111. Economy of Israel

The articles in this series have thrown light on the spectacular progress achieved as a country by Israel over just the last seventy years, or so, that is from its birth till today. Today, Israel is a highly developed ‘Free market’ economy based on Information Technology and hi-tech research. Thanks to it, Israel has developed sophisticated infrastructure facilities, various welfare schemes for the ordinary man as also a high-technology zone like ‘Silicon Wadi’ which directly rivals ‘Silicon Valley’.

Economy, progress, kibbutzim, communities, austerity measures, Israel, Bank Stock Crisis
Modern infrastructure in Israel

Israel is next only to the United States with respect to the number of startups. Also, the Israeli companies are the third largest numerically, behind only the United States itself and China, when it comes to listing on ‘Nasdaq’, a leading stock exchange in the United States. Impressed by the performance of the Israeli hi-tech sector, the big-tech companies in the field like Intel, Microsoft, Apple, IBM, Google, HP, Cisco, Facebook, Motorola, etc. have opened their research and development centres in Israel.

Apart from the high-technology sector, Israel has also achieved fast-paced progress in industrial technology. For example, though Israel does not produce cars, Israeli companies have the lion’s share in the making of systems like the GPS, etc. which are used in the modern automobiles. Likewise, these days, many advanced factories shift the processed pieces from its origin assembly line to some other for further processing. These factories use robots over humans to perform such tasks. Israeli companies lead in the making of such robots. Consequently, multinational companies have acquired many such Israeli firms.

Besides, businesses developing the ‘Fourth Industrial Revolution’ technologies like the ‘Internet of Things (IoT), Robotics, Artificial Intelligence (AI), Virtual Reality (VR), etc. are growing fast in Israel. Many of these technologies marry the physical world objects with modern technology to make them smart.

Apart from the fields mentioned above, diamond cutting and polishing is a significant contributor to the Israeli economy. More than 23% of the overall Israeli export revenue comes from the activity. In fact, the Israeli diamond industry accounts for more than 12% of the global turnover. Israel offers wholesale prices for diamond cutting and polishing. Thus several global companies in the field get their work done from here.

Economy, progress, kibbutzim, communities, austerity measures, Israel, Bank Stock Crisis
The Israel Diamond Exchange

However, it has taken untiring, diligent efforts by the people of Israel for their nation to have reached this position. When Israel achieved independence, the economy was ailing and financial mismanagement was prevalent all over the country. Expenses of Israel’s War of Independence were mounting, further straining the economy. At the same time, the Jewish immigrants were returning to Israel from across the world in hordes. Newborn Israel faced the issue of providing a livelihood to these teeming thousands. The droves of immigrants led to a collapse of all the financial plans for some time. Unemployment had risen while the foreign exchange reserves had hit rock bottom.

Under these circumstances, the immigrants took to ‘community living’. These communities or the ‘kibbutzim’ played a crucial role in strengthening the foundation of the economy by focusing on agriculture and other professions at the start.

However, money is a must to run a nation. Before its independence, Israel received funds from the Jewish Diaspora and their friends spread across the world. However, after achieving independence, to stabilize the economy, Israel had to search for the sources of income other than such remittances.

In the first place, in 1949, Israel adopted ‘austerity measures’ to fight the then financial crisis. The phase which lasted for about a decade saw Israel implement the system of ‘rationing’ for the distribution of the essential commodities.

Along with all of it, the first Prime Minister of Israel, David Ben-Gurion came up with the idea of the ‘State of Israel Bonds’. After coming to the terms that even the austerity measures would prove insufficient to overcome the fiscal stress, Ben-Gurion decided to give a try at the option. The Jews from across the world could buy these bonds. The bonds served two purposes – firstly, they let the money flow into Israel. Secondly, they gave the Jewish Diaspora an opportunity to contribute towards the development of ‘their own nation’. The bonds received a good response from across the globe. The very first year itself saw the sale of bonds double than the target. Furthermore, whenever Israel faced war, may it be the Six-Day War of 1967 or Yom Kippur War of 1973, the sale of the bonds increased. The bonds are sold till date and have fetched $43 billion so far for Israel.

Economy, progress, kibbutzim, communities, austerity measures, Israel, Bank Stock Crisis
State of Israel bonds conference

In the meantime, in 1952, owing up the responsibility for the large-scale atrocities against the Jews committed by the Nazi rule, West Germany agreed to pay reparations to Israel. Accordingly, $1.5 billion was decided as the final amount which West Germany paid Israel over a period of 14 years. It proved to be a great essential support for the sinking Israeli economy.

Leaving aside a few exceptions like the period of some years after Yom Kippur War, the ‘Bank Stock Crisis’ of 1983 which saw the four largest banks in Israel collapse, some years of the ‘Dot-com bubble’ in the decade of 2000s, the Israeli economy is growing steadily though at a moderate pace. Individual thought and special efforts given to the sectors like agriculture, financial services, high-technology, energy (non-conventional sources of wind and solar), industrial production, pharmaceuticals, diamond industry, defence contracting gradually bore fruits. Along with it, the ‘Economic Stabilization Plan’ of 1985, which included austerity measures at government establishments, privatization of loss-making government-owned companies, price control applied to the essential commodities and the ‘market-oriented’ economic reforms which followed the 1985 plan, played a special role in bringing the slipping economy back on track.

In the last few years, the change in the equations between Israel and quite a few countries has increasingly attracted foreign investment to the land. Moreover, despite Israel being a free market economy, international investors have confidence in its capacity to withstand the shocks and the ups and downs of the global economy. A pointer to the fact is the increasing acquisitions of Israeli high-technology companies by the multinationals at high prices.

‘Bombs are falling, but the Israeli economy is rising’ – this is how London’s ‘Financial Times’ had praised the economy of Israel. All the above facts indeed prove how true is the statement!  (To be continued…)

– Shulamith Penkar-Nigrekar

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