Travel Reference
In-Depth Information
The trend toward growing state intervention came to an abrupt halt in 1985 with the Eco-
nomic Stabilization Plan. Among its key planks was a sharp cut in government spending,
which led to declining budget defi cits and an end to nearly all subsidies on consumer goods.
The tax burden drifted lower to an average rate of 37.6 percent by 2004 -2006. The government
undertook measures to deregulate the economy and sold off many of its biggest businesses,
including Israel Chemicals (1995), telephone operator Bezeq (2005), and Oil Refi neries (2007).
Between 2003 and 2008, Israel kept its defi cit under 4 percent of GDP, which let it pay
down debt and reduce its borrowing. In fact, the government's fi nancial picture improved to
the point where it had earned enough confi dence from foreign investors that it could borrow
money abroad without U.S. guarantees. The defi cit widened to 5.8 percent in 2009 in an effort
to counterbalance the effects of the world recession, but that was a small increase by the stan-
dards of developed economies, and by 2010 the fi gure was below 4 percent again.
Nevertheless, by U.S. standards, Israel's government continues to occupy a very large place
in the nation's economic life. At 44.2 percent of GDP in 2007, government spending was higher
than the OECD average. Israel's debt burden fell to 79.8 percent of GDP in 2007, but that was
still twenty points higher than the OECD average. State-owned enterprises still control elec-
tricity, water supply, and ports and make up the lion's share of the defense industry.
U.S. AID
Israel is the biggest single recipient of U.S. foreign assistance since World War II. Today it re-
ceives more money annually than any country other than Iraq (an average of about $3 billion
annually since 1985), even though by every measure Israel has a wealthy, developed economy.
Moreover, Israel gets its aid money under far less restrictive terms than other countries do.
The United States has also helped Israel by guaranteeing bonds issued by its government
abroad.
The fi rst large-scale U.S. assistance program began after the Yom Kippur War, and in subse-
quent years the aid made a substantial contribution to the economy. In the 1980s, for instance,
U.S. aid equaled about 14.5 percent of GDP, and now, even with Israel's much larger GDP, it
equals about 1.5 percent. However, as Israel's economy has grown, the relative importance of
U.S. aid has shrunk. The aid now goes almost entirely to military spending, and three-quarters
of that is spent by law in the United States. While that eases Israel's defense burden, the main
benefi ciaries of the sales and jobs created by the aid are U.S. companies and workers.
HUMAN RESOURCES
By global standards, Israel's labor force is small and high cost, two characteristics that long
handicapped it in developing large and competitive industries. Where its comparative advan-
tage lies is in skills and education. Both have proven to be invaluable resources as the world
economy moves toward more knowledge-intensive industries and services.
The proportion of people in the labor force with sixteen or more years of schooling was 30
percent in 2006, the same level as in the United States and the second-highest level in the world.
Two decades earlier, the fi gure was 16 percent; but in the interim Israel's higher-education sys-
tem expanded immensely. The number of university graduates grew almost fourfold in the
