Monday, August 23, 2010

Why is Israel so poor?

It is because Israel is a low trust society. Some 56% of Israelis report that you cannot trust others, which is a figure comparable to other low-trust societies like South Korea or Italy. One manifestation of this is that there are very few large Israeli firms. By contrast, high-trust Switzerland is home to several national superstars like UBS, Novartis, TAG Hauser, etc. Israel’s economy is dominated by small-scale firms, many of which are founded by people who formed close bonds in the IDF and this lack of large, productive multinationals may play a role in explaining Israel’s relatively poor economic performance.

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