Continued Growth Contingent on Carrying Capacity

A significant socioeconomic advancement that would bring about an improvement in Israel's quality of life requires a change in long term macro-economic trends. The government's carrying capacity is a central factor ensuring the success of achieving this agenda.

As reported by the Israeli Bureau of Statistics, the Israeli Economy grew at annualized 6.3% in the first quarter, indicating the persistence of relatively high growth compared to other developed countries.

However, the Bank of Israel reports a slowdown in the economy's growth rate.1

For Israel to undergo a socioeconomic leap, it needs a significant change in long-term macroeconomic trends that entrench a-cyclical growth, growth that differs from boom periods that typically occur during the economy's steady state.2

A-cyclical growth is contingent on the allocation of resources the following areas:

  • Structural reforms in the economy - Continuous gains in productivity are a central factor for ensuring sustainable growth. Productivity gains depend on comprehensive improvements in the entire economy, with specific needs in the public sector and in traditional industries.3 These reforms include structural changes in the energy sector, ports, and land management, as well as continued enhancement of competition in the capital market.

  • Enhancing human capital - Human capital is Israel's main resource. Economic growth depends on Israel's ability to increase labor-force participation, to improve its ability and skills, and to adapt it to market demand.4

  • Developing long-term infrastructure - Future growth depends upon today's investments. In order to experience a socioeconomic leap, Israel must allocate resources to engines of growth such as infrastructure, R&D and education.

Implementation of the required economic agenda depends on the government's carrying capacity - the ability to design, plan, and implement policy directives.5 Frequent power transitions and lack of cooperation among government agencies are likely to undermine the Israeli government's carrying capacity and its chances of bringing about a significant increase in the quality of life for all.


  • Levy, The Marker, 27/05/07, full article (Hebrew).
  • Plozker, Yediot Acharonot, 27/05/07.
  • Klein, nrg, 28/05/27, full article (Hebrew).

1 While the composite state-of-the economy index rose by 0.6 percent in March, it increased by only 0.1 percent in April.

The composite state-of-the-economy index is a cyclical indicator for examining the direction in which real economic activity is moving. The index is calculated from the monthly changes in components that reflect different aspects of real economic activity: the index of manufacturing production; imports, excluding capital goods; trade and services revenue; the number of employee posts in the business sector; goods exports (excluding agriculture, fuel, diamonds, and ships and aircraft) and services exports (tourism and other services: software, R&D, consultancy, and real estate intermediation). The Index integrates both the trend-growth and short-term deviations.

See: State-of-the-Economy Index, The Bank of Israel

2 The concept of cyclicality relates to fluctuations about a clear trend. It refers to the booms and busts that punctuate economies without significantly altering the long-term behavior.

3 See, Reut Institute document: Public Sector Puts Brakes on Top 15 Agenda.

4 See, Reut Institute document: Economic Fortitude Index for Evaluating Poverty in Israel.

5 See, Reut Institute document: Triangle of Trust as a Condition for a Leap in Quality of Life.