Stanley Fischer on Israel's Brain Drain

Bank of Israel Governor Stanley Fischer Ammar Awad / Reuters-Corbis

Stanley Fischer is an oddity in Israeli government service. A renowned economist who spent most of his life in the U.S., he moved to Israel five years ago, at age 61, to be the Bank of Israel governor—a post roughly equivalent to America's Federal Reserve chairman. He had to learn Hebrew and take on Israeli citizenship. He has kept the country's economy stable through two wars and a global financial meltdown. In October, Euromoney magazine declared him Central Bank Governor of the Year. Fischer spoke with NEWSWEEK's Jerusalem bureau chief, Dan Ephron. Excerpts:

You have raised Israel's foreign-currency level substantially, to $70 billion. Some commentators have linked that policy to the prospect of a future war with Iran. Is that the case?

No, but there are aspects I want to emphasize. There are standards of calculating how much reserves a country needs ... We calculated how much we need and then added something to that because this [global economic] crisis had reemphasized the usefulness of having reserves in a crisis. And secondly, because, as we've said, we are in a special geopolitical situation … Israel has been in more wars than most countries in the last 60 years and we have to think about what we would do if we got into a situation like that again.

What keeps you up at night?

We've reached this stage of the crisis relatively well. We're not doing as well as China or India, but we're doing better than the Western countries by and large. And that's pretty good. What keeps us up in the short run? Seventy percent of our exports go to Europe and the United States. That accounts for 40 to 45 percent of our total production. So in essence we're very dependent on what happens in the advanced countries. And there are problems out there.

How do you quantify how America's slow return to growth affects Israel?

The high-tech sector in the U.S. has done relatively better than average, and the bulk of our industrial exports are high tech, so we've been a little bit shielded from what might have happened … We're not big exporters to the countries now having difficulties.

You've talked about Israel's human capital and education being a concern. What do you mean by that?

There are international tests of educational attainment, and Israel's rank in those tests … is very low and has been falling for years. One reason is that there are separate education systems here. The ultra-Orthodox have one with a different curriculum which is not really good—a lot of English and math and things like that [are missing] … So it's a problem.

There's also a significant brain drain in Israel. Can you explain why?

The conditions are enormously better in the United States. A graduating student in economics who gets his first job in the United States will earn three or four times what he earns in Israel. And the universities are better equipped and all that. It demands something of people to come back. In the early years of the state, people wouldn't go abroad because of patriotism, but it's become accepted as Israel has become a more normal country.

So these things, the brain drain, the problem of human capital, the concerns about test scores, seem counterintuitive. When we think of Israel, we think of "Startup Nation" and "the People of the Book" and so on. Is all that a thing of the past?

No, I think both phenomena happen. The fact that we have a high-tech sector which is world renowned and has produced an enormous range of innovation is quite remarkable. And it depends if you look at the glass half empty or half full.

What has surprised you about working in Israel?

I underestimated how difficult things were to get through the bureaucracy. It's harder than I thought. It takes time and enormous persistence É I also underestimated how pleasant it is to live in Israel. Once you're outside the context of the official sector, it's a very pleasant place to live, and that's hard for foreigners to accept.