TAKING STOCK IN PEACE

[An Interview with Prime Minister Benjamin Netanyahu]
Will telecommunications continue to be the market in which Israeli goods and services are brought to the attention of worldwide consumers? What other growth markets do you see Israel competing in?
Every aspect of the information economy offers great potential for Israel. We have the highest concentration of knowledge workers per capita of any society on earth. We have more scientists per capita than any other country in the world, 110 per 10,000 compared to the next country, the United States, which has 85 per 10,000. If you think of the wealthiest people in the world today, 10 years ago they had nothing. Their success has been achieved by the manipulation of knowledge, not by, say, the manipulation of the raw material of gold or oil. Israel has this kind of intellectual raw material in abundance.

We have a perpetual motion machine, called the defense establishment, that is increasingly high tech and exceptionally sophisticated in the areas of communications, encryption, decoding, lasers, computer simulators, and robotics. In this way the curse of maintaining a national defense has turned into an economic blessing. Each year, as thousands of people leave the military for the marketplace, they become part of the growing phenomenon which is Israel's Silicon Valley. In the last five years, we've had over 3,000 startup companies in the high-tech industry, which is more than any other country in the world, except the United States. We will soon be entering into the field of biotechnology as well. Any industry without exception, any product without exception, is susceptible to knowledge manipulation and design improvements that can make the material more effective to consumers. This is what Israel can offer, great versatility and high-tech expertise.

The influx of immigrants from the former Soviet Union had both a positive and negative effect on the Israeli economy. Although increased population brought unemployment levels up, the institutional knowledge and brainpower that came with it boosted Israeli economic development. Will Israel continue to rely on immigrants to boost its research and development?

I would say that immigration of Soviet Jews to Israel was the one redeeming grace of communism. It gave us tremendous scientists, technologists, engineers, and even a concert violinist. Immigration has boosted the Israeli economy, and it has boosted the size of the market. But above all, it has given us the manpower that is so important for the development of an information- based society.

We continue, obviously, to have immigration from the East. There are about a million Jews still in the former Soviet Union. I expect at least half of them to come here. And increasingly, as Israel's GDP per capita rises - it has now passed the Western European average - Israel will begin to have immigration from the West. It's already beginning to happen from England. Immigration is a potential from any place in the West where the per capita income is less than Israel's current $17,000 GDP per capita. As Israel's growth rate continues, and it will, I expect the day not to be too far off when people in North America will immigrate to Israel for economic reasons. It sounds incredible, it sounds far- fetched, but it's going to happen. And it'll take about 12 to 15 years, but if we continue to advance economically through a combination of free-market principles and abundant high technology, we will make Israel one of the richest societies on earth.

As the Israeli economy grows, how will the incentives offered to foreign investors evolve?
We welcome foreign investment and we have lifted practically all of the restrictions on foreign investments. You can come here and buy companies, run the companies, and make money. We want people to make money here. We especially want Israelis to make money here. And people are making a lot of money. Some of them are failing, too, which is what free markets are all about.

In essence, what we have done in the last 12 months is to drastically liberalize the economy. For years, everybody talked privatization, but like the weather, nobody did anything about it. But, in the last 12 months, we privatized 30 times more than the previous government.

How do international investors fare in this privatization?
There is a world-wide industry saying gloom-and-doom things about the future of peace in the Middle East and about the future of the Israeli economy. They say that, in Israel, the hope is gone. These slogans are now pumped up in the international media because we're in the final stages of achieving peace with our neighbors, and the early stages are a hell of a lot easier than the final stages, which include negotiating final borders and solving the dispute surrounding Jerusalem. That's the tough nut, and it has to be resolved. So, obviously, we're carrying the inevitable difficulties, which we will overcome.

Despite this gloom and doom perception, however, in the last 12 months, Israel has enjoyed the greatest infusion of foreign investments into Israeli businesses in the history of the state. And that is because the international community recognizes that the policy of this government is toward free markets - without apology and without hesitation. We're moving very rapidly in that boat. And as I said, the combination of highly sophisticated technology and a booming economy is very attractive. The world is starved for technology, starved for it. There are very few sources of quality manpower - and womanpower - capable of the technological innovation that you find in Israel. There are maybe two or three countries in the world that can provide such innovative capacity. Therefore, foreign investors ar rushing into Israel, especially when they know that there is a hospitable climate as far as specific laws are concerned. We're looking at investment laws with a view to making Israel more comfortable, more convenient, and more attractive to foreign investors. That continues to be our policy.

The Israeli GDP has grown almost 42 percent between 1990 and 1996. Do you foresee a continued growth pattern into the 21st century?
Yes, but I think we'd have to have an adjustment because of overspending. We've had to bring down the deficit by a record amount, because of the enormous amount of international overdraft that we have received. This inevitably causes a momentary slowdown that you are already seeing, but this is a necessary part of the process. I was in England meeting with European leaders last year, and I asked them the question: "What advice do you give me as a prime minister just entering the government?" And they all said, "Cut the budget now". It's interesting, because some of them said it with a smile because they said, "We did it", and some of them said it with a forlorn look on their faces and said, "We didn't do it". So the advice was unanimous, and I took it, and I did it.
What steps have been and will be taken to ensure the security and stability of the Israeli economy to foreign investors?
The economy is moving inevitably and irreversibly toward a market economy, but the crucial factor is to ensure a continuous supply of technologically sophisticated manpower. So in addition to liberalizing the economy by deregulation, which we're doing with a vengeance in privatization of both government assets and government services, Israel needs the creation of a new infrastructure to support its rapidly growing economy. Our infrastructure is outmoded: it needs rapid rail lines, and it needs rapid transit and toll roads. Our water, which needs desalinization, is going to remain an issue even after we solve the territorial disputes with our neighbors. We'll also have to discuss a regional power blitz to rationalize the use of energy with our neighbors and the supply of gas and oil from the Persian Gulf region. Furthermore, once we have completed peace with our northern neighbors, we will have the possibility of constructing a land route that will connect North Africa to Asia for the first time in more than half a century.

All of these things offer immense possibilities for investment and immense possibilities for growth. But the number one criterion for economic growth is freedom. We're making Israel very free, and that will continue, and that, I think, is the greatest, most important confidence that foreign investors need.

As far as security is concerned, the most sophisticated foreign investors apparently are not concerned with it. They realize that if they look at the 50 years of Israel's existence, we've never had any damage done. We had to undergo a few wars before we began the circle of peace, but throughout these wars we've never had any damage done to any economic enterprise in Israel, foreign or domestic. But I want also to assure the investors that I am absolutely confident that we will complete the circle of peace with out immediate neighbors - with the Palestinians, with the Syrians, and with the Lebanese. It's a tough negotiation, naturally, but we are able and ready to conclude it. A government from the left can begin a peace treaty and do the easy ones. They cannot do the hard ones. For that, you need a government from the center right.

In your opinion, do the benefits of the rapid growth of the Israeli economy outweigh the risks associated with the state of political affairs in the Middle East?
It's not my opinion that counts, it's the opinion of an enormous number of investors who are coming in here that matters - initially, American and European, and now increasingly, Asian and Korean. Israel is developing economic ties with the entire world because every country can benefit from Israel's technological advances. For example, our contracts with China, which have grown very rapidly, are based primarily on the fact that Israel can offer technological advances in agriculture - not only in very sophisticated techniques of irrigation, but also in the actual design of agricultural products through genetic engineering.

Israeli technologists also bring products to market a lot faster than their counterparts in other countries. I've tried to figure out why that is the case, and I think it's probably due to the fact that many of our technologists come from our military discipline, which wants results quickly and tends to cut through committees. When you're dealing with the kind of military training that we have, you simply must make decisions, and the most important thing in a technological process, besides creativity, is decision making.

How important is foreign investment in dealing with unemployment and inflation?
It is, obviously, highly important. Investment brings growth, and growth creates employment. But I view this in the larger context as well. A good portion of our GDP is in exports, and a good portion of that is high- technology exports to sophisticated markets - over 90 percent of our trade is with North America, Western Europe, Japan, and the other developed economies in Asia. Having foreign investors enables us to produce capital for growth, create marketing challenges in the form of joint ventures, and enter sophisticated markets to develop a better understanding of the products and the clients.

The world is discovering Israel. Recently, there was a survey of investment firms in the United States, and Israel was found to be the number one preferred country for foreign investment. We were above Britain. Obviously the size of our economy is smaller, but that, too, will change. Population will grow. The GDP per capita will grow rapidly. These increases will not only make Israel wealthy on a per capita basis, but they will make us a significant economy on a world scale as well.

How do you see the peace process moving ahead, and where do you see Israel politically in the year 2000?
The peace process will move ahead, there's no question about it. It will move ahead because the parties have a vested interest in making sure that it is achieved. The crises that accompany any sensitive negotiations are occurring here, too, and the shortsighted people that think that the process is stymied and will not go forward. It will go forward because it must. In this regard, as in many other things, I'm a contrarian. When I first came in here and the stock market crashed, there were those who said there was no hope. But people are changing their views on the economy, and I think people, the wise ones, the contrarians, who look deeply into the issues - will change their views on peace. Believe me, the peace stock will rise to great heights.

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