How Hard Is It to Do Business in Israel?

"In order to change this trend, we must increase the use of technological tools and behavioral economics."

November 1, 2017 --The Israel Democracy Institute (IDI) is worried about Israel's decline in ranking from the 52nd to 54th place in the World Bank's "Ease of Doing Business" index, which was ranked 26th in this same category 11 years ago. The World Bank's study points to the burdensome and cumbersome business environment in Israel, which has a negative impact on the country's competitiveness and willingness of foreign and local investors to invest in the state.

An initial analysis of the World Bank report reveals that while Israel is standing still, other countries have made significant advances in reducing regulatory and bureaucratic burdens. A failure to address this issue creates negative incentives for corrupt behavior, in order to bypass the bureaucratic process by relying increasingly on intermediaries. This also negatively affects equality of opportunity, since large and powerful businesses can retain the services of accountants, lawyers and intermediaries to help expedite regulatory processes, while small and medium-sized businesses do not have the means to do so.

Ultimately, it's Israeli consumers who suffer from the heavy regulatory burden that characterizes the business environment in the country. Business owners must deal with excessive costs of time and money, which leads to an increase in the cost of living for consumers who must effectively subsidize these outlays.

Dafna Aviram-Nitzan, director of IDI's Center for Governance and the Economy, explains that "the trend can be stopped by increasing the use of technological tools that will enhance the interface with government officials and increase transparency in the bureaucratic process." Aviram-Nitzan adds that in some cases, the reform process is as simple as replacing printed forms with electronic reporting. Israel continues to lag behind this trend, despite many efforts by the Israeli government in recent years.

Prof. Yuval Feldman, co-director of IDI's Labor Market Reform Program and a behavioral economics expert, noted that "by using a number of behavioral tools, as has been done in recent years in Britain, the United States and Denmark, the situation in Israel can be improved." Among other things, Feldman points to the replacement of some of the traditional regulatory measures with more advanced means, such as 'nudges', self-regulation and tailoring regulation to different people and situations.

The Israel Democracy Institute is currently promoting a comprehensive plan formulated by a team of experts to assist the government in accelerating the handling of the issue, in cooperation with the Prime Minister's Office Division for Improving Regulation, Accountant General's Office, Ministry of Economics, Attorney General and Member of Knesset Roy Folkman.