Prof. Rafi Melnick - IDC Herzliya 1 Herzliya Conference 2011 “The Herzliya Indices” National Security Balance The Civilian Quantitative Dimension February 2011

Prof. Rafi Melnick - IDC Herzliya February Team Members Prof. Leah Achdut – The Ruppin Academic Center; Van Leer Jerusalem Institute Dr. Zalman Shiffer – Economic Advisor Dr. Tommy Steiner – IDC Herzliya Dr. Michel Strawczynski – Bank of Israel Team Leader Prof. Rafi Melnick - IDC Herzliya With thanks to Gila Weinberger (Bank of Israel), and Gilad Skutelsky (IDC Herzliya) for their assistance with research. Herzliya Indices Team

Prof. Rafi Melnick - IDC Herzliya 3 Development of the Economic Dimension in Israel February 2011

Prof. Rafi Melnick - IDC Herzliya 4 Development of the Social Dimension in Israel February 2011

Prof. Rafi Melnick - IDC Herzliya 5 Development of the Governmental/ Political Dimension in Israel February 2011

Prof. Rafi Melnick - IDC Herzliya 6 Dimensions of National Security National Security Civilian Dimension Military Dimension SocialEconomicGovernmental/Political February 2011

Prof. Rafi Melnick - IDC Herzliya 7 Multiple Indicators Approach National Security Unobservable Latent Variable Indicator N Observable Indicator II Observable Indicator I Observable... N indicators are measurable; they affect and are affected by national security, which is an unobservable latent variable. The presence of multiple indicators allows (under defined assumptions) one to quantify national security. A rise in each indicator means improvement in national security, in the corresponding dimension. February 2011

Prof. Rafi Melnick - IDC Herzliya 8 Components of the Economic Indicator (relative weight in parenthesis) 1.GDP Per Capita, PPP (16%) 2.GDP, PPP (15%) 3.Unemployment (15%) 4.High-Technology Exports – % of Manufactured Exports (11%) 5.General Government Gross Financial Liabilities (11%) 6.Inflation Rate (11%) 7.Current Account Balance (11%) 8.Foreign Currency Reserves (10%) February 2011

Prof. Rafi Melnick - IDC Herzliya 9 1.Poverty Incidence (14%) 2.Gini Inequality Coefficient (12%) 3.Human Development Index – Education (11%) 4.Chronic Unemployment (10%) 5.Human Development Index – Life Expectancy (10%) 6.Rate of Participation in Labor Force – Men (10%) 7.Rate of Participation in Labor Force – Women (10%) 8.Human Development Index – Income (9%) 9.Population Aged 65+ (7%) 10.Population Aged 15- (7%) Components of the Social Indicator (relative weight in parenthesis) February 2011

Prof. Rafi Melnick - IDC Herzliya 10 Components of the Social Indicator - Remark Due to changes in the methodology of Human Development Index published by the UN, the 2009 version of the Social dimension of the Herzliya Indices is not comparable to versions presented in the past. Our assessment is that the HDI improvement is reflected in a better Social dimension of the Herzliya Indices. February 2011

Prof. Rafi Melnick - IDC Herzliya 11 1.Political Stability and the Absence of Violence (11%) 2.Rule of Law (11%) 3.Democracy (10%) 4.Political Rights (9%) 5.Civil Liberties (9%) 6.Control of Corruption (8%) 7.Quality of Regulation (8%) 8.Efficiency of Government (8%) 9.Voice and Accountability (8%) 10.Alliances (6%) 11.Membership in International Organizations (6%) 12.Hosted Embassies (6%) Components of the Governmental/ Political Indicator (relative weight in parenthesis) February 2011

Prof. Rafi Melnick - IDC Herzliya 12 The Model Construction of a panel data set of 31 countries The model includes: –Israel –26 OECD countries –4 regional countries: Egypt, Iran, Jordan, and Syria Data ranges from 1990 through 2009 Economic data is through 2010 February 2011

Prof. Rafi Melnick - IDC Herzliya 13 Economic Data Sources Primary Sources World Bank IMF – World Economic Outlook OECD Economic Outlook Israel’s Central Bureau of Statistics Secondary Sources IFS – International Financial Statistics (IMF) Economist Intelligence Unit-Iran Bank of Israel and various central banks Other sources February 2011

Prof. Rafi Melnick - IDC Herzliya 14 Social Data Sources Primary Sources OECD Luxembourg Income Study ILO – Key Indicators of the Labour Market Israel’s Central Bureau of Statistics UN Human Development Reports Secondary Sources OECD, Labor Market Statistics Data LFS by sex CIA National Tobacco Information Online System Statistical, Economic and Social Research and Training Center for Islamic Countries World Bank Eurostat Data, Indicators of the 20 New Cronos February 2011

Prof. Rafi Melnick - IDC Herzliya 15 Primary Sources World Bank Freedom House Polity IV Project A.T. Kearny - Foreign Policy Magazine Europe World online Treaties and Alliances of the World Governmental/Political Data Sources February 2011

Prof. Rafi Melnick - IDC Herzliya 16 Methodology A preliminary base is calibrated for each dimension Each variable is measured in percentage change or percentage difference in the case that its basic measurement is in percents An annual weighted average is calculated using the weights obtained from a panel of experts The indices are formed, over time, by cumulating annual weighted averages February 2011

Prof. Rafi Melnick - IDC Herzliya 17 Herzliya Indices 2011 Results February 2011

Prof. Rafi Melnick - IDC Herzliya February Economic Base | 1990

Prof. Rafi Melnick - IDC Herzliya February Economic Base | 2010

Prof. Rafi Melnick - IDC Herzliya February Development of the Economic Dimension Israel and the Developed Countries

Economic Dimension Gap Israel and the Developed Countries February 2011 Prof. Rafi Melnick - IDC Herzliya 21

General Government Financial Liabilities 2010 (Gross – percent GDP) | February 2011 Prof. Rafi Melnick - IDC Herzliya 22

Prof. Rafi Melnick - IDC Herzliya February Development of the Economic Dimension Israel and Regional Countries

Economic Dimension Gap Israel and Regional Countries February 2011 Prof. Rafi Melnick - IDC Herzliya 24

Prof. Rafi Melnick - IDC Herzliya February Economic Index USA Japan Germany Switzerland Norway France Netherlands Canada UK ltaly Australia Austria Belgium Denmark Korea, Rep Sweden Finland Israel Spain New Zealand lreland Portugal Greece Hungary Egypt Turkey Poland Czech Rep Iran Jordan Syria 32.69

Prof. Rafi Melnick - IDC Herzliya February Social Base | 1990

Prof. Rafi Melnick - IDC Herzliya February Social Base | 2009

Prof. Rafi Melnick - IDC Herzliya February Development of the Social Dimension Israel and the Developed Countries

Prof. Rafi Melnick - IDC Herzliya February Development of the Social Dimension Israel and Regional Countries

Prof. Rafi Melnick - IDC Herzliya February Social Index 2009 * Denmark Norway Sweden Canada Australia Finland Netherlands Switzerland Austria99.89 USA99.77 Czech Rep99.07 Germany98.90 France98.65 Hungary98.08 New Zealand98.06 Japan97.39 UK97.28 Belgium96.50 lreland95.95 Israel94.51 Poland93.97 Spain93.72 Korea, Rep93.58 Portugal93.27 ltaly93.25 Greece92.00 Turkey82.72 Jordan78.59 Iran75.19 Egypt74.43 Syria71.06 * Not comparable to previous versions of Herzliya Social Index

Prof. Rafi Melnick - IDC Herzliya February Governmental/ Political Base | 1996

Prof. Rafi Melnick - IDC Herzliya February Governmental/ Political Base | 2009

Prof. Rafi Melnick - IDC Herzliya February Development of the Governmental/ Political Dimension Israel and the Developed Countries

Prof. Rafi Melnick - IDC Herzliya February Development of the Governmental/ Political Dimension Israel and Regional Countries

Prof. Rafi Melnick - IDC Herzliya February Governmental/ Political Index Canada102.2 USA99.2 Denmark97.9 Netherlands97.4 Germany96.1 Sweden95.8 Norway95.7 Finland95.2 Switzerland94.5 UK94.1 Austria93.9 Belgium93.8 France92.7 New Zealand92.6 Australia92.5 lreland89.8 Portugal89.3 Japan87.9 Spain86.0 Czech Rep83.9 ltaly83.9 Poland83.2 Hungary82.7 Greece78.6 Korea, Rep76.3 Israel73.4 Turkey61.5 Jordan55.7 Egypt53.4 Syria31.5 Iran29.9

Prof. Rafi Melnick - IDC Herzliya February Summary Israel During the World Financial Crisis The Herzliya Indices provide a quantification of the relative positive development of the national security indices, in all the dimensions, during the world financial crisis. The rise of the Economic Dimension in 2010, in the background of a general decline in the developed world, is due to a combination of a healthy period of growth, that preceded the world crisis, and appropriate macroeconomic policies implemented during the crisis. Israel succeeded in closing the gap with the developed countries and increasing the gap with its neighbors.

Prof. Rafi Melnick - IDC Herzliya February Summary Israel During the World Financial Crisis The stagnation/deterioration of the Social Dimension of national security in 2009 is due to rise in the incidence of poverty and the income inequality. Israel continues to lag behind the developed world and there is an urgent need to complement the economic policy with a social strategy to meet the social challenges of the Israeli society. The decline in the Governmental/Political Dimension of national security reflects the continues Israeli deterioration in governance, on the background of geopolitical events with large international media coverage, that worsen the isolation of Israel in the international arena. 37