1 "It isn't a sudden death that Israel faces. It's a slow death that will take years. The global economic crisis forced the government to inject billions upon billions of shekels into the big banks, exposing the flaws in economic policy over the last decade. Economists at the international rating firm Moody's say that from 2004 to 2008 the Israeli Finance Ministry succumbed to intense political pressure and increased the national debt to 100% of GDP, instead of taking advantage of the boom in the global economy to reduce the debt.
"The fact that the banks control most of the provident and mutual funds led to massive withdrawals from these vehicles after the collapse of Lehman Brothers, which forced the treasury to inject billions upon billions of shekels to stabilize the financial system.
"The ensuing credit crunch led to an unprecedented wave of bankruptcies. Tax collection imploded.
"Now Israel is exactly where much of the West is, with a giant budget deficit, a national debt climbing toward 120% of GDP, and an unprecedented jump in the interest that foreign investors demand on Israeli government bonds. Now factor in the regional instability and it becomes clear why Israel suffered so much more than other countries from the global economic crisis."
Did you feel sick reading that? Take it easy. It isn't a real quote. Indeed, "slow death" did appear in a Moody's report last week, but it wasn't about Israel. The report was about two countries that until fairly recently had been considered to be in Israel's peer group: Greece and Portugal.
Israel's story is actually the complete opposite. Following the financial and broad economic crises in 2001 and 2002, Israel changed its economic policy beyond recognition. The government maintained low budget deficits, reduced the debt-to-GDP ratio to its lowest point ever (resisting powerful forces) and instituted a sweeping reform that extracted the provident and mutual funds from the banks.
The result is that even though Israel is a small, export-oriented country, it weathered the global financial storm relatively well and is prepared to resume growth this year.
Will our leaders leverage the economic-policy successes of recent years to treat Israel's chronic economic diseases - the deterioration of education, the absence of proper governance in the public sector, low productivity at the publicly owned monopolies, the concentration of power in the business sector, or the way the tycoons and big unions have taken over the public agenda?
If they don't, then the very nightmare scenario with which we began will come true, whether in five years or 10. Israel missed its chance, analysts will say. "Competition declined, education collapsed, productivity diminished. It has lost the global race. Its great achievements of the last 60 years have gone down the drain."
2 America, Europe and China
Meanwhile, on the other side of the globe, America has been getting bad press. Maybe because it has a strong press, or because it's the world's biggest economy. Maybe it's because the world's second-biggest economy remains in, remains split in many ways, 17 years after its great unification.
If you don't follow actual numbers and just read the headlines, you might think that the American economy was destroyed in 2009, dragging down the whole world. But the actual figures tell a different story.
During the last four quarters for which we have final figures, we find that the U.S. economy grew by 2.2%, while Germany's economy contracted by 4.7%, Britain's by 5.1%, Italy's by 4.6% and the euro zone by 4.0%. Certain European Union countries including Ireland, Spain and Greece are on the brink of financial collapse, with spiking unemployment.
What the United States and Europe do have in common is high unemployment, about 10% in both cases. What continues to weigh on America, more than on Europe, is a giant trade deficit, equivalent to about 5% of GDP. The euro zone has no trade deficit at all, in part thanks to Germany's exports.
The financial meltdown of 2008 greatly bolstered the fashion of writing obituaries of the lazy, blubbery and sated American economy that would be overtaken - be it in 10 or 20 years - by the nifty economy of China and other emerging markets.
China is indeed a giant country with an especially hungry population, headed by a dominating political party that has shown plenty of skill managing its economy over the last decade. It has been developing very fast and everybody in government or in the street is utterly confident that China is poised to conquer the world. America's dominance is a mere deviation that will shortly be corrected, they say.
But America shouldn't be written off just yet. Its culture of business, government and academics isn't about to be replaced by Chinese versions.
Stanley Fischer, the governor of the Bank of Israel, spent much of his career in emerging markets around the world and admired the rise of the tigers. But he also knows their problems. He, too, doesn't think eulogies for America are apt, he told TheMarker last week in an interview.
China, in any case, poses a tremendous opportunity for Israeli business, given the Chinese admiration for Jews, especially Israelis. While Europe and the United States have become increasingly sour to Israel during the last 20 years, the East has not. China has not.
China ranks 72nd on the global corruption index, while America ranks 18th. Freedom of the press is limited, and China's protection of property and intellectual rights is selective. Until a few weeks ago the consensus in the West was that doing business in China involves a great deal of risk. But the market there is too big and important for anybody to just ignore it.
Of course, that could change. Last week the search giant Google announced that it was thinking of leaving China because of government censorship of the Internet there and hacking attacks against Chinese Google surfers. Google's prospectus states that it is committed to an ethos of "don't be evil," and the company's supporters say its threat means it would choose its principles over the gigantic Chinese market.
Cynical observers say Google never achieved significant market share or profits in China anyway, so it's willing to take the risk. But the battle between Google and China won't be forgotten fast. Many Western companies could be affected before the story is over as they reconsider the long-term effect of doing business in China.
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