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Economic Policy Settings that Led to the Remarkable Economic Transformation

Discuss about the Israel’s Economic Transformation for Economic Growth.

As per the report of Bank of Israel, Israel has witnessed the highest economic growth. There is a surprising rise in the Gross National Product of the economy. It thus indicated the real value of the economy in spite of inflated currency. The population level increased two times after the modern state of Israel came into existence in 1948. The per capita GDP of the economy has increased remarkably since 1960. The economy went ahead of USA in terms of innovation as explained by the Bloomberg innovation index.

The report studies the factors that caused the economic transformation in the economy. Gelvin (2014) mentioned that the economic transformation is influenced by the occupation of the individuals, income patter, infrastructure and facilities, market demand, availability of resources and others. This study, therefore, identifies the particular factors that caused economic transformation in Israel. Further analysis is made on the ways in which the economy has changed or time since the young nation had been founding.

As per the statistics of Israel, it has been observed that the population level grew from 806,000 (1948) to 7.2 million in 2007 (Knesset.gov.il. 2017). The average annual growth rate was 3.8% during the time period 1948 to 2007. With the increase in the population growth, the geographical distribution of Israel has also increased to a significant level.  It was 43 individuals per square kilometres in 1948 while it has reached to 316 individuals per square kilometres in 2007 (Mfa.gov.il. 2017). Moreover, after the World War II, the level of education in the economy has gone up to a higher level. In 1955, 631,000 people were there in the labour force count, and this rose to 2.9 million in 2007 (Merkin, Arditi-Babchuk & Shohat, 2015). Similarly, there has been growth in the other factors of the economy in terms of standard of living, foreign trade, and technological advancement, manufacturing process, construction, transport, and tourism and accommodation services. The overall growth in the economy of Israel resulted in mass immigration. According to Horowitz (2014), such an advancement in the economy has been an outcome of the economic policy setting that Israel considers in order to bring about the economic transformation. 

In the opinion of Webber & Smith (2014), among the several economic policy settings, the major factor that contributed the economic boom of Israel was the establishment of Occupation-Settlement Enterprise. The last three or four decades identified Israel as a westernized country, which is wealthy to the world, not only in terms of lifestyle but also regarding self-image. However, this was not the scenario during the 1960s. While studying the reason that helped Israel to achieve economic boom over the same time frame, it can be identified that like Japan, South Korea or Taiwan, Israel too showed a keen interest in export. The other economies became global industrial export powers. Enyedi & Volgyes, (2016) pointed out that the export of Israel has not reached the ‘Tiger’ level, which the above mentioned economies had achieved. The export level of Israel never exceeded the imports until 2010. Thus, the author states that Israel is not an ‘Asian Tiger.' It can therefore, be stated that there are other policy settings that gave way to the economic advancement.

The Ways in Which the Changes Over Time has Occurred

The agricultural position of Israel has been outstanding during the 1930s to 1960s. The economy further experienced effective traditional industry from the 1950s to 1980s (Webber & Smith, 2014). The concept of neo-liberalism was also a factor that contributed to the economic transformation. In the mid-1980s, the neo-liberal dogma was followed in the macro-economic policy of Israel. This led to continuous improvement in the neo-liberal marks. However, Kazziha (2015) mentioned that neo-liberalism was not the only factors. The massive persistent growth period that Israeli economy experienced was the six years after the 1967 war. There was a doubling in the per capita GDP of Israel in this time duration.

Pollock (2017) cited that the indicators that helped to thrive the economy was a rise in the export-import ratio of Israel from 1: 7 in 1948 to 2:3 in 1973. There was also a high jump made by the economy in the industrial labour force from 80,000 in 1950 to above 250,000 in 1973. Simultaneously, there was an increase in productivity in agriculture (Mfa.gov.il. 2017). The farmers of Israel were capable of offering 85 percent of food needs along with exporting nearly about $160 million of food products (Knesset.gov.il. 2017). The economic growth was possible because of the influx of $12 billion in foreign funds since the last 25 years and the immigration of efficient and skilled professionals who were trained from abroad (Jewish Telegraphic Agency, 2017).

The government of Israel was recommended to participate n the establishment of $100 million foundations in order to build job opportunities for the new immigrants. The foundation tends to be concerned with the activity of providing jobs to those individuals who held degrees from universities in humanities and social studies. However, the reports suggest that Israel became wealthier due to the start up period of Israel’s occupation. As observed by Kleinberger (2014), the attributes that to the remarkable economic transformation was education. It acted as a long term growth engine in Israel. The encouragement of the Ultra-orthodox and Arabs to take part in the labour market by providing job scopes and skills also played an active role. The cutting down of the rigid regulations promoted business in the economy. Nevertheless, there was a large amount of investment in transport infrastructure in Israel (Enyedi & Volgyes, 2016). The investment involved activities like constructing roads and railways. This investment was made with the intention of connecting the Galilee and Negev together.

In the initial condition, the Government extensively controlled the economy of Israel. However, with the passage of time, the economy converted itself into a free market economy. The changes came into existence since the 1960s. The policy makers of the economy realized that the government intervention played a huge role. Thus, a slow and gradual process of economic liberalization was considered by Israel. The noticeable change was first observed in the foreign trade. The tariff protection took over the quantitative restrictions on imports. Moreover, the import substitution and export were encouraged using realistic exchange rates. Israel further considered several partial trade agreements such as free trade area agreement (FTA) in industrial goods in 1975, European Economic Community (EEC) in 1964 and the FTA agreement with the US in 1985. The Israeli economy tried to bring changes in the economy over time since the foundation of the Young nation with the support of these policy changes (Eh.net, 2017).

There was a change in the degree of trade liberalization by the end of 1977. In that duration, the fixed exchange rate system was changed into a floating rate system. This supported the Israeli economy to liberalize the restriction on the capital movement. However, the liberalization process of the capital soon seemed ineffective because of the inflation that came up in Israel. The capital liberalization was possible only after the new century began. The economy considered other liberalization measures during the 1980s and 1990s that were in the form of monetary policies, domestic market capital, and government intervention in the economic activities. However, there was a drastic reduction in the level of government's role. Despite some of the economic function of the government was increased. There was an introduction of health insurance systems and private health providers within the nation. Other social welfare payments such as child allowances, pension to the older person, unemployment believes and minimum income support to the individuals, below the poverty line were also increased (Chyutin, 2016). This helped to increase the overall performance of the economy. With better medical facilities, the life expectancy increased (Aharoni, 2014). There were lesser health issues, which further gave rise to individual’s productivity. The issues of income inequality were addressed to a large extent. 15 percent of the government's budget was used in the health services by 2003; other 15 percent was for the education and 20 percent was kept for transfer payment through National Insurance Agency.

The Israeli economy has been able to achieve this level of growth and prosperity due to the continuous adaptation of economic innovation and ability to cope up with the economic fluctuations (Austin & Kumar, 2016). However, there still prevail economic issues such as lack of knowledge regarding reconciling innovation, dislocation of labours, and increased income inequality. It is thus important for the policy makers of Israel to reconsider the policy settings that will help to address the prevailing issues in the economy.

Conclusion

It cannot be denied that the important growth engine of the economic boom in Israel was the Israeli hi-tech. However, Israeli hi-tech came into consideration during the mid of the 1980s and had matured during 1990s. Thus, the hi-tech was a contribution to support the growing economy. The changes in the policies, reducing the power of government to operate the market, signing treating with partners were some of the approaches. These approaches were considered by the policy makers of Israel in order to bring about the economic transformation since the foundation of the young nation.

References 

A Brief Economic History of Modern Israel. (2017). Eh.net. Retrieved 14 January 2017, from https://eh.net/encyclopedia/a-brief-economic-history-of-modern-israel/

Aharoni, Y. (2014). The Israeli Economy (Routledge Revivals): Dreams and Realities. Routledge.

Austin, C. M., & Kumar, M. (2016, February). Sovereignty in the global economy: an evolving geopolitical concept. In Geography Research Forum (Vol. 18, pp. 49-63).

Chyutin, D. (2016). A hidden light: Judaism, contemporary Israeli film, and the cinematic experience (Doctoral dissertation, University of Pittsburgh).

Enyedi, G., & Volgyes, I. (Eds.). (2016). The Effect of Modern Agriculture on Rural Development: Comparative Rural Transformation Series. Elsevier.

Gelvin, J. L. (2014). The Israel-Palestine conflict: One hundred years of war. Cambridge University Press.

Horowitz, D. (2014). The Economics of Israel: The Commonwealth and International Library: Social Administration, Training, Economics, and Production Division. Elsevier.

Israel’s Economic Growth Since 1948 Reported As Highest in the World. (2017). Jewish Telegraphic Agency. Retrieved 14 January 2017, from https://www.jta.org/1973/05/21/archive/israels-economic-growth-since-1948-reported-as-highest-in-the-world

Kazziha, W. W. (2015). Palestine in the Arab Dilemma (RLE Israel and Palestine). Routledge.

Kleinberger, A. F. (2014). Society, Schools and Progress in Israel: The Commonwealth and International Library: Education and Educational Research. Elsevier.

Knesset.gov.il.  (2017). Retrieved 24 January 2017, from https://www.knesset.gov.il/govt/eng/GovtByNumber_eng.asp

Merkin, S. S., Arditi-Babchuk, H., & Shohat, T. (2015). Neighborhood socioeconomic status and self-rated health in Israel: the Israel National Health Interview Survey. International journal of public health, 60(6), 651-658.

Mfa.gov.il. (2017). Retrieved 24 January 2017, from https://mfa.gov.il/MFA/Pages/default.aspx

Pollock, G. (2017). What’s behind Israel’s biggest economic boom? The occupation | +972 Magazine. 972mag.com. Retrieved 14 January 2017, from https://972mag.com/whats-behind-israels-biggest-economic-boom-the-occupation/81038/

Webber, M., & Smith, M. (2014). Foreign policy in a transformed world. Routledge

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