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

2. Prof. Rafi Melnick - IDC Herzliya February 20112 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

3. Prof. Rafi Melnick - IDC Herzliya 3 Development of the Economic Dimension in Israel 1990-2010 February 2011

4. Prof. Rafi Melnick - IDC Herzliya 4 Development of the Social Dimension in Israel 1990-2009 February 2011

5. Prof. Rafi Melnick - IDC Herzliya 5 Development of the Governmental/ Political Dimension in Israel 1996-2009 February 2011

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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

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

18. Prof. Rafi Melnick - IDC Herzliya February 201118 Economic Base | 1990

19. Prof. Rafi Melnick - IDC Herzliya February 201119 Economic Base | 2010

20. Prof. Rafi Melnick - IDC Herzliya February 201120 Development of the Economic Dimension Israel and the Developed Countries

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

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

23. Prof. Rafi Melnick - IDC Herzliya February 201123 Development of the Economic Dimension Israel and Regional Countries

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

25. Prof. Rafi Melnick - IDC Herzliya February 201125 Economic Index 2010 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 USA 102.85 Japan 73.12 Germany 68.77 Switzerland 64.96 Norway 64.92 France 63.42 Netherlands 63.08 Canada 63.06 UK 62.90 ltaly 62.38 Australia 60.90 Austria 60.27 Belgium 60.08 Denmark 59.61 Korea, Rep 59.27 Sweden 59.19 Finland 57.61 Israel 56.99 Spain 56.50 New Zealand 56.36 lreland 55.52 Portugal 50.21 Greece 50.07 Hungary 48.17 Egypt 47.66 Turkey 44.44 Poland 43.56 Czech Rep 41.43 Iran 37.58 Jordan 33.69 Syria 32.69

26. Prof. Rafi Melnick - IDC Herzliya February 201126 Social Base | 1990

27. Prof. Rafi Melnick - IDC Herzliya February 201127 Social Base | 2009

28. Prof. Rafi Melnick - IDC Herzliya February 201128 Development of the Social Dimension Israel and the Developed Countries

29. Prof. Rafi Melnick - IDC Herzliya February 201129 Development of the Social Dimension Israel and Regional Countries

30. Prof. Rafi Melnick - IDC Herzliya February 201130 Social Index 2009 * 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Denmark104.96 Norway104.59 Sweden103.75 Canada102.75 Australia101.84 Finland101.71 Netherlands101.56 Switzerland101.02 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

31. Prof. Rafi Melnick - IDC Herzliya February 201131 Governmental/ Political Base | 1996

32. Prof. Rafi Melnick - IDC Herzliya February 201132 Governmental/ Political Base | 2009

33. Prof. Rafi Melnick - IDC Herzliya February 201133 Development of the Governmental/ Political Dimension Israel and the Developed Countries

34. Prof. Rafi Melnick - IDC Herzliya February 201134 Development of the Governmental/ Political Dimension Israel and Regional Countries

35. Prof. Rafi Melnick - IDC Herzliya February 201135 Governmental/ Political Index 2009 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 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

36. Prof. Rafi Melnick - IDC Herzliya February 201136 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.

37. Prof. Rafi Melnick - IDC Herzliya February 2011 37 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