The Israeli Economic Miracle

By Noah Pollak
Against the backdrop of the events that typically cause Israel to be in the news — the conflict with the Palestinians, war with Hezbollah, genocidal threats from Iran, and the like — people often forget that there are normal things happening in Israel. And in many cases, extraordinary things, like the amazing performance of the Israeli economy over the past decade. “Haaretz reports”:http://www.haaretz.com/hasen/spages/880525.html that the TA-25, the flagship index of the Israeli stock market, has increased forty percent in the last year. A period that has included a month of warfare, massive public discontent with the Israeli political echelon, and the takeover of Gaza by Hamas.

The TA-25’s performance over the past year.
This remarkable record has been occasionally noted in the press. If you’re curious, you can read pieces in the “Financial Times”:http://www.ft.com/cms/s/090e5dd2-e88e-11db-b2c3-000b5df10621.html, the “Christian Science Monitor”:http://www.csmonitor.com/2006/0522/p01s03-wome.html, and the “Jerusalem Post”:http://www.jpost.com/servlet/Satellite?cid=1164881847771&pagename=JPost%2FJPArticle%2FShowFull. And “this profile”:http://www.haaretz.com/hasen/objects/pages/PrintArticleEn.jhtml?itemNo=727337 of one of Israel’s leading venture capitalists by one of Israel’s leading journalists, Ari Shavit, is fascinating.
What accounts for this growth? A vital factor is of course the Israeli culture, which embraces entrepreneurship, risk-taking, and ingenuity. But no economy, no matter how entrepreneurial its people, can flourish in the poisonous soil of socialism. Israel was always strangled by an overbearing bureaucracy, punitive levels of taxation, and suffocating regulatory policies. In 2003, Benjamin Netanyahu became Ariel Sharon’s finance minister, and during his three-year tenure pushed through a set of “market-friendly”:http://www.ft.com/cms/s/8ec69b4e-0867-11dc-b11e-000b5df10621,dwp_uuid=f98b03ba-4d11-11da-ba44-0000779e2340.html, and desperately needed, reforms. The resulting growth is more evidence that Netanyahu’s greatest accomplishment in government is arguably his economic reforms; he is Israel’s Thatcher, and the line we see today that ascends across the TA-25 index is in large part owed to Bibi.
Add Israel’s to the list of economies that have been saved from self-destruction by simple and obvious market reforms.