Flug pessimistic on Israel's long-term growth

Karnit Flug

The Governor of the Bank of Israel questions whether economic growth is sustainable without social integration.

Without a guiding government policy, growth will be slow, and the quality of life will improve very slowly, Governor of the Bank of Israel Karnit Flug told the Sderot Conference for Society at the Sapir Academic College and the Sderot Cinematheque.

Flug began her remarks by saying that she was optimistic about the current economic situation, but pessimistic about the future. She stated that Israel was on the way to what is called stable prices - another indication that the Israeli economy is in a good state, and said that many countries envy Israel's adult employment rate but added that this requires us to focus on long-term arrangements. She asked whether Israel's growth would persist, and said that without hard work, it would not. She also questioned whether Israel's growth was sustainable, and to what extent it included the entire population and all its sectors.

Flug expressed concern about the slow growth of world trade and the trend towards isolationism and de-globalization. She said that the sectorial composition of the population in Israel was contributing to slower growth in the future, among other things. According to Flug, the question is how much policy will actively maintain and foster growth and better integration.

Commenting about poverty and inequality in Israel, Flug pointed out that the poverty rate in Israel was the highest in the OECD. She stated that the benefits of growth were not being enjoyed equally by all of the population, and that state aid was more modest than in other countries, going on to argue that this had not always been the case, and that the ratio of government allowances to GDP had declined. Flug said that the extent of support for poor families had fallen in comparison with the OECD, and that while this was encouraging people to participate in the labor market, it also meant less support and care for people living in deprivation.

Flug took note of the effect and importance of the educational system for narrowing gaps and preparing people for the labor market, and said the situation was not encouraging. She said, "The achievements of students in Israel were below the OECD average, and the gaps between different Israeli population groups were among the highest." She explained that the educational system did not auger well for future income gaps, and was not improving the chances of narrowing them.

According to Flug, the educational system in other countries narrows the gaps between students from different backgrounds far more than in Israel, which affects students' chances of finding a place in the labor market. She stated that the general level of expertise in Israel was at the bottom of the scale, and that the picture was not encouraging.

Flug went on to say that governments in Israel had done relatively little to reduce inequality, and criticized both the educational and professional training systems for being inadequate. Flug stated that less money was being spent on high schools and junior high schools than in other OECD countries, and also less on professional training. She said that failure to provide students with qualifications would affect both growth and equality in the future.

Summing up, Flug said that affirmative action should be emphasized, and that a shortage of engineers and engineering technicians was a barrier to growth. According to Flug, work grants and negative income tax are a good tool, and their use should be expanded in order to generate sustainable, prolonged, and all-inclusive growth in the economy. She also stated that focused government action based on research had great potential.

Published by Globes [online], Israel business news - www.globes-online.com - on November 30, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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