A Link in the Chain: Leapfrogging into the Top 15 Countries

Israel's national goal should be to become one of the leading 15 countries in the world within the next 15 years. Its essence needs to be closing the gaps in the quality of life between Israel and the leading ten countries. The promise is there and we have to fulfill it. Although in terms of global standard of living, Israel only ranks in the high 20s, its level of education, access to technology and sophistication of the business sector are among the highest in the world.

The current national goal of 'continued economic growth' misses the point. Although achieving it may increase Israel's average wage, it will not necessarily reduce the gaps with the top tenth percentile of countries. The impressive economic achievements in recent years - high economic growth, low unemployment, the start of foreign investment, lowering the national debt, and low inflation - are not enough in order to instigate a 'leapfrog' while the way in which it is being carried out does not guarantee that it will be sustainable.

There are many essential differences between a 'leapfrog' and 'growth'. Learning and understanding them is essential to realizing Israel's economic promise. It is incorrect to think that leapfrogging can be consolidated if we push on the growth peddle too much. Almost every state has experienced growth during its existence and approximately 80 countries have experienced many years of accelerated growth. However only a small number of countries - Ireland, Singapore, Germany, Japan, South Africa and Chile - experienced a leapfrog during which they joined the top ten countries. Israel also experienced such a jump between the 1950s - 1970s. If we would have maintained it, we would have passed the US by now.

Firstly, as mentioned, the essence of leapfrogging is closing the gaps with the top ten countries. Therefore, in this context, growth per capita of 4-6% - double or even more than the levels of growth of the developed countries - is a prerequisite. In Israel's case, this would mean aiming for and maintaining a growth of 6-8% for at least the next six years. Some of the countries that have leapfrogged did such a thing for 15 or even 20 years.

In terms of 'growth' however, a yearly increase in per capita income of 3-5% is seen as particularly high. 'Business cycles' of growth last between three and five years after which they are expected to slow down. Thus in 2007 the average per capita income grew by only 3% and that was due to the growth of the population by nearly 2%. Since this was the 5th year of growth, the accepted working assumption in the government and media was that growth is expected to slow in the next year.

Second, as long as it's accepted to think that an internationally accepted plan exists for 'growth', there is no possibility of leapfrogging. The rules of the Washington Consensus of the international monetary fund and the World Bank constitute a collection of guiding principles on how to guarantee economic stability and instigate growth. In spite of this, each of the countries that experienced leapfrogging did it in their own unique way. Moreover, just as growth requires putting the emphasis on macro economic policies, leapfrogging requires emphasizing political and social indices and continuous economic leadership.

Third, according an article by Harvard Professor Ricardo Hausmann about a country's product space, growth comes from a gradual change in the composition of a country's exports. Leapfrogging however, requires a sharp change in the product composition and a fast move to exporting products that are required in rich states.

Fourth, there are essential differences between managing public space in which the aim is growth and managing it when the aim is leapfrogging. In theory, aiming for growth does not require a national vision, and a gradual improvement in quality of life can be achieved without cooperation or trust between the government and businessmen or workers. In spite of this, a comprehensive vision that enjoys widespread agreement from the different sectors and cooperation and trust are essential requirements for leapfrogging. This is because it's impossible to carry out a drastic change in the composition of market products without moving many resources for investment in the physical and human infrastructure without deep structural changes. Moreover, while growth is possible in spite of a weak and awkward system of governance, leapfrogging is dependent on the ability of the government to solve problems and efficiently realize opportunities.

Leapfrogging may be an ambitious goal, but it is achievable. The existing gap between Israel's promise and the reality of our lives is proof that the basis for socio-economic leapfrog exists. We need to realize the potential in order to compete over three essential resources of our security and prosperity; human resources, foreign investment and technology.

Such a jump requires a drastic change in Israel's governance structure and priorities. It requires leadership.