Friday, May 16, 2008

Israel on sound footing. Iran, not so much.

from Elder of Ziyon: Dow Jones: Israel means business

Probably the most effective response to Ahmadinejad's claims that "The Zionist regime is dying. The criminals assume that by holding celebrations they can save the sinister Zionist regime from death and annihilation" - is anyone writing articles like this about Iran?

From Dow Jones:

Israel was born not only into war, carnage and controversy but also into shortage. Shorn of cash and goods, it had to ration meat, eggs and cooking oil through a coupon system that soon generated undernourishment, bread lines and a thriving black market.

Worse, lacking allies, trade partners and natural resources while swamped by poor immigrants, the Israeli economy was also burdened by its leaders' rigorous socialism. Central planning initially generated growth, but Israel's protectionist duties, sclerotic financial system, high labor costs, bloated public sector and exorbitant defense spending soon proved untenable. By the 1980s the stock market had collapsed, the major banks were nationalized, inflation hit 440% and foreign-currency reserves all but vanished.

As Israel celebrates its 60th birthday memories of this economic desolation seem exotic.

The shekel is now one of the strongest currencies in the world, inflation is 2.5%, last year's 5% growth was the developed world's highest for the fifth consecutive year, while unemployment slid to a 15-year low of 6.5%. While analogous in some ways to other economic miracles, Israel's is still politically, socially and culturally unique.


While the reforms of the 1980s stabilized the currency and began the retreat from socialism, these measures globalized Israel's economy. With the budget deficit shrinking within five years from 7% to 0.8% of GDP, and with the debt- to-GDP ratio reaching a 40-year-low of 81%, the global financial community began to understand that Israel means business.

Yet there were factors at play that transcended macro-economic policymaking.

One is, paradoxically, Israel's defense burden. Though in every other respect a liability, Israel's initial lack of arms suppliers compelled it to build its own military industry, which eventually climbed from manufacturing bullets to inventing submachine guns and finally developing tanks, battleships and fighter jets.

The arms industry -- led by aerospace giant Israel Air Industries -- not only became a major exporter, it also mass-produced technicians, engineers and inventors. In the late-1980s, when Israel was forced to cancel an overly ambitious fighter-jet project, thousands of suddenly-jobless engineers and programmers unwittingly launched the hi-tech start-up industry that soon became the darling of foreign investors.

Already then, well before any of them made his first million, Israeli techies came to epitomize the daring, mobility and originality that have historically been hallmarks of invention in general, and of Jewish commerce in particular.

Fortunately for Israel, all this coincided with the end of the Cold War.

First, huge parts of the world that had ostracized Israel, including Russia and China, suddenly traded with it, and nearby India and Turkey emerged as strategic trade partners. More importantly, a million immigrants thronged to Israel. These bought with them entrepreneurial energy, professional skills and a consumerist hunger that produced the world's largest per-capita rate of engineers and scientists, a massive retail expansion and a spectacular housing boom.

All these combined made the hi-tech industry take off. By last year its $32 billion in exports comprised half of all Israeli industrial exports. Meanwhile multinationals like Microsoft Corp. (MSFT), Hewlett-Packard (HPQ), Motorola, Inc. (MOT) and Google, Inc. (GOOG) set up R&D centers in Israel, and foreign buyouts of companies like software developer Mirabilis by AOL, now owned by Time Warner Inc. (TWX), for $407 million in 1998; or printing-technology developer Indigo by HP for $719 million in 2002; or disc-on-key inventor M-Systems by SanDisk Corp. (SNDK) for $1.5 billion in 2006 -- have become so common that they are no longer front-page news.

Success was not exclusive to the technology sector. Teva Pharmaceuticals Industries (TEVA), Tnuva Food Industries, the largest dairy products manufacturer in Israel, food giant Strauss Group and Iscar Metalworking, are but some instances of multi-billion-dollar companies excelling in such traditional industries as pharmaceuticals, food production and machine-tool manufacturing. Yet unlike the typical hi-tech success story, they employ thousands and focus on manufacture rather than invention.

Fairly or not, they are not automatically associated with the high-tech entrepreneur who has become a teen-ager's role model and the stereotypical Jewish Mother's dream child, unseating the historic doctor and lawyer.

Sixty years on, Israel's GDP is scratching $200 billion, nearly six times its original, relative per-capita level, while skyscrapers crowd Tel Aviv, multilane thruways, tunnels, fast trains and spaghetti junctions crisscross the country, and some 80 malls, the first of which only opened in 1986, are brimming with customers, turnovers and luxuries -- probably the happiest, and starkest, contrast to 1949's bread lines.

On the other hand, here is a round-up of recent news stories about Iran's economy:
  • Tahmasb Mazaheri, director general of the National Bank of the Islamic Republic, defies the executive order of the Iranian president and refuses to decrease the interest rate. More here.
    • Abrar says capital drain from the Islamic Republic's banking system has increased upon Ahmadinejad’s executive order to decrease the interest rate.
    • Government to increase loans to public servants, members of the armed forces, and people from the rural areas.
    • Donya-ye Eqtesad assesses the effects of lowering of the interest rate by presidential decree as "alarming."
    • Kayhan supports the Ahmadinejad government's decision to decrease interest rates.
  • Iranian economist Ahmad Shakiba says inflation in Iranian economy is due to incompetent management of the oil income.
    • Donya-ye Eqtesad calls Iranian economic decision makers "half-educated."
Which "regime" wil die first?

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