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Trade and Economy

Expert opinion prepared by Dr. Doron Lavee and Tomer Ash of the Pareto Group, Inc

Past developments: The government was involved in the market and gave priority to economic development and full employment. In general, as both regulator and employer, government opposed the imposition of environmental limitations on governmental bodies. The economy was small and geared towards local needs such as construction, agriculture, and infrastructure.

 

Current trends: The Israeli economy shifted from local production to foreign trade, which today accounts for 61% of the GDP. These days the economy is very vulnerable to globalimpacts. Per capita GDP has risen to $28,000, a development that was led during the past two decades primarily by elite technology (high tech). Privatization of the economy resulted in separation between the regulator, on the one hand, and the producer and employer on the other, thus enabling government – as regulator – to set environmental restrictions and to work for the inclusion of social and environmental liability in business. The Israeli economy adjusted itself in accordance with global market conditions (including OECD requirements) and international environmental standards. Today, despite the high level of concentration of the economy, particularly in the area of banking, it does not affect environmental issues. There is a close link between the defense industry and innovation, generating a spinoff of innovation in the civilian sector.

 

“Business as usual” scenario: Global economic activity is expected to double by 2030. The Israeli economy, a small player within the international marketplace, is vulnerable to fluctuations. To date the Israeli economy has demonstrated an ability to withstand crises and continue developing. GDP grew during the past decade by 20% and since the 1990s by approximately 75%. In recent years there has been a significant increase in the export of chemicals and medicines, which however have severe environmental consequences. At the same time, the transition from production of goods to provision of services (which characterizes developed countries) is likely to reduce pressures on the local environment that result from industrial production. If current trends do not change, the increase in GDP per capita is likely to be reflected in increased household consumption, which will affect the environment. In order for the increase in level of GDP per capita to continue, the economy should generate a competitive advantage, refrain from risks, and develop the ability to adapt to changes that take place in the global market, as well as transition to “green growth” practices. Given the dependence on global market developments, the government will need to adopt measures designed to place the economy at the forefront of innovation, including “cleantech” industries and especially those areas in which Israel has a competitive advantage and the potential to position itself as a global leader.

 

Recommendations for the future:

  1. Making Israel a leader in innovation will require extensive investment in education, research and development, training institutions, and promotion of technological and non-technological innovation.

  2. The fields of green growth, cleantech, efficiency, and reduction (of raw materials, energy, water, land-use, and waste) are potential avenues for market leadership.

  3. Israeli could find itself in competition with global markets and exposed to risks related to import and export.

  4. If Israel’s foreign debt increases, it will be inherited by future generations.

  5. Under a scenario in which Israel does not take measures to encourage innovation, Israel could lose its place in the global markets and experience a decline in GDP per capita.

 

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