Speaking in Jerusalem on December 8, 2013, Angel Gurria, Secretary-General of the OECD (Organization for Economic Co-operation and Development), congratulated Israel on its economic growth and stated, “given the state of affairs in the world, Israel is looking steady, strong, and I think moving in the right direction.”
Not perhaps the most ecstatic form of compliment, but very striking coming from this international civil servant, head of the organisation of the 34 most developed countries in the world that Israel joined in 2010.
Israel was being discussed in the context of the most advanced countries in the world, not being compared with countries in the Middle East.
On this occasion, Gurria was presenting the OECD Economic Survey of Israel 2013, an objective report with considerable praise for Israel’s accomplishments, some criticisms of aspects of economic and social affairs, and recommendations for improvement in a number of sectors of Israel life.
In addition to its intrinsic usefulness, the report parenthetically also provides an opportunity to relate Israeli economic and social life to current affairs in the United States.
In view of the consideration for appointment as the vice-chair of the US Federal Reserve of Stanley Fischer, former governor of the Bank of Israel, it is fitting to review features of the Israeli economy, including its relative price and financial stability, its monetary policy, its large holdings of foreign currency reserves, its low interest rates, its effort to further growth and to reduce unemployment, and its attempts to reduce social gaps.
Also, at the present moment of complications with the Affordable Care Act (Obamacare), the analysis of Israel’s health system, with its interesting and successful mixture of public and private services at reasonable cost, and the high level of satisfaction with it, may suggest an alternative policy for the U.S.
The OECD report indicates that Israel’s economic growth has been impressive considering global economic weakness. The unemployment rate is at a 30 year low, at 6.7 percent in 2013, and labor force participation has been rising steadily.
What is more, the economy is benefiting from the Tamar natural gas field off the coast of Haifa that has given an additional boost – about 1 percent – to gross domestic product (GDP). It will benefit even more from the major discoveries off the coast, such as the Leviathan field, estimated to hold at least 650 billion cubic meters of gas. Israel will become an important player in the global energy market.
Israeli GDP per capita in 2012 was $27,750, and the average real growth over a five year period was 3.8 percent; in 2012, it was 3.4 percent. The Israeli economy is growing faster than the world average of 2.7 percent, and three times faster than the OECD average of 1.2 percent. The 6.7 percent unemployment rate compares favourably with the average of 12 percent in the OECD countries.
The report emphasises Israel’s hi-tech industry as a major factor in its economic growth. It does not mention that in fact Israel devotes 4.5 percent of GDP to research and development, the highest proportion in the world. OECD countries account for 2.3 percent, and the U.S. for 2.8 percent of GDP.
The contribution of Israeli science and technology was acknowledged on December 11, 2013, when Israel was appointed as a full member, the first non-European country, of CERN (Center of European Nuclear Research), the largest centre in the world for the study of atomic particles.
The report points out a number of problems and challenges to be faced in Israeli life. It suggests there is a need to improve average living standards and to lower the rate of poverty. This applies to a considerable degree to the Arab-Israeli and the Ultra Orthodox (Haredi) communities.
Also, there are concerns of the middle class, especially regarding rising housing costs, high retail prices, problems with the degree of competition in the economy, and the distribution of the tax burden.
A key problem is the relative poverty rate of 20 percent compared with 11 percent in OECD lands, and 17 percent in the U.S. The relative rate, partly an objective and partly subjective calculation, is based on the proportion of the population living on less than half of the national median income.
In the Israeli calculation, half of those affected are Arab Israelis and the Ultra-Orthodox (Haredi); this is due to the low employment rates of Arab women and Orthodox men. Poverty largely exists in households with one breadwinner, but rarely in households with two providers who work full time.
The income per capita gap has been declining, but it remains true that the extra welfare benefits and better conditions for individuals who have served in the military perpetuates to some extent socio-economic gaps between many in the Israeli population and the two groups of Arabs and Haredi who do not serve in the military.
The report praises the Israeli health system, but notes it faces problems in the future because of the aging population, and budget constraints. The life expectancy is currently 81.8 years (79.9 for men, and 83.6 for women), and about 10 percent of the population is over 65.
Health care services in Israel account for 7.7 percent of GDP (the overall average in OECD countries is 9.5 percent): the difference partly reflects the relatively youthful population (27.9 percent under 15) compared with the average OECD of 18 percent.
The system faces a number of challenges: though the aged presently represent only 10 percent of the population, a significant increase is projected for the future. Furthermore there is a need for more health care professionals; and there are socio-economic issues.
These issues relate mostly to Arab Israelis and Bedouins. The Arabs are poorer than the average, and are less healthy for social reasons: they tend to smoke more heavily than non-Arabs, and have a higher incidence of obesity, particularly among women.
The essence of the health system is universal provision; a national health insurance (NHI) using four health funds, and also private health care offered by commercial insurance policies. The health funds, which all residents of the population must join, are responsible for the majority of health care, and are the sole providers of almost all kinds of health services.
Consumer choice and competition among the four funds is encouraged. The funds are an interesting mixture, partly public service and partly commercial ventures.
The private part of the system is extensive. About 75 percent of the population buy supplementary insurance offered by the health funds, and about 40 percent hold policies offered by insurance companies.
The share of public spending on health has fallen from around 70 percent in the 1990s to 60 percent today as private care and spending on private health insurance premiums have increased.
What is important for the U.S. is that the system functions by a combination of the government, (Ministries of Health and Finance), health funds, and representatives of the professional physicians and nursing bodies.
The Obama Administration would do well to seek advice from the Israeli system in its efforts to handle the complex U.S. health issue.