A recently
published article
placed Spain in the group of the top ten countries around the world (from 144 countries)
regarding developed infrastructure. When considering the current economic
situation in Spain and comparing to the economic situation on the other
countries in the top ten (Honk-Kong, Singapore, Switzerland, Germany, France
etc.) none of which has had a down grading in their national credit rating
lately, this achievement is most remarkable.
In view of
the recent slowdown and the downgrading of the national credit rating, one has
to ask is that a way to get out of the slowdown?
It has long
been known that one of the ways to get out of a slowdown is to increase government
spending. Government spending fuels the economy, increases the GDP, and helps
to increase the available cash in private hand thus leading in many cases for
increased private spending and a further growth of the GDP.
The
downside is of course that increased government spending will lead to increase
in the national budget deficit, an increase in the national debt and later on inflation
and other negative influences, and unwanted results.
An interesting
solution would be to increase government spending in a way that will increase Government
income so the budget deficit is short term and therefore most of the negative
results can be avoided.
The Israeli
case could be an interesting case. The current solution of getting out of the
slowdown is a reduced budget, cut across the board, combined with increased taxation – just the opposite
than what is needed in order to increase the DGP and create growth. However, we
may be saved by luck. We are entering an election year, in which even with threatening
budgetary cuts it is normal to have an increase both in government spending and
in private sector spending, which may be our way out of the slowdown, but as it
will not generate government income the long term results could be problematic.
But is there another way?
How about
increasing government spending in a way that will allow more companies to generate
sales and market share, grow, and increase the number of their employees (a
good result by itself), thus generating more taxes both from the employees and
from the firms. as the Israeli economy is fueled by the high-tech industry, if
the growth could be in that sector it could pull up the rest of the economy as
it has been doing since the mid 1990’s.
So, we are
looking for increasing government spending by investing in the high-tech sector
in a way that will allow it to grow and increase its sales and market share in
the world, is there such a way?
Could the
Spanish solution be the answer? Not in the case of Israel, as investment in
infrastructure would take too long to bear the relevant fruits in terms of
economic growth, especially for the high-tech sector. There is already a
significant infrastructure regarding communications, wireless and other
high-tech relevant infrastructure, and investment in transportation and other “hard”
infrastructure would have little impact on the high-tech sector in Israel.
There is another
solution in the case of Israel. The Ministry of Industry, Trade and Labor has supported the high-tech sector for decades via the Office of the ChiefScientist (OCS) . The support has been given as R&D loans and grants. This mechanism could
provide the desired income to government in several stages. The R&D
support, would allow the high-tech sector to increase its competitiveness, as
it has been doing for many years, thus increasing employment and tax income. It
would also allow recuperation of some of the funds via the repayment of the
loans back to the OCS – allowing for the funds to be reused, but also for the governmental
section of the OCS budget to be reduced while keeping the overall OCS budget
intact.
The increased government spending in this way,
would allow the generation of the wished for results, and would allow the
increase of government spending without the negative implications. This would
be a better way of getting out of the slowdown than just election spending.
