Herzliya Conference

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The Herzliya Indices National Security
BalanceThe Civilian Quantitative Dimension
Herzliya Conference 2008
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Herzliya Indices Team
Team Leader Prof. Rafi Melnick - IDC Herzliya

• Team Members
• Ms. Leah Achdut Van Leer Jerusalem Institute
  The Ruppin Academic Center
• Dr. Michel Strawczynski Bank of Israel
• Mr. Tommy Steiner IDC Herzliya
• Dr. Zalman Shiffer Economic Advisor

With thanks to Michal Ophir and Refaela Cohen
(National Insurance Institute of Israel), Polina
Dovman (Bank of Israel), and Gilad Skutelsky (IDC
Herzliya) for their assistance with research.
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Development of the Economic Dimension in Israel
1990-2007
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Development of the Social Dimension in Israel
1990-2006
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Development of the Governmental/Political
Dimension 1996-2006 in Israel
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Dimensions of National Security
National Security
Military Dimension
Civilian Dimension
Social
Economic
Governmental/Political
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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.

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Components of theEconomic 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)

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Components of theSocial Indicator (relative
weight in parenthesis)

• Poverty Incidence (14)
• Gini Inequality Coefficient (12)
• Human Development Index Education (11)
• Chronic Unemployment (10)
• Human Development Index Life Expectancy (10)
• Rate of Participation in Labor Force Men (10)
• Rate of Participation in Labor Force Women
  (10)
• Human Development Index GDP (9)
• Population Aged 65 (7)
• Population Aged 15- (7)

Last updated in 2005
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Components of the Governmental/Political
Indicator (relative weight in parenthesis)

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)

Last updated in 2003
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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 2006
• Israels economic data is through 2007

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Economic Data Sources

• Primary Sources
• World Bank
• IMF World Economic Outlook
• OECD Economic Outlook
• Israels Central Bureau of Statistics
• Secondary Sources
• IFS International Financial Statistics (IMF)
• Economist Intelligence Unit-Iran
• Bank of Israel and various central banks
• Other sources

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Social Data Sources

• Primary Sources
• OECD
• Luxembourg Income Study
• Israels 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 NewCronos

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Governmental/Political Data Sources

• Primary Sources
• World Bank
• Freedom House
• Polity IV Project
• A.T. Kearny - Foreign Policy Magazine
• Europe Yearbook
• Treaties and Alliances of the World

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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

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Herzliya Indices 2008Results
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Economic Base 1990
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Economic Base 2006
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Development of the Economic Dimension Israel and
the Developed Countries
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Development of the Economic Dimension Israel and
Regional Countries
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Economic Change (percent) 2000-2003
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Economic Change (percent) 2003-2006
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Economic Change (percent) Marginal 2006
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Economic Index 2006
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
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United States 110.0
Japan 77.6
Germany 71.1
United Kingdom 69.3
France 67.6
Switzerland 67.6
Canada 66.5
Norway 66.3
Netherlands 66.2
Italy 66.1
Denmark 64.5
Belgium 63.9
Austria 63.7
Australia 62.9
Finland 62.6
Sweden 62.4
Ireland 61.9
Korea 61.4
Spain 61.2
New Zealand 59.8
Israel 59.2
Greece 53.6
Portugal 53.4
Hungary 52.1
Egypt, Arab Rep. 49.4
Czech Republic 43.9
Poland 43.5
Turkey 42.9
Iran, Islamic Rep. 40.6
Syrian Republic 31.7
Jordan 30.4
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18
19
20
21
22
23
24
25
26
27
28
29
30
31
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Social Base 1990
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Social Base 2006
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Development of the Social Dimension Israel and
the Developed Countries
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Development of the Social Dimension Israel and
Regional Countries
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Social Change 2000-2003
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Social Change 2003-2006
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Social Change Marginal 2006
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Social Index 2006
Denmark 106.4
Finland 103.9
Sweden 103.6
Norway 103.6
Netherlands 103.1
Switzerland 102.8
Canada 102.7
Australia 101.8
Austria 101.8
France 100.5
USA 99.9
Germany 99.9
New Zealand 99.8
UK 99.8
Japan 99.4
Czech Rep. 99.4
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2
3
4
5
6
7
8
9
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13
14
15
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Hungary 99.4
Belgium 98.3
lreland 97.1
Portugal 96.2
ltaly 95.5
Spain 95.5
Israel 95.2
Korea, Rep. 95.1
Poland 95.0
Greece 92.1
Turkey 84.9
Jordan 81.5
Egypt 78.5
Syria 74.5
Iran 72.6
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18
19
20
21
22
23
24
25
26
27
28
29
30
31
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Governmental/Political Base 1996
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Governmental/Political Base 2006
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Development of theGovernmental/Political
Dimension Israel and the Developed Countries
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Development of theGovernmental/Political
Dimension Israel and Regional Countries
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Political Change 2003-2006
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Political Change Marginal 2006
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Governmental/Political Index 2006
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2
3
4
5
6
7
8
9
10
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12
13
14
15
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Canada 100.5
United States 98.0
Denmark 96.1
Netherlands 94.9
Norway 94.7
United Kingdom 94.6
Germany 94.5
Finland 94.5
Switzerland 94.1
Sweden 93.9
Belgium 93.8
Austria 92.9
New Zealand 91.4
Australia 91.3
France 90.4
Ireland 88.6
Japan 87.0
Portugal 86.8
Spain 85.5
Italy 81.8
Hungary 81.1
Czech Republic 81.1
Greece 78.6
Poland 77.6
Korea, Republic of 73.9
Israel 71.6
Turkey 59.1
Jordan 55.6
Egypt, Arab Rep. 51.4
Iran, Islamic Rep. 30.6
Syrian Republic 29.1
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Summary Crisis and Recovery

1. The Herzliya indices provide a quantification of
   the national crises that Israeli society
   experienced in the years 2000-2003 and the
   recovery from them during 2003-2006.
2. The recovery of the Economic Index in 2003-2006,
   which continued in 2007, is stronger than its
   decline during 2000-2003.
3. No significant recovery is registered in the
   Social Index. The Social Index does show that the
   deterioration in this dimension, which started
   before 2000-2003 and deepened during the crises,
   has stopped.
4. The Governmental/Political Index shows a recovery
   in 2003-2006 that is milder than the deep decline
   it suffered in 2000-2003.

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Summary Latest Developments

1. The Herzliya Indices of National Security are all
   positive in 2006, despite the occurrence of the
   Second Lebanon War. The strongest improvement is
   in the economic dimension, which continues to
   evolve in 2007. The improvements in the social
   and governmental/political dimensions are only
   marginal, although they show a change from the
   previous negative trends.
2. The economic dimension shows very strong
   improvement, which generally also was observed in
   the other countries in our sample therefore we
   do not see an improvement in the relative
   position of Israel vis-à-vis the other countries
   in our sample.

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Summary Latest Developments

1. The improvement in the social dimension is very
   slight, illustrating that the economic
   improvement has not, so far, spilled over to the
   social aspects of Israeli society.
2. In the governmental/political dimension, we also
   record a very slight improvement and the level of
   this index remains in the lower part of the
   distribution of our sample.

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Definition Political Stability and the Absence
of Violence
Political Stability and the Absence of Violence
is one aggregate governance indicator. The
indicators in this cluster measure perceptions
of the likelihood that the government in power
will be destabilized or overthrown by possibly
unconstitutional and/or violent means, including
domestic violence and terrorism. The point
estimate of governance of each cluster is based
upon polls of experts and surveys of
businesspeople and citizens. Governance
indicators are oriented so that higher values
correspond to better outcomes, on a scale from
-2.5 to 2.5.
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Definition Rule of Law
Rule of Law is one aggregate governance
indicator. The indicators in this cluster measure
the extent to which agents have confidence in
and abide by the rules of society. These include
perceptions of the incidence of both violent and
non-violent crime, the effectiveness and
predictability of the judiciary, and the
enforceability of contracts. The point estimate
of governance of each cluster is based upon polls
of experts and surveys of businesspeople and
citizens. Governance indicators are oriented so
that higher values correspond to better outcomes,
on a scale from -2.5 to 2.5.
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Definition Control of Corruption
Control of Corruption is one aggregate governance
indicator. The indicators in this cluster measure
perceptions of corruption, conventionally
defined as the exercise of public power for
private gain. The point estimate of governance
of each cluster is based upon polls of experts
and surveys of businesspeople and citizens.
Governance indicators are oriented so that higher
values correspond to better outcomes, on a scale
from -2.5 to 2.5.
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Definition Regulatory Quality
Regulatory Quality is one aggregate governance
indicator. The indicators in this cluster measure
the incidence of market-unfriendly policies such
as price controls or inadequate bank supervision,
as well as perceptions of burdens imposed by
excessive regulation in areas such as foreign
trade and business development. The point
estimate of governance of each cluster is based
upon polls of experts and surveys of
businesspeople and citizens. Governance
indicators are oriented so that higher values
correspond to better outcomes, on a scale from
-2.5 to 2.5.
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Definition Government Effectiveness
Government Effectiveness is one aggregate
governance indicator. The indicators in this
cluster measure perceptions of the quality of
public service provision, the quality of the
bureaucracy, the competence of civil servants,
the independence of the civil service from
political pressures, and the credibility of the
governments commitments to policies into a
single grouping. The point estimate of
governance of each cluster is based upon polls of
experts and surveys of businesspeople and
citizens. Governance indicators are oriented so
that higher values correspond to better outcomes,
on a scale from -2.5 to 2.5.
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Definition Voice and Accountability
Voice and Accountability is one aggregate
governance indicator. The indicators in this
cluster measure the ability of the citizenry to
participate in the selection of government and
includes the independence of the media. The point
estimate of governance of each cluster is based
upon polls of experts and surveys of
businesspeople and citizens. Governance
indicators are oriented so that higher values
correspond to better outcomes, on a scale from
-2.5 to 2.5.