OECD: Israel should liberalize, spend on infrastructure
Israel could benefit more than almost any other country in the world from product market liberalization and opening protected industries to competition, according to a report by the OECD entitled "The Long View: Scenarios for the World Economy to 2060". The report says that efficiency measures and greater competition in Israel could boost GDP by the year 2060 by 20% more than it will reach without such measures, Globes reports.
Another area on which it would be worthwhile for Israel to focus, according to the OECD, is public investment in infrastructure. Here too, Israel stands to gain more than other countries, and could add 10% to its GDP by 2060 through appropriate investment.
These figures for potential GDP gains are higher than for any other country except Turkey (24%). The OECD's recommendation represents backing for measures such as reform of the National Standards Institution and moves to make obtaining a business license easier and to boost competition in various branches of manufacturing industry that the Ministry of Finance, the Ministry of Economy and Labor and the prime minister have been trying to promote in recent years.
High growth potential is only one side of the coin, the other side being the poor current situation in comparison with other countries when it comes to competition and regulation in manufacturing and public investment. Public investment in infrastructure in Israel is less than 2% of GDP, which compares with 6% in the five leading countries in the OECD in this respect: Hungary, Norway, Luxembourg, Slovenia, and New Zealand.
The OECD paper analyzes various scenarios for long-term growth and examines how growth will be affected by various elements. Unsurprising, it finds that technological progress is the key to high economic growth in the coming decades, a long way before integrating additional sections of the population into the workforce, raising employment levels and increasing capital per worker. The report highlights the importance of investment in education and of structural reforms to make government more efficient, particularly in developing countries and the BRIIC countries (Brazil, Russia, India, Indonesia, and China).
The OECD expects Israel's GDP to grow by a cumulative 85% by 2060, which is impressive but still considerably below the growth rates of the developing countries. The country expected to achieve the most dramatic growth is India, whose economy will expand by 160% by 2060 according to the report. The Chinese economy is seen growing by 130%, which will establish it as the largest economy in the world, ahead of the US economy, which will grow by just 60% according to the OECD's projections. The global economy as a whole is expected to grow by a cumulative 120%, which is more than the rate of growth projected for Israel.
Under the baseline scenario presented by the OECD, without reforms and policy changes, annual economic growth per capita in Israel, currently at 1.8%, rises to 2.2% in the period 2018-2030, and falls back to 1.9% in the period 2030-2060. This is one of the highest potential growth rates among the developed countries, but is lower than in Turkey (2.5%), Iceland (2.2%), and Ireland (2.1%). The average potential annual growth rate in the OECD and the euro bloc is 1.7%. The expected surge in the standard of living in Turkey will bring that country's citizens to a standard of living only 14% below that of US citizens by 2060.
According to the OECD report, Luxembourg, Norway and Ireland will have the highest standards of living in 2060, widening the gap they have already opened up with the US. The standard of living in Ireland, for example, will be 60% higher than that in the US, compared with 20% higher today.