The growth of Israel's high-tech sector is a well-known success story. But a more discerning analysis of Israel's economic performance suggests that victory laps are very premature, writes Dr. Glenn Yago, Director of Capital Studies at the Milken Institute and a Senior Koret Fellow, in an introduction to three new economics studies published by the Koret Israel Economic Development Funds (KIEDF) Koret Fellowship Program economists in Jerusalem.
According to the findings, Israel must reduce the dominant and distorting government role in budget and regulatory policies, disincentives for entrepreneurs to enter the financial markets, and continued ownership and regulatory interference in many economic sectors.
"The ability of Israel to strengthen its economy and achieve national economic security is now directly linked to the country's ability to encourage enterprise, innovation and competitive, sustainable markets," writes Yago. "Israel unfortunately still lacks the effective and efficient financial institutions, capital markets and financial tools to realize these goals."
The papers were released at a conference at the Israeli Knesset, "Financing Israel's Future: Policy Innovations for Economic Development," on November 8. The event was sponsored by the KIEDF. Key findings include:
- Small business comprises 96.5 percent of Israeli business but receives only 10 percent to 23 percent of local credit. Less than 1 percent of all borrowers received over 70 percent of all credit.
- Securitization in the U.S. is at a rate of 230 percent of GDP; in Israel, four years' worth of securitization barely reaches 15 percent of GDP.
- Israel's inner cities are crumbling, distressed areas are defined by 10-year-old statistics and local laws prevent private or philanthropic involvement in urban revitalization by means of business improvement districts or tax incentives.
Yago supervised the research initiatives of seven Koret Fellows - graduate students awarded year-long fellowships to assist members of the Knesset and government ministries on economic matters.
This publication includes the following:
Introduction: Financing Israel's Economic Independence, by Glenn Yago
Securitization: Bringing a Modern Financial Instrument to Israel, by David Dvir and Yohay Terri
Urban Revitalization in Israel: Emergency Care for the Inner Cities, by Shelly Hassan and Diana Zaks
Credit Discrimination in Israel: A Proposal for Reform, by Aharon Mohliver and Eyal Seri
To learn more about KIEDF, visit their web site at www.kiedf.org.
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