Once a traditional economy based mainly on agriculture, light industry and labor intensive production, Israel was until the 1990s described as the "most socialist economy of any nation outside of the Eastern bloc". High growth, second only to Japan in the period 1922-73, was achieved through a highly centralized, state-driven economic policy, making Israel a world record-holder in high taxes, foreign debt , and finally inflation , which reached triple digit levels from 1977 to 1984.
Since a national unity government first began implementing measures of stabilization and reform in 1985, Israel's economy has been transformed from a highly state-centered one to a mixed economy focused on high-tech and exports. The influx of Jewish immigrants from the former Soviet Union topped 750,000 between 1989 and 1999, bringing the population of Israel from the former Soviet Union to 1 million, one-sixth of the total population, and adding scientific and professional expertise of substantial value for the economy's future. The influx, coupled with the opening of new markets at the end of the Cold War, and the onset of the Middle East peace process, energized Israel's economy, which grew rapidly in the 1990s, despite a slight setback during 1997 to 1999. Capitalizing on the country's human resource potential, the government instituted economic reforms and new policies that have created a global high technology powerhouse in such industries as semiconductors, computer software, telecommunications, and biomedical equipment. The dramatic growth of Israel's high tech sector in recent years has led to a shortage of qualified workers and a significant rise in salaries for these positions.
In the 1990s, Israel enjoyed a remarkable economic expansion that brought new levels of prosperity and a significant increase in purchasing power. With economic growth averaging nearly 6 percent between 1990 and 1996, Israel's economy expanded by some 40 percent in real terms, and per capita income jumped from US$11,000 to almost US$17,000. The slowdown in economic growth between 1997 and 1999 was generally attributed to the waning of the stimulative effects of the immigration waves, such as for residential construction and new business investment, high interest rates, and much tighter fiscal policy in this period. A further reason was increased political and security uncertainty due to a lack of progress in the peace process. In 2000, Israel's GDP per capita was US$17,500—higher than in Spain or New Zealand.
Both major parties, the currently ruling Likud under Ariel Sharon and the Labor party, are committed to further liberalizing the economy, strengthening exports and attracting further foreign investments, mainly in the high-tech sectors, and to keeping the macroeconomic environment stable. Despite moving gradually toward a more open, competitive, and market-orientated economy over the past decade, the level of government involvement in the economy remains high, as do the public's expectations for government assistance. The country's infrastructure network remains publicly owned, as does much of the banking system. However, the pace of privatization has quickened in recent years.