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The biggest businessmen and entrepreneurs are abandoning Israel.

Revisit the headlines of recent weeks. There is no doubt about it: never before has Israel witnessed a rush like this of investors, entrepreneurs, companies and concerns to invest in European and American real estate.

Yitzhak Tshuva emblemizes the trend. He started as a little real estate developer in Netanya. Seven years ago he bought Delek Group (TASE: <a target="_blank" href="http://www.themarker.com/eng/tools/toolsResult.jhtml?application=8&chosen=1084128">DLEKG</a> and in the last ten years, he's been soaking up properties and energy-related assets around the world, spending billions. The crown jewel was buying the Plaza hotel in Manhattan. In short, his gigantic local business is dwarfed by the scope of his global affairs.

The automatic Israeli reaction is - of course they're moving on. This is a terrible country that eats its citizens alive. You can't do business here. Red tape strangles everything and bad will kills off what's left. And Israel will lose out investments as the rich seek greener pastures. We'll be begging them to return one day.

Now for a moment of reality.

The mass exodus of the rich and richer over the last here years is one of the best things that's ever happened to the Israeli economy, the Israeli marketplace and perhaps to Israeli democracy and the rule of law as well.

The exodus began in the 1990s but accelerated in the last three years, and for good reason. Israel's economic problems from 2001 to 2003, its low economic growth and the credit crunch led big business to grasp the drawbacks of focusing their attentions on the Israeli marketplace. Israel's real estate and business sectors are small; they suffer from inadequate liquidity; and they are highly sensitive to changes in the security situation.

The roaming of Israel's businessmen will enhance their knowhow, their sophistication, and their professionalism. It will free up room in the Israeli arena for smaller players who would otherwise have had trouble making a mark.

Concern about capital flight, exacerbated by the tycoons' threats to take their business abroad, is baseless. Israel's marketplace is not short of money, foreign currency or local or foreign investors. What it lacks is structural reforms, aggressive regulation to enhance competition, and a strategic plan to scale back the bloated public sector.

When the Bank of Israel and Finance Ministry liberalized the forex market in the 1990s, gradually making the international capital markets accessible to Israelis, many warned that it would end in tears, with financial meltdown as capital left the country.

A record year

Reality proved to be quite the opposite, of course. The more open Israel's economy became to capital movements, the more attractive it became to foreign investors. The more open the markets, the harder it was for the government to commit economic idiocies that would sent capital abroad in the first place.

At the star of 2005, the last remaining restrictions on capital exports were abolished. It is no coincidence that 2005 was a record year for foreign investment in Israel. More than $10 billion was invested here in stocks, bonds, hi-tech and other sectors. The upswing in Israel's economy and in the security situation played no small part in the influx of foreign money, but the wide-open economic doors were paramount.

Israeli democracy also wins from the exodus of the tycoons. During the 1990s, their focus on local investments and financing created excessively influential centers of power in the economy. The circles of politicians, public servants and journalists who could withstand their pressures had been dwindling, and when the recession hit, the tycoons turned all the more aggressive in their attacks on the people guarding the public assets.

If the glaring focus and dependence of the giants on Israel is diminished, we can expect the pressure they impose on Israeli democracy to wane.

By the way, another question is begging for attention: the fate of all those gargantuan, highly leveraged investments these Israelis have been making in the U.S., Canada and England. Did they really find a way to make new fortunes, or is it just another bubble?

These businessmen wonder, and so do investors and analysts throughout Europe and the U.S., where real estate prices have been steadily climbing for the last five years. In the last couple of years the pundits have been shrieking "Wolf" and warning that a real estate crash could reduce the whole world into recession. Yet the market has been laughing all the way to the bank, quarter after quarter.

The answer to this multi-trillion dollar question is naturally of vast interest to the Israeli tycoons and to their shareholders, but it is not an Israeli question that should lost the local leaders any sleep. The billions they invested abroad had been borrowed from foreign banks and bondholders, not local ones. If they fall, it will be their problem and for a change, can't be rolled over to the Israeli banker, the Israeli investor or the Israeli taxpayer.