OECD Observer: What do you see as the main challenges facing the global economy in 2013?
Sharon Kedmi: There is a widespread perception that 2013 will still be overshadowed by the continued financial crisis in the European Union. This is reflected in the weakening of trade and employment and a slowdown in global economic growth.
Being a small and open economy, Israel is influenced by the global trade trends, in particular those of the EU, which is our main trade partner. The impact of the crisis on the Israeli economy hasn’t been very significant so far, but we nevertheless need to prepare ourselves properly for any spill-over effect from the crisis. After all, we have already lowered our forecast for the GDP growth rate to around 3% in 2013.
I believe that the most pressing global challenges of 2013 will lie in addressing the continued jobs crisis and the declining prospects for economic growth, especially in the developed countries. My ministry has undertaken a strategic planning process aimed at addressing the main policy objectives of unemployment, sustainable economic growth and development of the periphery.
When you joined the OECD in 2010, Israel was asked to address several outstanding social and labour market challenges. You are now submitting a detailed 200-page progress report. What in your view are the highlights of that progress report?
The integration of populations with low rates of participation in the labour market, such as Arab Israelis (especially women) and the ultra-orthodox Haredim (especially men) has been one of the prominent challenges, which Israel is making an increasing effort to address. It was one of the main issues raised during our accession to the OECD. In the progress report we present a detailed list of our major initiatives that have been implemented or approved by the Israeli government since 2010. The various initiatives contributed to the increase in employment rates (up 2.4% for Arab women and up 6% for Haredi men in 2008-2011) and will continue to do so in the years to come.
A clear illustration of our efforts is the establishment of a network of 21 dedicated employment centres that provide an extensive array of employment services for the Arab population. In addition, the first government centre for the Haredim is being established, and additional centres are already at approval stage.
And let’s not forget efforts made to expand the support provided to working parents of young children. As part of this effort, my ministry is substantially increasing public day-care for children aged 0-3 for working parents. We look forward to discussing these initiatives, among other policies, at the OECD.
One issue you focus on in the report is poverty, since in Israel there is a relatively high poverty rate by OECD standards. What new action has been taken to tackle this?
Israel has a long-term strategy in place to tackle poverty. This strategy focuses on improving educational achievement, facilitating the access to higher education especially of disadvantaged groups, improving infrastructure in remote areas of the country and encouraging participation in the labour market.
A significant move has been to implement the Earned Income Tax Credit (EITC) nationwide and increase the credit level for targeted populations. An EITC was first introduced as a pilot program. In 2011 it was expanded to cover the whole country. The expanded deployment of the EITC increased the potential number of eligible recipients from 100,000 in 2010 to 420,000 in 2011.
Another illustration is the enforcement of rights, particularly of our labour laws. This has been given special attention by the government and even found expression in one of the recommendations of the Trajtenberg Committee* on socio-economic challenges. The ministry has worked to strengthen the capabilities of the law enforcement system, first, by initiating a law aimed at increasing the enforcement of the labour laws, with the full cooperation of the employer organisations and the Histadrut, Israel’s trade union organisation; and second, by adding 120 positions to law enforcement over the course of the next two years.
You describe the progress report as a milestone in the learning process. What do you see as being the next steps?
As part of that learning process, the government has recently established a new position of Deputy Director General of the Ministry of Industry, Trade and Labor who is in charge of setting the general employment policy of Israel. This enables a horizontal view for more policy coherence, which I believe is one of the core principles endorsed by the OECD.
In general, our collaboration with the OECD has proven to be an important step in improving our public services, not just in the field of employment. The next step of that process should be mutual peer learning and benchmarking, rather than just meeting the standards. One of our goals in that sense is to increase the participation of the ministry in ongoing work and voluntary projects which will assist us in improving our policies.
Let me mention two recent examples of such voluntary initiatives. First, there is the country review on vocational training being conducted as part of the “Skills Beyond School” project. The review will make policy recommendations on how to strengthen our vocational education and training regime. And second, an OECD workshop on regulatory enforcement and compliance inspections is taking place in Jerusalem on 29-30 October, hosted by the ministry.
As part of our efforts, the ministry has designated a counsellor to the Israeli Permanent Delegation to the OECD. Her team will strive to enhance the ministry’s input into OECD work across a range of policy domains.
Israel has not been spared the effects of the global economic crisis and the pace of growth has slowed. One issue causing widespread concern is that of high prices faced by consumers and businesses. How is the government responding?
Our ministry was one of the first to respond to the social protest against high prices in the summer of 2011. We have already begun the implementation of some of the Trajtenberg Committee recommendations. The ministry is working on reducing childcare costs for working parents, by expanding the national coverage of subsidised childcare centres and reducing their fees.
Furthermore, it was my honour to chair the Competitiveness in the Food and Consumer Goods Market Committee (the Kedmi Committee) which submitted its recommendations to the government during the summer. We have examined how food prices in Israel compare to other OECD countries, and found that whereas in 2005, food prices were 10% to 20% lower than the OECD average, by 2010 they had become 10% to 20% higher. The committee laid out a series of policy options and recommendations. It will take time to implement most of them, but we are definitely moving in the right direction.
Israel is renowned for leading on innovation, and is now positioning itself as a leader in green growth, notably in solar energy, water and more. What areas are you focusing on, and what challenges are you facing?
Israel has long played a major role in the “cleantech” field, evolving from a small country of limited natural resources to a major player in global sustainability. The Government of Israel has outlined a five-year national plan for green growth, whose implementation will be overseen by our ministry and the Environmental Protection Ministry. We are interested in creating a “circular” economy based on using waste as a raw material, assimilating production processes that optimise resource use and changing our consumption patterns, all through green innovation. One of the challenges is to secure the strength and the competitiveness of the private sector.
The Chief Scientist Office at the ministry, responsible for promoting innovation and industrial research and development, has allocated significant resources for promoting and implementing innovative solutions in water, renewable energy, greenhouse gas emissions and alternative fuels for transport. For example, as part of our efforts to reduce greenhouse gas emissions, it allocated NIS154 million (over US$40 million) for R&D projects in 2011-2012 alone.
What contribution do you think Israel can make to green growth efforts internationally?
Israel’s arid climate and limited natural resources on the one hand, and highly skilled workforce on the other, provide an ideal environment for the development of breakthrough “cleantech” technologies.
For instance, we have developed synergies between the Israeli government, academia and industry, and would be happy to share this experience and contribute to creating best practices in this regard.
In 2011, the government adopted the Oil Free Initiative aimed to implement government policy and support the establishment and nurturing of a home-grown alternative fuel industry. Indeed, my ministry is helping to position Israel as a centre of academic and industrial know-how in the field of alternative fuels, through various programmes of R&D support. The ultimate goal is to help the world reduce its dependence on oil in transportation.
In addition, Israel’s experience and unique entrepreneurial nature makes it an excellent place for testing beta-sites for local and foreign emerging technologies.
I believe that a new paradigm is needed for a global development strategy, one that better suits the green growth challenges of developing countries. Rather than being driven by bilateral aid, the absorptive capacity in those countries should be strengthened, led by trade and investment policies, while recognising private sector actors as key players in technology transfer.
*Note: A government-appointed commission set up in August 2011 to examine and propose solutions to Israel’s socio-economic problems. It is headed by Manuel Trajtenberg, who chairs the Higher Education Planning and Budget Committee.
Visit the official website of the Ministry of Industry, Trade and Labor of Israel
For more on the OECD ELS Committee meeting, click here.
State of Israël (2012), Progress Report on the Implementation of the OECD Recommendations: Labour Market and Social Policies.
“Israel's economic strategy: An interview with Yuval Steinitz, Minister of Finance of Israel”, in OECD Observer No 284, Q1 2011.
©OECD Observer No 293, Q4 2012