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Last update - 10:36 06/04/2008 The Economist: Israeli economy stable but has shaky foundation By TheMarker Staff Tags: Israel, money, Economist  The Economist, arguably the most important economic magazine in the world, has devoted a special section in this week's edition to the Israeli economy in honor of Israel's upcoming 60th birthday - and what is has to say is not all good, to put it mildly. Israel may have an astonishing economy despite having so many wars, writes the Economist in classic British understatement, but then continues to draw much less complimentary conclusions: The economic miracle and high growth is mostly based on a one-time opportunity in high tech, and the country is not prepared for the future. It praises the Israeli economy for growing by more than 3% per year over the last four years, well above the average for developed nations, despite the second intifada, the costs of the Gaza disengagement and the Second Lebanon War. But it also calls the engines of economic growth punier than they look. Advertisement "Beneath its gleaming high-tech skin, the body of Israel's economy is slightly worn. True, the country has some successful industrial giants and does well in a few export niches such as generic drugs, weapons systems and agricultural and water-treatment technology... However, much of the country's traditional industry (e.g., machinery, chemicals, clothing and food), which accounts for more than half of its jobs, is lacklustre. Average industrial productivity is around half that in America. One reason: Israel leads the world in R&D spending as a proportion of GDP, but this is heavily concentrated in high-tech. In more traditional industries the rate is just a quarter of America's," writes the magazine. It further says "Israel's ability to capitalise on the internet boom was a lucky one-off." In particular the magazine criticizes the low participation in the workforce, particularly in the ultra-Orthodox and Arab sectors. It further draws attention to a long list of problems such as overweening bureaucracy, mediocre infrastructures and institutions, and low labor efficiency and productivity. It calls the state of the education system "perhaps the most serious threat to Israel's long-term prosperity, and the one that most troubles ordinary Israelis." It also explains that wealth is over concentrated in too few hands, with income inequality one of the highest in the developed world. Further, economic growth has not reduced poverty and the number of children living below the poverty line has actually grown. In addition it takes a look at the middle-class, and finds it suffering, too. As to the causes and solutions, The Economist places much of the blame on the political system, calling it "chronically dysfunctional." And they are not overly optimistic about the future either: "It is politicians, not their voters, who will have to approve a change in the system. The risk is that whatever they agree on will continue to serve their own interests better than the country's." Finally, of course, there is the question of the peace process and the Palestinians. As to an Iranian bomb falling on Israel, The Economist may not think that is too large a threat, but such a bomb, even if unused, "will prompt the best and brightest Israelis, who are also the most mobile, to emigrate and tip the economy into an irreversible decline." Related articles: IMF: Israeli economy shows exceptional performance Bank of Israel: Cabinet's multi-year plan endangers the economy Fischer says he'll do everything possible to prevent recession Bookmark to del.icio.us   In his father's memory Gilad Sharon's son plans to write his father's memoirs as he lies in a coma. Jammed FM Police close an English radio station which encourages Israeli-Palestinian dialogue.   1.   the economist and silly comments on an economy 11:02  |  v hardman 06/04/08   2.   Agree and disagree 11:17  |  Ofer from Ofer 06/04/08   3.   "The Economist" on the Israeli economy 11:47  |  Luttwak 06/04/08   4.   Negative Spin towards Israel of the Economist 12:01  |  Shalom Freedman 06/04/08   5.   The Economist`s shaky view of Israel. 12:02  |  David Nigel Braham 06/04/08   6.   If the economy is bad now, just wait until 12:36  |  spyguy 06/04/08   7.   Why do we care... 12:51  |  E Goldstein 06/04/08   8.   Luck? - no! Skill... 13:15  |  Raoul 06/04/08   9.   My Goodness, all these hurt ego`s 13:23  |  Mark B. 06/04/08   10.   Such crying from the TBers 13:46  |  Adam Smith 06/04/08   11.   "THE ECONOMIST" IS SO RIGHT...... 14:34  |  Robert 06/04/08   12.   #6 sapyguy the man who makes a pessimist look like 14:49  |  v hardman 06/04/08   13.   SPYGUY.You should see the Arab economy -without oil 15:47  |  PETER SM 06/04/08   14.   MARKB"brightest and number one in everything" Who claimed that? 16:15  |  PETER SM 06/04/08   15.   A second thought after reading `The Economist` article 17:08  |  Shalom Freedman 06/04/08   16.   The Economist`s unusually careless analysis 17:23  |  Bill 06/04/08   17.   Selective Article 17:43  |  guy 06/04/08   18.   # 16 bill 19:44  |  Axel 06/04/08   19.   Reply to Axel 20:13  |  Bill 06/04/08   20.   MARKB.Understand now who really are the "best of ALL NATIONS"?? 23:09  |  PETER SM 06/04/08   21.   The Economist is right, unfortunately 01:20  |  Josh 07/04/08   22.   World Economy 06:13  |  Andrew 07/04/08   23.   Unbelievably shallow... 07:29  |  msh 07/04/08   24.   article is correct 16:15  |  g. lee 07/04/08   25.   Did they mention unsustainable use of well water ... 06:38  |  Israel_is_Done 08/04/08

Today Online Ben-Eliezer: If Iran attacks, we will destroy it Responses: 249 U.S. evangelist pledges $6 million in contributions to Israel Responses: 159 U.S., Israel fear Iran has N. Korean nuclear know-how Responses: 142 Akiva Eldar: Time for Bush to intervene in Mideast peace talks Responses: 87 More Headlines 06:14 Ramon: All Ofra homes built on private Palestinian land 02:03 Home Front civil defense drills to continue with 10 A.M. siren 03:28 Evangelist to Yoffie: 'I'm not trying to undermine peace' 02:36 Opposition to national service in Israel's Arab sector is bitter 05:25 Aharon Barak breaks silence: Friedmann's reforms will make Israel a third-world country 06:39 Gaydamak, Pensioners poised to form new Knesset faction 03:44 Court extends remand of sixth suspect in case of abused Jerusalem toddlers 00:33 Friedmann lashes back at Supreme Court and Barak 04:15 Palestinian, 15, dies after hit by bus carrying settlers in W. Bank 05:36 Report: Settlement planned for Gush Katif evacuees likely to damage nature preserve Previous Editions Select Day 07 apr 06 apr 04 apr 03 apr 02 apr 01 apr 31 mar 30 mar 28 mar 27 mar 26 mar 25 mar

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