From an economy in crisis to an innovative economic powerhouse. How did Israel stand out in the scenario of a GDP per capita greater than that of the United Kingdom?
Israel, a country small in territory, but giant in influence, has undergone a remarkable economic transformation over the past few decades. Known for its ancient history and religious relevance, the country also stood out on the global economic scene., achieving a GDP per capita higher than that of nations such as the United Kingdom, France and Canada and becoming an economic power. This evolution impressive result of strategic decisions and bold reforms that completely changed the course of the country, according to the video on the Knowledge Global channel.
An economy on the verge of collapse
In the 1980s, the Israeli economy was facing a deep crisis. Inflation reached alarming levels, reaching 400% per year in 1984. The situation was so critical that Israel was about to pursue a path similar to that of Latin American countries that suffered from stagnant economies and high inflation. The government was excessively interventionist, consuming a large part of the country's revenue and issuing currency unrestrainedly to cover public spending, which only worsened the crisis.
The turn to economic power: crucial reforms
The turning point for economic power occurred in 1984, when an electionresulted in a coalition government between parties with opposing ideologies. Led by Shimon Peres of the Labor Party, the new government implemented a rigorous economic plan that aimed to control inflation and stabilize the economy. Among the measures adopted were a wage freeze, cuts in public spending, including military spending, and an aggressive privatization program.
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Furthermore, the government stopped issuing currency to finance the public deficit, an crucial decision that helped quickly control inflation. In a few years, the inflation rate, which was close to 500%, was reduced to less than 20%, a remarkable feat that stabilized the economy and allowed the country to begin growing in a sustained manner.
The birth of an economic power
With the economy stabilized, Israel has turned its attention to technological innovation as a driver of growth. In 1993, the government launched the Yozma program, which became one of the pillars of the country's economic success. The program was designed to attract investment in technology startups, offering public capital as an incentive. Venture capital funds were created to invest in new companies, with the government assuming part of the financial risk.
The success of the Yozma program was resounding. Israel quickly became a global center for innovation, earning the nickname “Silicon Valley of the Middle East.” Companies like Waze, which was sold to Google for more than $1,3 billion, have emerged from this vibrant ecosystem, placing Israel at the forefront of global technology and as an economic powerhouse.