karnit flug : on the importance of strategic planning and the difficulty of implementing it in the political reality remarks by dr karnit flug, governor of the bank of israel, at the eli hurvitz conference on economy and society, tel aviv, 19 june 2018. * * * bank of israel governor dr. karnit flug : in order to achieve economic and social goals over time, it is very important that there be a strategic plan. at the start of the current government ’ s term in 2015, it adopted a socioeconomic strategic assessment and directions of action. the test will be in its implementation over time. there is built - in and natural tension between advancing the agenda of an elected government and a policy based on a long - term vision and advancing a strategic plan. in governments with a fragile coalition that relie on many parties, the tendency to make decisions that advance short - term achievements becomes stronger. it is therefore important to strengthen the mechanisms that tie the work of government ministries to the strategic plan, and to strengthen the professional echelon in the government ministries. background the eli hurwitz conference is focusing this year on strategy : the design of policy that directs reality while looking far into the future. the conference contains various sessions in which analyses of the basic demographic and global trends are presented, and discussions are held regarding the policy required today to achieve targets in the coming decades in areas that affect the standard of living, inequality, the quality of public services, the level of infrastructure and more. it is needless to go into detail about the importance of strategic planning in this forum. there are a number of layers : setting targets ; designing policy that will be consistent with the long - term planning ; and no less important, avoiding policy measures that will make it difficult to attain the strategic targets in the future. the late eli hurwitz, for whom this conference is named, led many strategic planning efforts, and today ’ s conference marks a decade since the presentation of the “ israel 2028 — socioeconomic vision and strategy in a global world ” plan, which was formulated by a team led by eli hurwitz and managed by david brodet, together with many partners. the plan was presented and discussed by the government in may 2008. a decade later, we are at an appropriate place to stop and assess : have the governments since then acted in view of the vision presented in the plan? have they turned it into an operative work plan in

by international comparison, despite the fact that national savings is not low, as we showed in the bank of israel annual report for 2016. therefore, not only are we not close the gap in capital per worker relative to other economies, the gap is even growing. by the way, the investments that increased in 2016 were mainly in residential construction and in the electronic components industry, but not in the other industries, such that the increase in investments made a relatively small contribution to a broad increase in production capacity. a factor that is complementary to private sector investment is government investment in infrastructure. despite some increase in the past two years, the level of this 3 / 4 bis central bankers'speeches investment remains lower than it was at the beginning of the decade. as a result, the stock of capital in the economy is lower than the average in the other advanced economies. exports as a share of gdp also declined in recent years, affected by the weakness in world trade and the strengthening of the shekel. this fact is not harbinger of good news in terms of the dynamics of productivity. in this context, we can examine what happened to labor productivity in israel over time. despite its low level at the point of departure in 1995, its pace of growth was lower than what could have been expected given the fact that in general, the increase in productivity is greater in economies that begin from a lower point, if only because of their ability to adopt technologies that exist in countries at the technological forefront. the fact that the productivity gap has not been closed is particularly disappointing given that growth in productivity in the other advanced economies has also been relatively low in recent years. other than the composition of growth and the insufficient level of infrastructure, i have discussed other reasons for the low level of productivity at various opportunities. the main reasons are unsuitable human capital, as shown by the piaac tests examining the cognitive skills of the adult population in israel — such as problem solving skills in a digital environment — the problem of excessive and inefficient bureaucracy, and the fact that the economy is not sufficiently open to international competition in various aspects, such as the attitude toward competitive supply from abroad or relatively high non - tariff barriers. the question of the implications of growth led by consumption over the long term has been discussed by various international entities in recent years, and the main conclusions from their studies are similar to the analysis we have conducted. such growth tends to be weaker, and it also generally leads to lower future growth. the reason for