Until 1985, the Israeli economy was almost socialist, with heavy state intervention that brought it to the brink of economic collapse. Between 1980 and 1984, the fiscal deficit skyrocketed to 13.2% of GDP and annual inflation reached a record 400%.

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Starting in 1985, the Ministry of Finance, in agreement with the main political parties, led a stabilization program that incorporated structural changes into the Israeli economy, especially a new individual capitalization pension system to replace the bankrupt and unfair pay-as-you-go system.

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The profound changes toward economic freedom were led by prominent officials from the Ministry of Finance and the Bank of Israel. Highly influential and experienced politicians from both parties also participated in designing the program. The successful Chilean example of creating an individual capitalization pension system was decisive.

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The main objectives of introducing a capitalization system were to stabilize fiscal accounts and develop a powerful capital market, as well as to increase social coverage and reduce poverty. It also aimed to transform a deficit-ridden system that promised benefits into a capitalized one based on defined contributions, where workers' funds are invested in the capital market.

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Like Chile, Israel closed the door on new workers joining the pay-as-you-go system. Social security coverage increased from 35% in 2009, under the pay-as-you-go regime, to 78.2% in 2018, under the capitalization system. Total contributions to the capitalization and unemployment system reach 20.5% of remuneration. Upon retirement, workers can withdraw the capital amount exceeding a minimum pension in a single lump sum.

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Private sector-managed pension funds reach 400 billion dollars, exceeding the GDP, which reached 371 billion dollars in 2019. Between 2001 and 2019, the average real return reached 6.04% annually. Commissions have dropped from 1.1% in 2005 to 0.5% in 2018, thanks to bidding processes similar to the Chilean system, whereby young people entering the workforce join an administrator that won that segment through a public tender by offering the lowest commission in the market.

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Israeli society values the capitalization pension system for its security, profitability, and transparency. A key role in this is played by the fact that Israelis are educated from a very early age in saving and investing, that is, in financial literacy.

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Over the last 30 years, Israel's economic results have been impressive. GDP per capita increased more than threefold, from 12,500 dollars in 1990 to 41,700 dollars in 2018. Public debt fell from 138% of GDP to 61%. Economic freedom led Israel to development, turned it into an exporting powerhouse, and elevated the country to the rank of a global leader in technological innovation.