Israel: economic success, or not

I’m out of town this morning, so just something brief and prescheduled:

Israel has been in the media a lot this week.  Much of that has been about the confrontation on the Gaza border.

But it has also been the 70th anniversary of the founding of the state of Israel.  In many respects it is an astonishing achievement, even if I remain sceptical of its longevity.  Sadly, demography and history seem to be against them.  Demography? 400 million Arabs and 80 million Iranians, few of whom seem reconciled to the idea of a permanent state of Israel.  History?  Well, the Crusader states last longer than 70 years, but were wiped out.  More recently, Smyrna (let alone the cleansing of the millenia-old Jewish community in Baghdad).

But the economic achievement of Israel can be, and often is, overstated. I noted on Kiwiblog the other day, a celebratory post, including this

In 70 years, Israel has become one of the world’s leading scientific and technological companies[countries?]. 45 of their top inventions are listed here.

12 Israelis have won Nobel Prizes – one literature, three peace, two economics, six chemistry. (Note a further 155 Jews in other countries have won a Nobel Prize, comprising 22% of all nobel prizes since 1901 despite being just 0.25% of the world’s population).

A few of their inventions are:

  • cellphones
  • Intel chips
  • ICQ
  • Polio vaccine
  • antivirus software
  • ingestible video cameras for cancer detection
  • USB flash drives

All of which is pretty impressive.  But what does it amount at an economywide level?

As regular readers will know I frequently point out that over recent decades New Zealand’s cumulative growth in productivity (real GDP per hour worked) has been lower than in almost all other OECD countries.  And we started below the average and had been aiming to catch up.

But how has Israel done by comparison?  This chart just shows the ratio of real GDP per hour worked for New Zealand and Israel relative to that of the United States (as a representative high productivity OECD economy), starting from 1981 because that is when the Israel data starts.

israel nz comparison

We’ve done badly, and they’ve done even worse.

I’m sure there are all sorts of explanations.  For example, Israel spends a large chunk of its GDP on defence and security, and even if that demand spurs innovations in some specific industries, it is unlikely to be a long-term positive for economywide productivity.  As I’ve pointed out previously, Israel is also remote – albeit in different ways to New Zealand: political barriers, security fears etc, limit the opportunities for trade and investment.   And Israel doesn’t exactly have the least heavily-regulated economy in the OECD.

But it is also hard to go past the elephant in the room.  To listen to the advocates of economic benefits of immigration, Israel should really the poster-child, the unquestionable success story.  Any Jewish person anywhere can move to Israel and claim citizenship, and large numbers have.  Population growth in Israel in recent decades has been faster than anywhere else in the OECD –  partly birth rates and partly migration – and (for whatever reason) Jewish people tend to come quite highly-skilled.   That part of the population growth has probably been a boon from a defence and security perspective, and of course the Law of Return is pretty fundamental to Israel’s sense of national identity, and its founding purpose.

But evidence of economic gains appears elusive.