Since 1948, Israel has gone from being a newly created
poor developing country, with enormous socio-economic
challenges, to a modern high-tech superpower - a development
often referred to as an economic miracle story. For the
first few decades, Israel was a centrally controlled
economy, based on a socialist mindset and regime. Later, the
country has developed in a more liberalistic direction.
Today's modern Israel recovered well through the global
financial crisis of 2008, has a large number of successful
start-ups and is a member of the Organization for Economic
Cooperation and Development (OECD). Still, there are
important nuances to the success story. Israel has a
relatively large number of poor inhabitants, high welfare
costs and struggles with the rapidly growing population
groups being excluded from the labor market.
COUNTRYAAH, one of the most important areas of focus for the Zionist
movement in the late 1800s was to ensure that the Jewish
community in Palestine - called Yishuv - could cultivate the
land and support itself. This was important both because the
concrete state-building project by giving increased control
over the land area, while also being seen as an existential
question. But the land in Palestine was difficult to farmOn,
the water supply was insufficient and the Zionist leadership
struggled with the Jewish immigrants mainly with theoretical
and academic backgrounds and therefore could not compare
with the local Palestinian Arabs' long experience in
agricultural work under this type of conditions. But the
Zionist movement was determined that if they were to succeed
in establishing a Jewish state, they would have to cultivate
a Jewish economy, based on Jewish labor. They worked
purposefully and early organized the Jewish National Fund
and the Histadrut trade union as part of this work. Even
after the establishment of the State of Israel in 1948,
these became central elements of the strong government that
the Israeli leadership ruled.
Developing countries with major challenges
The first period after the establishment of the state
presented challenges enough to break even a robust and
well-developed state: A multi-month long war against the
Arab neighboring countries and a huge population growth
through immigrants, which usually came without any values
and which were totally dependent on the state from
everything from health care to domestic service. Israel was
at that time dominated by the socialist labor movement, led
by the Israeli Labor Party, which gladly saw that a strong
state power controlled the course of all social issues.
During the 1950s, large state agricultural and
infrastructure projects were initiated. This increased
employment and helped to strengthen the economic situation.
At the same time, talks between the Israeli authorities and
West Germany began to provide financial compensation for the
losses suffered by the Jewish people during the Holocaust.
The compensation was to be paid from the Germans to the
Jewish people, now represented by the Jewish state. The
controversial Luxembourg agreement signed in 1952 meant,
among other things, that West Germany would annually
transfer goods and services to Israel and financial
contributions through the so-called Claims Conference. Since
the agreement was signed, West Germany, and later Germany,
has transferred more than $ 70 billion to over 800,000
The Israeli economy then developed positively until 1973,
when the trend turned and the country went into what is
referred to as "the lost decade".
Economic times of crisis
In the 1970s, the Israeli Labor Party was in an
increasingly weak political position. Gradually, they were
replaced by the right-wing Likud, which pursued an economic
policy driven by a strong belief in deregulation,
entrepreneurship and increased privatization of business.
For Israel, this was not a successful venture. Economic
growth slowed and inflation increased. Paradoxically, the
negative economic situation first and foremost affected the
population group that had voted for Likud, the already
marginalized Misrakhim, the ("Eastern") Jews with
backgrounds from the Middle East and North Africa.
In 1983, the Israeli stock market and the country's banks
were sent into crisis and the recently established national
currency, the Israeli shekel, was devalued.
A stable, modern economy
From the mid-1980s, the economy gained momentum, partly
due to generous transfers from Israel's all-powerful allies,
the United States. In 1985, the two countries also signed a
free trade sawdust. The population growth that Russian
immigrants faced was another positive driver: Russian Jews
increased demand for goods and services and increased
The World Bank defines today's Israel as a modern,
developed high-income country. Israel came through the
financial crisis in 2008 without major financial
consequences. According to the World Bank, gross domestic
product (GDP) in 2018 was $ 370. Adjusted for population, it
gives about 40, 269 US dollars per capita. For 2019, this
represented an economic growth of 3.3 per cent from the
previous year, thus adding to the range of 15 years of
positive development for the Israeli economy. Unemployment
has been low and falling in recent years. In December 2019,
it was down 3.9 percent, according to the Israel Statistics
Since the 1990s, Israel has also established itself as
one of the world's foremost technological superpowers.
Israel is the country in the world with the most high-tech
start-up companies in relation to the population. The
start-up companies have become an important new engine in
the Israeli economy. Critics, however, point out that this
part of the economy is not tightly connected to society at
large, but remains economically profitable for the elite.
None of the startup companies have managed to grow so large
that they are a pillar of the Israeli economy.
The problem for Israel is that while only one in ten
workers is employed in the high-tech economy, nine out of
ten working Israelis are employed in the other industries
where the development has been less positive negative. This
is largely about the alienation of two large groups of
people in particular - the Jewish ultra-Orthodox and the
In the statistics of the Organization for Economic
Cooperation and Development (OECD), in which Israel joined
in 2010, Israel also ranks high on the list of countries
with major poverty problems and large inequalities between
poor and rich. Both low productivity and poverty rates are
problems that are particularly true of two social groups,
namely the ultra-Orthodox and the Palestinian citizens of
Israel. Neither of the two groups is well integrated into
the Israeli workforce. The demanding situation this is
affecting the Israeli economy is emphasized by the fact that
these two groups are growing rapidly due to high birth
rates. According to OECD estimates, they will make up about
fifty percent of Israel's population by 2060.
However, the two poorest groups in the population are not
alone in having socio-economic problems. Israel has the
OECD's highest poverty rate. In 2011, the largest protest
movement in Israel grew in decades. At the heart of the
protests was an unreasonably high price level, from
everything from groceries to the real estate market.
International trade and the boycott movement
Israel's main export partners are the United States,
China, the United Kingdom and Hong Kong. The main partners
for the country's imports are China, the United States,
Turkey, Russia and Germany.
Israel's total exports are $ 61 million a year, while
imports are $ 76 million (2018). In 1999, Israel signed an
important trade agreement with the EU, and today the EU is
one of the country's most important trading partners. In
recent years, the relationship has been more strained, due
to the EU's stated policy of distinguishing between trade in
Israeli goods and trade in goods from Israeli settlements
outside the borders of June 4, 1967.
This so-called differentiation policy means, for example,
that goods and products originating in the settlements
should not be able to enjoy the same low tariff barriers to
the EU as Israeli products, and that Israel cannot label
settlement goods as "Made in Israel".
The Palestinian BDS movement works for international
boycott, disinvestment and sanctions against Israel. Israeli
authorities' own calculations of how the BDS movement could
hit Israel range from modest financial losses to potential
disaster. So far, the campaign has had little effect on the
Israeli economy. It is first and foremost if the BDS
movement brings with it other countries' authorities that
the boycott movement can really hit the Israeli economy in
such a way that it becomes a real financial problem.
Tourism to Israel accounts for about three percent of the
country's gross domestic product. A peace agreement with the
Palestinians is often highlighted as the foremost Israel can
do to strengthen the economy. Increasing revenues from
tourism, a further strengthening of the shekel and an
increase in foreign investment in the country are examples
of what economists expect from positive developments in such
Energy and natural resources
For a country in conflict with most of its neighboring
countries, energy security has always been a vulnerable
point for the Israeli economy. Israel has few deposits of
oil and coal, and has been dependent on imports of both.
Since the 1950s, the authorities have been hunting for
natural gas, but it was not until the 1990s and 2000s that
truly significant discoveries were made. In 2009–2010,
extensive discoveries of natural gas were made on the
Israeli continental shelf in the Mediterranean.
The Tamar and Leviathan fields were the largest, and will
alone make the country self-sufficient for up to 50 years.
In December 2019 production started from the Leviathan
field. The gas is mainly landed to Israel and Israeli
consumption, but the companies that extract the field have
also signed an agreement on the sale of natural gas from the
Leviathan field to Egypt - one of only two neighboring
countries with which Israel has a peace agreement (the other
is Jordan). The land route to Egypt started in January 2020.
Israel has two nuclear power plants, one in Dimona in the
Negev desert and one in Nahal Soreq, on the outskirts of Tel
Aviv. Since 2010, Israel has also invested more and more in
solar energy infrastructure.
During the term of office, the local currency in
Palestine was Palestinian Lira, sometimes referred to as
Palestinian Pound. The Palestinian pound had the same value
as the British pound (pound sterling). When the British lost
control of the mandate and Israel was established, the
United Kingdom decided that Israel was no longer allowed to
belong to the sterling area. Israel thus went on to print
and use Israeli lira, until 1952, when it was replaced with
Eretz Israel lira. Without being able to rely on the British
pound, the Israeli currency dropped significantly in value.
In 1980, the currency was again exchanged, to the Israeli
Shekel, but this unit had a difficult time with the economic
crisis that hit the country at the same time. In 1985, the
New Israeli Shekel (NIS/ILS) was introduced. It is still
the currency of the country and is referred to only as
Shekel in daily speech. In the years following the financial
crisis, the shekel has been among the world's strongest
currencies, and has strengthened strongly against both the
US dollar and the euro.