TLR 176: Chugging along nicely — but the engine needs servicing
April 2, 2016
This issue reviews both the current strength of the Israeli economy and the problems facing it.
The current strength is the ‘good news’ part of the story, especially since the economy performed better in 2015 than had been expected and because the main positive developments came in the latter part of the year and seem to be extending into 2016. That makes the first part of the analysis — “Jam today” — a smooth and pleasant ride.
Problems are, by definition, less pleasant — but the focus here is to distinguish between different kinds of problems. One category is of issues widely-perceived to be serious, but which are not so in reality. The much-ballyhooed “housing crisis” is the best example of this genre, but by no means the only one.
Far more serious are underlying, long-term problems for which no easy solutions are available — and the fact that they are, in many cases, common to many countries is not a source of comfort, but rather the opposite. The problem of low productivity is one such problem, but the discussion shows that Israel has some unique characteristics in this regard, which provide grounds for optimism as to a solution over the medium- and long-term.
This is not the case with respect to the socio-political phenomenon of populism, which is casting a lengthening shadow over the world — and the developed world in particular. In Israel, political populism has been held at bay so far, but economic populism is spreading fast and chalking up successes which, in the best case, are annoying and stupid from a rational perspective but, in some cases, are dangerous and damaging. Ironically, the ongoing strength of the economy serves to obscure how potentially serious are its long-term problems developing in the background.
a) Jam today —√
b) Jam tomorrow — ?
Exports and exporter concentration
Lack of investment/ Low productivity