May 19, 2009

Despite the world’s economic woes, Georgia and other US states continue to actively pursue joint venture opportunities with Israel. Trade between the US and Israel has been hard hit by the current global economic downturn. Once on an ascending curve, bilateral trade peaked at $28 billion in 2008, up 30 percent from 2005 when it was $21.5 billion. Now, however, in light of the financial situation, trade figures are down considerably. Statistics published recently by the Israeli Export & International Cooperation Institute reveal that first quarter 2009 exports to the US are down 38% from the same quarter in 2008. Similarly, imports for the first two months of 2009 from the US are down 24% (a total of $300 million), as compared to the previous year. For example, the State of Georgia, which has a strong record of cooperation and collaboration with Israeli companies, has begun to experience this decline. Financial restrictions we once complained about during the “good times” have actually placed Israel in a position to better weather the downturn than most other western societies. The relatively low level of mortgage debt, the absence of sub-prime mortgages and banks that own the credit cards and, thereby, limit the level of short term debt that any family can amass, all combine to insulate Israel from some of the worst aspects of the downturn. The financial “crisis” the world is experiencing right now is actually a passage through a number of simultaneous transitions, any one of which would be sufficient to “upset the apple cart” as it were, but, taken together, creates an imbalance that will only be righted, if our luck holds out, over the next 18 months and very slowly at that. These transitions include: Transfers of Power: As nationwide elections for new leadership take place around the world, it is impossible to predict what the new fabric of world leadership will be, whether it will be conservative or liberal, predictable or radical, beneficial or detrimental. The Economic Downturn: Not since the great depression of 1929-1933 has the world’s work force had to deal with a downturn as serious as this and, as a result, the world does not have the experience on which to draw that will enable the average working person to cope with the challenges of this new reality. The Psychological Effect: This is the most overlooked effect of the downturn. Without prior experience in dealing with a problem of this magnitude and with people in many western nations, including Israel, having been brought up with a certain sense of entitlement to a better life than that of their parents, disappointment is running rampant. However, despite the current situation, Georgia and other US states continue to actively pursue joint venture opportunities with Israel, demonstrating belief not only in Israeli innovation and technology but in the country’s healthy economic life. With that in mind, the following things need to happen in order to arrest the downward spiral and re-establish confidence in global trade as an antidote to the continued decline of world economies: * We need to stop calling this a crisis and stop focusing on how terrible everything is. Half of economics is psychology and we should communicate that this is a serious, but manageable, problem and that fear and panic should be avoided as the world, united, works on the solution that awaits. * People should be encouraged to spend rationally. What we face now is capital paralysis provoked by shell-shock and conscientious self-reflection. Retreating to narrow, short-term protectionist policies would only serve to deepen the global recession, as it did in the ’30s. * Policy makers must think outside the box to help individuals overcome the massive hits to psychology as a result of losses sustained in capital markets, real estate and job security. * Local governments must help create new jobs and re-train existing workers for higher wage paying industries such as health care, technology and renewable energy. Having said all of this, the fact remains that until these points are addressed, world trade indicators will remain low for some time, as the current numbers show, because Israel is not an island and is very much dependent on global trade for its economic life. The US, as Israel’s biggest export destination, will need to begin to come out of its downward financial spiral before bilateral trade figures reverse their current trend.

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Jason Harris

Jason Harris

Executive Director

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