extensively regulated economy, harboring many wartime controls well beyond the end of hostilities, testifies to the costs of structural rigidity in times of crisis. * * * should globalization be allowed to proceed and thereby create an ever more flexible international financial system, history suggests that current imbalances will be defused with little disruption. and if other currencies, such as the euro, emerge to share the dollar ’ s role as a global reserve currency, that process, too, is likely to be benign. i say this with one major caveat. some clouds of emerging protectionism have become increasingly visible on today ’ s horizon. over the years, protected interests have often endeavored to stop in its tracks the process of unsettling economic change. pitted against the powerful forces of market competition, virtually all such efforts have failed. the costs of any new protectionist initiatives, in the context of wide current account imbalances, could significantly erode the flexibility of the global economy. consequently, it is imperative that creeping protectionism be thwarted and reversed. the question of whether globalization will be allowed to proceed rests largely on the judgment of whether greater economic freedom, and the often frenetic competition it encourages, is deemed by leaders in societies to enhance the interests, one hopes the long - term interests, of their populations. such broad judgments in the end determine how societies are governed. the reasons that some economies prosper and others sink into long - term stagnation consequently has been the object of intense interest in recent decades. agreement is growing among economic analysts and policymakers that those economies that have been open to cross - border trade have, in general, prospered. those economies that chose to eschew such trade have done poorly. most economists have long stipulated that, for a society based on a division of labor to prosper, the exchange of goods and services must be subject to a rule of law - - specifically, to laws protecting the rights of minorities and property. presumably to be effective such arrangements must be perceived as just by an overwhelming majority of a society. thus, a rule of law arguably requires democracy. clearly, ideas shape societies and economies. indeed, i have maintained over the years that the most profoundly important debate between conflicting theories of optimum economic organization during the twentieth century was settled, presumably definitively, here more than a decade ago in the aftermath of the dismantling of the berlin wall. aside from the soviet union itself, the economies of the soviet

. this is particularly important regarding wages in the public sector, the minimum wage in the economy, wages and other benefits of senior management in the private sector, and economy - wide pension arrangements. 4. structural changes move ahead with required structural changes in the economy to improve competition in key industries like financial services, energy, water, transportation and communication. 5. short - term interest rate if all these changes will be implemented the bank of israel will be able to gradually reduce the short - term interest rate while maintaining price and financial stability. the challenge ahead this is an extremely difficult package to implement. but we all remember the story from alice in wonderland, where alice met a cat at a cross - road : “ which way should i take ” asked alice. “ it depends where you want to go ”, answered the cat. “ i don ’ t care ” said alice. “ then ” retorted the cat, “ it does not matter which way you take ”. we know where we want to go. we know what is at stake. we should, then, get organized to implement the required changes to start growing again. we certainly have the potential to do it and i trust that we will.