Conclusions

Abstract

As successful as Israel’s high-tech sector is, other sectors of the economy have failed to become globally competitive. Israel needs to broaden the base of its knowledge economy, which requires improving its schools, integrating its Arab and ultra-Orthodox Jewish minorities, and ensuring that the political environment remains open and pluralistic. Based on its small size and resources available to it, Israel should widen its knowledge economy to encompass businesses modeled on Germany’s Mittelstand companies, employ advanced manufacturing, encourage industries based on the country’s large reserves of natural gas, use its world-class universities to create an education industry, and employ its creative talent to produce media and entertainment for global audiences. Israel’s unresolved dispute with the Palestinians and an unstable Middle East present political and security obstacles.