A new tiger prowls...

Joining the Asian and Celtic Tigers is Israel, according to the Wall Street Journal (probably behind their $firewall).  The country is now in

the third consecutive year of strong growth, up to 5.5% in 2007...The 2,500 or so hi-tech start-ups located in and around Tel Aviv and Haifa give the coast the feel of Silicon Valley, only with a Gaza Strip down the road. Israelis are now investing heavily abroad. Only the U.S. and Canada have more technology companies listed on American exchanges than Israel.

That's from a country with only 6.5 million people, yet it has the third largest number of technology companies listed on U.S. stock exchanges.

How have they done it? With macroeconomic and central banking reform. Israel's central bank is now run by Stanley Fischer, a former MIT economics professor who was born in Zambia and lived on a kibbutz as a teenager.   A dose of regulatory and fiscal reform didn't hurt, either:

Taxes are falling, though with the top individual rate at 44% they are still high.

Still below Vermont's level, though.

In addition to border issues and the Palestinian problem, Israel has labor force problems, most dealing with a non-working labor force (something Vermont will soon have, although for different reasons):

The economy is handicapped by the lowest labor participation rate of any developed country. One in four ultra-Orthodox working-age Jewish men, and about as few Israeli Arab women, hold down jobs. That leaves only 37% of Israelis in the work force, compared with around 45% in a typical Western country. As a result income per worker is on par with Europe, notes economist Omer Moav, but per capita significantly lower.

And there's always the problem of trying to convince politicians of the necessity for economic liberalization and reform:

"Trying to explain market economics to our politicians is like trying to explain sex to a eunuch," says Daniel Doron, who runs the Center for Social and Economic Progress in Tel Aviv.