“I think our goal should be one economy and one society,” said Dr. Karnit Flug, governor of the Bank of Israel, as she opened her session at this year’s Israel Democracy Institute (IDI) Eli Hurvitz Conference on Economy and Society.
“The situation of two economies is a situation we have right now, but not one we want,” said Flug. “What we want is a society with social cohesiveness and no large gaps.”
For Flug, this does not mean a society that has only high-tech. Rather, it is one where all parts of the economy use innovation and technology, and are characterized by high productivity and highly skilled workers with proper salaries.
Israel ranks very high on all innovation indices. Flug attributes this to necessity: cyber threats, water shortages, etc. Moreover, the rate in which Israelis work in high-tech is per capita the highest in the world, at around nine percent.
However, upon closer look, the Bank of Israel governor said that one can see that the country in its entirety does not benefit from the high-tech market. In fact, high-tech jobs and workers are concentrated in the center of the country (60% of high-tech jobs) and that has not changed over the last 20 years.
Further, 90% of R&D funding is concentrated in the high-tech industries of computers and consultation – R&D centers that are mostly international. Meanwhile, there is low investment in infrastructure and Israel is plagued by too much bureaucracy and regulation.
“We call Israel’s economy a renewing economy,” said Flug. “But it is not renewing enough.”
As far as skills (and lack thereof): “In skills and problem solving, we are at the bottom [of international indices] and this is quite embarrassing for a country that is referred to as the Startup Nation,” Flug said.
The governor said there is no reason why other low-tech industries cannot use advanced technologies, even if they are not manufacturing medicine. She cited the construction industry as an example of a cheap workforce that has perpetuated low innovation and low productivity.
“Opening the option for foreign companies to come in and be competitive over local contractors may encourage the adoption of advanced technologies,” said Flug. “Being exposed to global competition encourages innovation.”
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