When Professor Lester Thurow, one of the world's most prominent economists, talks about Israel's demographic problem, he doesn't just mean the number of Arabs living between the Jordan River and the Mediterranean Sea. "As soon as the number of Muslims in the US exceeds the number of Jews there," he warns, “US aid to Israel will no longer be something to be taken for granted." Twenty years is the length of time Thurow gives until aid is stopped completely.
Besides his academic work, Thurow also acts as personal consultant to heads of government and of major companies, and serves as chairman of the Technion Institute of Management in Tel Aviv. In an interview with "Globes" conducted during a visit to Israel, Thurow criticizes the cut in expenditure on education here, and talks about the damage caused to the country by frequent strikes.
Globes: Minister of Finance Benjamin Netanyahu has declared the recession over. Are you convinced?
"Let me put it this way: there's no proof yet. In the US, for example, it takes a year before the end of a slowdown is declared, because the quarterly data are problematic. I think the third quarter growth figures in the US were also overstated. Furthermore, the third quarter figures for Israel indicate a continued fall in investment."
Perhaps there's still cause for optimism, for all that?
"What's happening in the global economy, particularly in the US, could certainly have a positive effect on Israel. If you look at the turnaround in the third quarter, a large part of it derives from the import and export numbers, which are affected by what happens in the rest of the world. Consumption also rose in the third quarter, so there are different aspects to this.
"Of course, this is not the answer people want to hear. Netanyahu would like everyone to believe that there is a great recovery here, while his political opponents would certainly like us all to think that the economy is in dire straits. The true answer is somewhere in the middle."
Can growth be restored to the Israeli economy without a renewal of the diplomatic process, or is the diplomatic process a prerequisite?
”The security situation mostly affects tourism, and signs of recovery are starting to appear there, too. I don’t think that Israel’s economy is completely dependent on the peace process, but I do think that concentration on defense has caused other things to be neglected. The clearest example of this is in education. The worst thing that Israel has done in recent years because of the security situation is cut the budget for education, especially higher education. I’ve heard, for example, that there have been 13 cutbacks at the Technion Israel Institute of Technology. 13,000 students currently study at the Technion, but the budget for the Technion has shrunk to what it was when 8,000 students studied there.
”The current situation in Israel might continue for another 50 years. There is a natural tendency to think that all the problems will soon be solved, and a long-term policy should be adopted. If you really believe, however, that this war will continue for 100 years, and there is no reason to believe why it won’t - it has already lasted for over 50 years, and you’re no closer to peace today than you were in 1949 then your educational policy is completely distorted.
”Don’t deceive yourselves. If you spend now on 13,000 students the same amount that you once spent on 8,000 students, then today’s students will receive an inferior education. That’s simple arithmetic.”
Nevertheless, 50 years have passed, and we’re still hanging on.
”The only reason it’s worked until now is that the US is footing a large part of the bill. People in Israel talk a great deal about the demographic problem. They don’t realize, however, that there are two demographic problems, not one. The first, which everyone is talking about, is how many Arabs live west of the Jordan river. The second, which nobody is talking about, is that in however many years it will take, the number of Muslims in the US will exceed the number of Jews there. The numbers are more or less equal now, but at some point, the number of Muslims will be double the number of Jews.”
Will that jeopardize US aid to Israel?
When that happens, US aid to Israel will stop. The Jews in the US are better organized and wealthier, so while the numbers are equal, they still have more influence. It’s worthwhile mentioning, however, that there is already one state in the US, Michigan, in which you can’t be pro-Israeli, because there’s already a Muslim majority there. I’d say that Israel has about 20 years to prepare for this situation. There’s no doubt that the generous US aid will end sometime. It’s inevitable, just like it’s inevitable that there will be more Muslims than Jews west of the Jordan river.
”Unless the security problem is solved by then, Israel will face a very grave economic problem, and you’ll have to replace US money with Israeli money, and that will have to come at the expense of consumption. In my opinion, people here simply don’t think about the long term.”
Recently, there have been strikes and labor sanctions every day. How do people overseas regard that?
”It sounds ridiculous, but the last Bolsheviks left are here in Israel. In the rest of the world, except maybe for France, things like this just don’t happen. In the US, you can go on strike, but only when a contract expires, not in the middle. Were the US airline workers to go on strike in mid-contract, causing me to miss an important meeting, I could sue them for damages. Of course, there are also other damages.
”I have a Jewish friend in the oceanographic engineering department of the Massachusetts Institute of Technology, who is on the board of directors of dozens of shipping companies around the world. Israel has a problem; large ships don’t stop at its ports. They stop at other ports in the region, in Lebanon and Egypt, for example, where the merchandise is loaded on smaller ships that do stop at Israeli ports. The larger ships simply don’t want to get stuck at Israeli ports. The cost of operating a large ship is $100,000 per day. When a strike takes place, that money is wasted.
”The Israeli government asked my friend to try to persuade international shipping companies to send large ships to Israel. He told them there was no chance whatsoever that a company would take the risk of a large ship getting stuck in an Israeli port. For the same reason, if you’re a tourist, you don’t want to get stuck and waste a whole day in the airport. There are plenty of places in the world to visit; you don’t have to come to Israel.”
Do you support the right to strike?
”I support the right to strike, but only when a contract ends. If differences arise during the period of the contract in the US, they use mediators to bridge the gaps between the parties. That’s what they should do in Israel, too.”
Are interest rates in Israel too high?
”Considering the fact that there are no substantial signs of recovery, the answer is yes.”
Is the shekel too expensive?
”You have to consider purchasing power in Israel in comparison with that in other countries, and the balance of payments. The problem with your balance of payments brings us back to the US. If we look just at the balance of payments, the figures show that Israel has a serious problem, but US aid covers most of the deficit, and that is why Israel has no real balance of payments problem.
”I think that in terms of relative purchasing power, the shekel is too strong. Of course, if you assume that US aid will continue to flow, then there is no real problem. If US aid stops, however, the shekel is obviously overvalued.”
Who really profits?
Your new book, “Fortune Favors the Bold,” deals with the consequences of globalization. Is the Israeli economy a global economy, despite the Bolshevik elements you mentioned before?
”Yes, because you have strong links to other parts of the world. You export a lot to the US, and you import a lot from Europe. Israelis travel a lot, and many Israelis study overseas. There is no single measure for globalization. There are various measures, based on travel, international calls, and exports. Judging by these measures, Israel certainly has a global economy.”
Published by Globes [online] - www.globes.co.il - on December 15, 2003