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Tuesday, September 30, 2014

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Israel could lose tech edge to Asia: economist

Tags: Business
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Leonardo Leiderman

MONTREAL — Israel risks losing its supremacy in high-tech to India, China and other Southeast Asian countries within 10 to 20 years if its education system is not improved, said the chief economic adviser to the country’s largest bank, Bank Hapoalim.

Leonardo Leiderman told a Montreal audience that these countries are investing heavily in their universities, research and development and high-tech industries, and could overtake Israel. The academic performance of Israel’s students is starting to slip in international rankings, he said.

“In the high school exams, Israel used to be in the top six or seven, now it is 26th,” he said. “Singapore, Hong Kong and Beijing are the tops.”

Meanwhile, Israel puts more and more of its resources in defence and social spending, Leiderman said, adding that the “education or higher-education lobby in the Knesset is relatively weak.”

A key reason for Israeli students’ comparatively poorer standing, he said, is that talented young people are not attracted to teaching as a profession today because of its modest pay, and the quality of teaching is suffering, especially outside Israel’s major urban centres.

Leiderman spoke at a luncheon hosted by Barry Pascal and the Canadian Friends of Tel Aviv University on March 7. His talk was sponsored by the local office of Bank Hapoalim. The Argentine-born Leiderman is an economics professor at TAU’s Eitan Berglas School.

He previously held key positions in the Bank of Israel, and Deutsche Bank, where he was managing director and head of emerging markets in its London and New York offices.

Israel has weathered the economic crisis of the past six years relatively well, he said, because it did not have the housing and mortgage lending woes of the United States and its export markets are divided equally between North America, Europe, Asia and the rest of the world.

Israel’s most immediate concerns are not economic, nor are they Iran or the Palestinians, Leiderman believes, but rather “existential issues the discussion of which has been postponed for decades.

“The single most important source of division is the enlistment of the haredim in the army,” he said, and that is what Prime Minister Benjamin Netanyahu was weighing as he tried to form a coalition government

Younger, secular Israelis are demanding that the haredi “share the burden… they no longer accept that one part of the population does not have to work, pay taxes or perform military service,” he said.

On global matters, Leiderman reassured the audience, which was largely made up of business people, that he does not believe the world is headed for a major depression, although the situation of Europe, and especially the Eurozone, remains worrisome.

“The amount of business and consumer pessimism is amazing. And it has an aging population,” he said.

But even if a financial institution of the order of Lehman Brothers failed today, a central bank would bail it out, he said.

However, the printing of money and low interest rates that have supported the recovery in most countries since the 2007-08 financial crisis may have unintended consequences, he warned, especially for the average investor.

In the United States, the situation is contradictory. On one hand, the Dow Jones Industrial Average reached a record high in March, yet the country continues to endure fundamental economic problems and suffers from a “lack of governability” due to the paralysis between the White House and Congress, Leiderman said.

He warned anyone with savings to be extremely careful in the coming years. The boom in the equity and commodity markets is being fuelled by so much cash out there looking for a yield better than the extremely low interest offered by such secure havens as government bonds.

“I hope we do not have too much of an addiction to the markets,” he said.

Asked about the relationship between Netanyahu and U.S. President Barack Obama, Leiderman said, “There is no doubt the personal chemistry is bad. A lot has to do with ego, psychology, not politics.

“In his second term, Obama has nothing to lose. He has made it clear he is going to be tough on Israel, and get the government to do more on the Palestinians and territorial concessions.”

As for any unilateral military action by Israel against Iran, Leiberman thinks Obama’s attitude is “Forget about it. Obama does not want anything that is not co-ordinated.”

 

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