During the Great Recession of 2008, the Israeli economy weathered the worst effects of the global economic crisis and continued to grow, according to a new paper authored by Tamar Almor, a professor of business strategy and entrepreneurship at the College of Management Academic Studies in Rishon Lezion, Israel. The Jewish Week spoke with Almor, who attributed Israel’s economic strength to its high-tech industry, which features small companies that are nimble and innovative. However, she cautions that if Israel fails to invest more in education and research and development, the country could lose its economic advantage.
Q: Were you surprised to discover that the Israeli economy actually grew in 2008?
A: It was quite surprising. In Israel during 2008 lots of people were talking about the crisis and how it was affecting Israeli exports. Some high-tech companies even had layoffs. There was a feeling in 2008 that there is a crisis in Israel as well. But the figures didn’t show anything like that. The macroeconomic data shows growth. Israel’s outgoing FDI [Foreign Direct Investment] increased by 11 percent. Unemployment in Israel declined by 1.2 percent. And Israel’s GDP increased by 4.1 percent in 2008.
How did Israel manage to weather the economic recession?
Israel is a very entrepreneurial country and very dependent upon international trade; 75 percent of exports from Israel are technology- or knowledge-based. Most of Israel’s high-tech companies are global in reach but are small and agile as compared to the large, multinational companies we have in the States, like HP or Dell. The smallness allows them to be much more agile than the big companies, in that they can target different markets in the world. Also, many Israeli products are must-have products. Even during a financial crisis, you will continue upgrading your firewall or antivirus protection.
There must have been local economic factors, as well, that contributed to Israel’s growth.
The Bank of Israel is run by Stanley Fischer, who is the top economist in the world. He made sure that the government did not bail out any companies experiencing any problems. Also, we didn’t have sub-prime crisis like you have in the United States. In Israel, you cannot get a loan for a house unless you put down at least 20 percent of its value.
What role does Israeli innovation play?
Many Israeli companies are selling services and technologies that will reach the end user only in a few years from now. Companies continue investing in innovative technology in order to maintain their competitive advantage for the coming years. One company I looked at was Mobixell Networks, a small Israeli startup that sells multimedia and advertising solutions for cell phones. In 2008, their sales continued growing. Part of the reason for that is that the company operates in China and India as well as the European Union and the United States. But companies realize that if they won’t have technology that will allow for greater use of cell phones in the next few years, they won’t be able to compete in the coming years.
How can Israel maintain its economic edge?
It’s very important for Israel in the coming years to invest in education and research. Israel has not been doing enough of that in the past decade. Part of what we’re seeing today was produced by a previous generation of scientists and engineers. Israel will have to make a much more serious investment in coming years if it wants to maintain its position in the world as a source of entrepreneurial high tech companies. If Israel loses this edge, I don’t know how the Israeli economy is going to survive.