Israel a high-tech, free-market economy - Interview with PM Netanyahu on Fox Business Channel 10 Nov 2010 We're selling the software on chips and we're producing all sorts of technological innovations. We've essentially become an export-driven, high-tech economy.

DAVID ASMAN, CO-HOST: Israeli Prime Minister Benjamin Netanyahu is in the U.S. this week. So we spoke to him about America's lackluster economy and Israel's booming economy.

LIZ CLAMAN, CO-HOST: But first we asked him how big a threat Iran's nuclear ambitions are to everyone's economy.

NETANYAHU: I think it would be a global threat, not merely a threat to the stability of the Middle East, but a global threat because Iran's reach is far and wide. I mean, look at what they're doing today. They're in the Arabian Peninsula with a beachhead in Yemen. They're in Eritrea. They're in Sudan, in Africa. They're obviously in Lebanon and in Gaza, we see them. They're here in this hemisphere, in South America.

And this is what they're doing without nuclear weapons. So if they have nuclear weapons, a nuclear umbrella, think of what they could be doing? And the first thing they'll probably do is make a bid for Middle Eastern oil.

And that's going to affect the economies of the entire world. So this is not just an Israeli problem. It's rightly seen more and more, by the United States, by the major European countries, by us, and I can tell you, by many, many Arab governments in our region...

ASMAN: The United Arab Emirates?

NETANYAHU: Many of them. This is the fundamental problem that faces the world today. So I think the answer to that is, it has to be dealt with by the international community, not merely for Israel's sake but for the sake of the peace and prosperity of the entire world.

CLAMAN: Which leads to the question, is the U.S. supportive enough, from where you stand? I was in Israel a year ago this summer for the Maccabiah Games. And I was asking taxi drivers, people on the street, restaurant owners, what do you think of President Obama? They don't like him because they feel that he doesn't understand or he isn't supportive enough of the Israel that matters most, and that is a democratic bastion in the middle of the Middle East. Do you think President Obama is supportive enough when it comes to the Iranian question?

NETANYAHU: I think there is fundamental misunderstanding about the close nature between Israel and the United States. It is so close and it's something that is mirrored by all leaders and by all governments, whether in the United States or in Israel. I mean, it's very powerful. It is a powerful bond and President Obama has expressed it more than once. We have had security cooperation in the last year that people don't know about but I think has surpassed all previous levels.

We have, I think, an understanding of the danger of the Iranian threat. And I was very pleased to hear that the president has said that he is determined to prevent Iran from developing nuclear weapons. I think that's a very important statement.

CLAMAN: As we look to become more fiscally austere, we now have a change in our congressional House of Representatives. Now it will turn to the Republicans for power. As they look to cut funding or increase it, they have said - at least some members have said that they will only give money to the Palestinians if the Palestinians acknowledge Israel as a Jewish state. What do you think of that? And do you think that the Republican Congress is going to be more friendly to Israel?

NETANYAHU: Look, the outgoing Congress was friendly to Israel. The incoming Congress is friendly to Israel. I think basically that's a constant in the relationship between Israel and the United States. We're dealing with a government and I'm dealing with a president, I hope that we can get peace talks back on track. And that the crucial thing to me is - the only way you're going to conclude a successful peace negotiation is if you actually engage in it.

And I'm disappointed with the fact that the Palestinian Authority has found ways not to negotiate. to seek a detour, to somehow go to the U.N. or go to the Security Council, or go elsewhere in avoiding the critical negotiation that we have to engage in.

ASMAN: The economies of the Palestinian areas are nowhere near as vibrant as the economy in Israel itself. Is there a way to include Palestinian economies in the growth that Israel is now experiencing?

NETANYAHU: Yes. And we've been doing that. We haven't waited for peace. And, by the way, look, peace is important on its own, and it is valued because we don't want to go to war. I've been through a few of them. They're highly unpleasant things, you know. And we value life and we want this peace to be there. You know, people say, peace is good for the economy. Yes, the economy is good for peace.

CLAMAN: The international recovery may be sputtering, but take a drive through Israel's rapidly developing cities and you will see a very different economic picture.

ASMAN: We asked Israeli Prime Minister Benjamin Netanyahu how his country has powered through the global recession to leave other developing nations in its financial dust.
You folks in Israel are growing at great guns. You're growing over 4 percent right now. We have anemic growth rates in the United States. The president's budget called for 4 percent growth. We're lucky to reach 2 percent this year. How have you guys been growing so well?

NETANYAHU: Well, first of all, we're a speedboat and you're a cruise ship. So there's a difference. So I can tell you that...

ASMAN: You can turn more easily.

NETANYAHU: Well, I can tell you as captain of a speedboat that we have followed a certain policy that has been good for us but I don't pretend that it is necessarily good for every country, especially one that is a fifth of the world's economy. We're just, you know, a small niche economy. But what we've done and what we've instituted is essentially turning Israel into a high-tech free market economy.

And that is a fundamental change from where we were decades ago. We were growing oranges and selling polished diamonds. And now we're selling the software on chips and we're producing all sorts of innovations, technological innovations. And we've essentially become an export-driven, high-tech economy that has a very open marketplace. Not open enough. That's actually our strategic opportunity for growth. That is, if you're lucky enough to have a lot of bureaucratic controls, by removing them, you actually get added growth. And that's the secret of what you do in an advanced economy and you want to keep it growing after it has reached $30,000 per capita income. That is our situation.

ASMAN: You're a supply-sider.

NETANYAHU: Well, as long as you open up your markets, you will probably continue to grow.

CLAMAN: There are some people who would say, boy, we wish the U.S. would figure that out, in fact making it a lot more easy for businesses to open up operations here in the United States. We talk to CEOs of the high-tech realm that you talk about, Intel, Applied Materials. When you drive from Jerusalem through to Herzliya, you see all of those names, Microsoft, Yahoo. What is it specifically that you're doing right to attract those businesses to open plants there?

NETANYAHU: I think we enjoy the fact that we had a concentration of young people who went through the military and received a technological education. That created the potential. That potential could not be unleashed until we made the Israeli economy more friendly to business.

And I had something to do with that, first as prime minister, again as finance minister, and now again as prime minister. What we did was basically follow three things. We controlled spending. We cut tax rates and projected them in a very deliberate path into the future. And we removed obstacles to competition.

And the combination of the three propelled our economy from a crisis of contraction, about 1 percent contraction, to about 5 percent growth within 18 months. And it stayed that way more or less since, with a dip during the height of the recent crisis. But essentially that's what we've been doing. Now will that work for every economy? I don't know. It has worked for our speedboat.

ASMAN: But it's interesting that some of the same debates happen in Israel that are happening here. For example, you were told if you lower tax rates, your deficit is going to increase. That didn't happen, did it?

NETANYAHU: No, it didn't happen. In fact, because we were at a very high tax rate in a recessionary economy, and so...

CLAMAN: Anyway.

NETANYAHU: We were, yes. I didn't see any point of having high taxes that we'll never collect. So we lowered the tax rates and we received a big input. And I think it's very important to be competitive for us with other small economies so that people know that they will make a profit.

ASMAN: Yes.

NETANYAHU: And that has helped us for sure. But it wasn't the only thing. A lot of the changes that we did were very hard to do. I mean, they were politically very, very difficult. As finance minister I raised the pension age to 67. I haven't found a single voter who voted for me for that. And we did a lot of other things. We did capital market reforms. We took away a third of assets of our banks. We have large banks, a handful of them that controlled most of the economy. And we took away the long-term savings from those banks.

That was very tough. Cutting government spending doesn't make you popular, believe me. It is very hard. So we did all of that. And the important thing is we did it together. In other words, we did it at the same time. We did it simultaneously. So the effect of the reforms bundled together is greater than the sum of their parts. It's a very powerful growth stimulus.