Introduction:
The team was divided into five secondary teams according to the following topics: the importance of multi-national companies (Prof. Manuel Trachtenberg, Eli Horowitz, Dr. Orna Barry and Yossi Hollander); the restrictions that globalization imposes on monetary and fiscal policy ( Prof. Assaf Razin, Dr. Adi Brander and Dr. Liora Meridor); the restrictions that globalization imposes on taxation systems (Prof. Ephraim Zedaka and Yoni Kaplan); the implications of the exposure of the local economy (Yoram Gabai and Zippi Gal); implications for the labor market (Dr. Eran Yashiv).
1. Multi-national companies
There are very few multi-national companies in Israel and it appears that Israeli companies in the high-tech field are not capable of exceeding the hundred million dollar mark in market value, thus forfeiting the possibility of obtaining a hold in international markets. The main reasons, and hence the recommendations presented below as well, are related to the business management of the firms:
Companies in Israel need to adopt strategic modes of thinking and approaches: the goal of strategy is to anticipate the next market well enough in advance (before the competitors), the next product (leaving as much time as is needed for its invention, development, manufacture and marketing, before the competitors) and new technology (which will replace existing technology before that of the competitor). The importance of the strategic approach is particularly apparent in the international context.
A global strategy must also answer the question of whether the company’s optimal growth trend is organic or takes place via acquisition of and merger with foreign companies.
In the global world a firm must adopt a functional strategic approach, viz., it must adapt a strategy for each country according to the economic, business, social and cultural needs of that country. This strategy is not necessarily the same in each country, and this is reflected in the company’s positioning in different markets. A synergistic integration of strategy is what generates the added value of multi-national as compared to national companies.
Encouraging the establishment of multi-national countries in Israel would require a change in the macroeconomic conditions, in government policy and in the business environment. The establishment of multi-national companies whose head offices, research and development laboratories and other management institutions are located in Israel should certainly be encouraged. The “Encouragement of Capital Investment” Law should be adapted to these companies and the tax regulations amended accordingly.
2. Does globalization restrict monetary and fiscal policy?
2.1 Monetary policy
The main task of the Bank of Israel is to work toward stability of prices and its preservation over time, in accordance with the declared inflation targets. These targets serve as a coordinating tool for stabilizing public expectations. Non-graduated changes in interest are a cause of instability in the capital market and hence also influence fluctuations in the product. Therefore, the Bank must employ an interest policy that will lead to interest smoothing over time.
The Bank must support other goals of economic policy, including providing assistance in the moderation of cyclical fluctuations in growth and employment, provided this does not compromise the stability of prices in the long-term. These fluctuations become more serious during times of globalization.
2.2 Fiscal policy
One of the main problems in adopting anti-cyclical policy in the global environment and implementing automatic stabilizers in periods of economic slowdown, is preserving the credibility of policymakers so that an increase in deficit during the period of slowdown will not be interpreted as a permanent change, but rather as a temporary exigency.
The ability to convince international capital markets that these are indeed only temporary changes depends to a large extent on the measure of credibility that the government has accumulated in the past. This credibility rises the more the government is careful to employ a consistent policy o