The Reut Institute

Designing a Future

Av, 5770July, 2010

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What is Reut?

• Established: 01.01.2004 • Objective: Providing Pro Bono Decision

Support to Government of Israel and its agencies

• Financing: Community of 3,000 people and 150 donors

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Complex Challenges

Volatile Environment

Long term, Substantive Broad

View

Short, Unstable Tenures

Fragmented Parliament & Gov

Short Term, Populist, Sectarian conduct

Effectuate Change Model to EmulateTraining Future

Strategists

Why Reut ?

ISRAEL15 VisionTo Become One of the 15 Leading

Countries in Quality of Life

Av, 5770July, 2010

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Heavy security burdenWeak education system

Low participation in work force

Danger of Collapse Large Gap in Quality

of Life

According to The Economist Israel ranks 38th in Quality of Life

Israel is 2nd in the world in theexport of Human Capital

Developed CountriesLeapfrogging is not

a luxury; it is a necessity!

Israel Must Leap

Gaps continue to widen

Israel

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ISRAEL15 Vision: Becoming one of the fifteen leading countries in terms of Quality

of Life

This Vision requires a Social and Economic Leapfrog in order to close the gap in Quality of Life between Israel and other developed

countries

ISRAEL15 Vision

Rapid Growth

Change in the pace of

change

Inclusiveness

All citizens enjoy the fruits

of growth

SustainabilityPreserving resources for

future generations

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Israel leapt between 1951-72

Since then, Israel has grown by 1.5% and has not closed the gap

0.

2.

4.

6.

8The Story of Israel’s Economy

US = 1

1950 1960 1970 1980 1990 2000 2007

Source : Professor Ricardo Hausmann

GDP Rate Compared to the US (1950-2007)

30% of the US

60% of the US

1985 Stability Plan

1950’s Immigrant Absorption

1990’s Immigrant Absorption

Globalization of Israeli market

The ‘Lost Decade’

1965-1967 Recession

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Growth, Accelerated Growth, Leapfrog

Source: Prof. R. Hausmann et al., Growth Accelerations

Only 13 “Economic Miracles”

Leapfrog

Almost all countries experience Growth

0.

2.

4.

68.

Years

X X+8 X+25

Re

al G

DP

pe

r C

apita

%

Source:World Bank, Growth Report

Only 1 in 4 experience

Accelerated Growth

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Central Brain, Elite

Task Forces

Public SphereA Shared

FutureSavings and Investment

Dedicated Elite

A pactUnique and

Global

The Public Sphere is Critical

Vision

Leadership and

Politics

Values

Institutions

Development Policy

Labor Market

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Common Denominator for Countries that Leapt

Values

Future orientation

A variety of market economies

Pragmatism

Inclusiveness

Trust

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Central Brain

Institutions

A Pact

Identifying

AnalyzingRelevancy

Trends &

Elite Task Forces

Ability to Execute

Decisions

Flexibility in the Market

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New Deal in the Labor Market

Employers

Workers

Government

Workers agree to flexible labor markets in return for improvement

of Human Capital & safety net

Employers flexible to hire and fire in return for a commitment to keep to

employment laws

Government provides a safety net & training in return for improvement

in competitiveness

Protect the Worker not

the Job

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National Development PolicyNational Development Policy

National asset:agricultural pioneering

Global trend: water shortage

Drip irrigation

Unique & global development policyIsrael’s regions have an unexploited global potential

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7.752.530.9

32.271.6

6.953.8

23.6

31.3

49.8

5.162.7

11.3

30.4

94.9

4.860.613.731.5

60.6

6.156.519.934.2

346.3

שיעור הבלתימועסקים

שיעור השתתפותבכוח העבודה

שיעור הפערשיעור משפחות עניותבהכנסות

מספר משרות)אלפים( 2006

צפון דרום מרכז תל אביב Northממוצע ארצי South Center Tel-Aviv National Average

Unemployment Rate

Participation in Labor Force

% of Poor Families

Income GapsNumber of Jobs (thousands)

Growth in Israel is not inclusiveGrowth in Israel is not inclusive:: The Periphery regions are Lagging Behind The Periphery regions are Lagging Behind

Source: CBS, "Social and economic indicators" by districts in percentages, 2008.

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The ResultThe Result: : Continuous Migration from the Continuous Migration from the PeripheryPeriphery

Source: Based on CBS providers, by district, 1984-2008 (in thousands.

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

84-586-788-9 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

הצפון המרכז תל אביב CenterNorthהדרום Tel-Aviv South

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Import high-quality human capital

Israel is a small state: Uniform government policies

encouraging any type of employment

Distance is the main barrier

Change from the outsideOld strategy

Israel includes a number of distinct regions

focus on local population

accessibility is one of the main barriers

regional development policy based on unique assets

Change from withinNew strategy

Challenge: How to Develop Israel’s Challenge: How to Develop Israel’s Periphery?Periphery?

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Regional LeapfrogRegional Leapfrog

How do regional leapfrogs occur in a globalized world?

Nature & Landscape History & Heritage

Local Expertise

Human Capital

Climate

When regional assets meet human capital

Health food

Western Galilee Unique AssetsWestern Galilee Unique Assets Compete with the Global Wellness Industry

WellnessScientists & Engineers

Olive Oil SecretsHealth Food

B&B Industry

Dance

Theater

Acre Walls

Manufacturers

Technologists and Researchers

ArtistsCentral Finland

Austrian Tyrol

Swiss Alps

Medical Tourism

Natural Therapy

Technologies

Creative Tourism

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Israel is Not Talking Leapfrog

Policy Institutions

Domestic Industrial Policy

Labor Market: Pact for Growth

Unique & Global Development Policy

Local Government Ignored

No Vision

Local Government Necessary

Vision Necessary

Growth Leapfrog

Economics Multidisciplinary

Labor Market: conflict

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Israel15: National Obsession

Leapfrog

Aliyah

Making the Desert Bloom

Redeeming the Land

ישראלישראל1515

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On the ISRAEL 15 Vision:

“This is a very impressive document, based on clear thinking and a knowledge of the recent experience and writing about growth at various stages of development.”

Professor Michael Spence, Economics Nobel Prize Laureate, and Head of the U.N Commission on Growth and Development