The Israeli economy has weathered the current global economic crisis better than most countries, according to three leaders in the Israeli and American markets. Speaking at the Sixth Jerusalem Conference on Tuesday, they also had some clear recommendations for the future.
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While Israel is in a better economic position currently than both the United States and the European Union, all speakers agreed that maintaining stability will require urgent policy changes. Critical to Israel's economic future, they said, was the state of Israel's education system and its small to mid-size business market.
In a post-lecture comment, Zvi Stepak, Chairman of the Israeli Meitav Investment Group, pointed out that due to the massive government bailouts in the United States, the American government is now more involved in the private economy than is the Israeli government. The U.S., he claimed, is now closer to where Israel stood 30 years ago in terms of government intervention than where Israel itself stands today. He also predicted that Jewish immigration to Israel is likely to increase in coming years due to the global economic situation.
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Eli Kazhdan, the CEO of CityBook Services, set the tone when he said that an investment in Israeli banks several years ago would have been a far better investment than in any of the world's leading banks or private economic giants. However, Fred Ehrman of Brean Murray Carret and Co. in New York, called the worldwide downturn "the early phase of a once in a century economic decline."
This period, Ehrman said, is both better and worse than the 1930s. On the one hand, people will not likely be in the streets to the same extent as during the Great Depression until World War II. On the other hand, the global reach of the economic crash is far more extensive, as is the debt incurred by the leaders in world economies.
Proposals to Cushion Israel
Ehrman put forth several proposals that he said would "cushion" Israel from the ongoing crisis, "none of which will be enacted," he cynically added.
Enthusiastic applause greeted Ehrman's statement that the government should "stay out of the way and let business do their thing." He explained that the government needs to be seriously shrunk, taxes need to be cut and small businesses need to be encouraged.
In addition, Ehrman claimed, the Israeli economy is under the thumb of several key families, forming an oligopoly that strangles competition. To meet this challenge, the courts need to look into seriously enforcing anti-trust legislation. In one of several examples he described, Ehrman claimed that the influence of the oligopoly shut down a Negev-area free-trade zone he was involved in planning. Nearly 30,000 potential jobs, he said, were lost.
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Finally, as did other speakers, Ehrman described the Israeli education system as being "in disrepair." It urgently needs to be fixed in order to take advantage of the nation's "greatest natural resource", its "human brainpower," Ehrman said.
On the Verge of Fascism?
Following the speakers' prepared remarks, Stepak recommended increasing government support for education and cutting what he called the "bloated" defense budget. He also was not in favor of an immediate cut in taxes because tax revenues have sharply dropped.
While he commented that excessive optimism and excessive pessimism are both equally unwise at this stage, Stepak did put forth one extremely pessimistic scenario. During the question and answer session, he suggested that if the global depression continues for many years, then there is a significant threat of the rise of 1930s-style populist fascism and anti-Semitism. Stepak specifically pointed out the tensions in Europe between Muslim immigrants and native Europeans as a critical factor in this direction.
A long-term economic depression, Stepak warned, "invites wars," both international and internal.
'No VCs, No Israel'
Ken Abramowitz, Managing General Partner of NGN Capital in New York, spoke about the venture capital (VC) market as a prism of the global economic crisis. Comparing Israel's "key success factors driving VC investing and general economic growth" with those of the EU and the US, he praised the Jewish State's "remarkable accomplishment." Israel, with seven million people, is not far behind the EU with its 300 million citizens, he explained.
Abramowitz presented his own recommendations for Israel to maintain its position in the VC market. Like previous speakers, he singled out the need for more resources to universities. He suggested means to obtain those resources: higher tuition, higher student loans and tax deductions for contributors to increase endowments.
While insisting that in general he is not in favor of government intervention, Abramowitz said that Israel's Office of the Chief Scientist, which supports start-ups in their early years through technology incubators, is a good program that deserves more financial support.
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The Israeli Tax Authority, Abramowitz continued, must act to encourage investment. To attract capital to Israel, he explained, tax officials need to give up short-term tax revenue from foreign investors in order to benefit in the long term.
Finally, Abramowitz insisted, Israel needs more VC money. "No VCs, no Israel - it's that simple," he declared. The Israeli government, he explained by way of example, could encourage investment in VCs through providing risk management incentives and directing government-invested funds towards venture capital.