley Fischer, the Bank of Israel Governor, for his important work on this. It was my honor to offer him the job, and we’re lucky that he agreed. He’s doing an incredible job of overseeing and supervising our economy. But the whole system was turned on its head in one fell swoop. They said that a mountain of money would move – and it did, but not away from Israel. It came here as investments in Israel . Overnight we turned from a Third World country into a developing one. Many people had doubts about this reform but it was played a major part in catapulting the State of Israel into the 21st century.
Just a few years back, you needed special permission from the Bank of Israel if you wanted to leave Israel with more than a few thousand dollars. And if you came back without reporting, you were considered a criminal. It brought down governments. It may be hard to believe now, but that’s the way it was. Israeli companies designed the software that enabled the global economy to transfer tens of billions of dollars from one side of the planet to the other, but Israel was considered a Third World country.
Freedom of movement for financial capital unshackled the Israeli economy. Greater certainty about our economy attracted increased investment. Israeli companies grew into international competitors able to protect themselves against fluctuations in the local market by investing in other countries, in Eastern Europe and elsewhere. I only mention this because it’s unbelievable when you look back at the economic press of the time. And then you look at what they reported about the Israel Land Administration reform. All we did was release 4% of the land over an extended period. It’s a simple reduction in the amount of public land from 93% to 89%. You’d think we had “abandoned” the national homestead, compounded by the revolution in the Planning and Construction committees that we want to bring to the current Knesset session. This is important news that’s going to help us narrow the gaps.
We have to facilitate ongoing construction and growth of between 1% and 2%, high technology notwithstanding. I think that these changes alone can add an additional 2% to GDP for at least ten years – and they don’t require public investment. There will be investments in transportation, in highways and railways – but most of them will come from private sources, both in Israel and abroad. Once we change the rules and make the process simpler, shorter, more transparent, more certain and more stable, it will be clear to everyone that there is a great opportunity here.
I hope you’ll all play a part in this process, in many different ways. The capital market will be an integral part of the growth that these activities will generate. And I repeat my suggestion that you invite me back in six months to report on what the Knesset has already accomplished and on our plans for the future.