There is no economy in the world that doesn’t have its problems — “unless you’re thinking of Norway,” quipped Bank of Israel Chairman Stanley Fischer at a press conference Wednesday. But on the whole, Israel’s economy has weathered recent economic storms rather well.
Still, as versatile as Israel has been in handling the outside threats of a worldwide recession, he said, there’s a homegrown issue that must be dealt with if Israel’s economy is to continue to thrive, or perhaps even survive: Israeli Arabs and the Haredi Jewish population must get to work, and become contributing members of society. Otherwise, Israel could turn into an inequitable welfare state, squandering valuable resources on wasteful transfer payments.
Fischer made the comments in what may be one of his last press conferences. The Bank of Israel chairman announced last month that he would leave his post on June 30 and, speaking to foreign journalists at the Jerusalem Press Club, Fischer presented a summary of his almost eight years at the helm.
If there is one thing that impresses Fischer about Israel’s economy, it’s how resilient it is. “This economy has remarkable powers of recovery.” Incidents that would have caused major economic dislocations elsewhere barely register. “For example, during the 2006 Lebanon War, GDP was down. But in the next quarter it bounced back, growing 10%. The robustness of Israel’s economy surprised me,” he said.
In the short term, Israel has two problems that need immediate attention — high real-estate prices, and a large budget deficit. But with a little effort in the right direction, Fischer claimed, both could be dealt with successfully. Real-estate prices in the center of the country are still too high. A lot of people want to live in Tel Aviv, but they’re not making any more land available, so it stands to reason that prices for homes would be high. Still, there was good news, commented Fischer: As a result of government efforts to market more land, and low interest rates, prices in “the periphery” were going down. The periphery, by the way, isn’t just the northern border or the deep south; it’s also Rosh Ha’ayin, approximately 10 kilometers from Tel Aviv, he declared.
The budget deficit for 2013 is another issue that requires immediate attention — but here, too, things aren’t quite what they seem. “The way the media is going on, it sounds as if the government will be taking away many benefits and transfer payments,” continued Fischer, but actually, “the rate of spending will be slowing down. Nothing will be taken away, but some promises for increases in salaries and the like may not take place. Politically this will be difficult, as there will be many disappointed people.” The budget adjustments will have to take place regardless of whom Benjamin Netanyahu chooses to partner in government, Fischer noted.
He’s less confident regarding the country’s longer-term economic future; by way of many charts and graphs, his made clear that there are simply too many Israelis who are not in the workforce. Over the past 30 years, the Haredi population has soared, doubling its relative proportion of Israel’s population (from 4% in 1980 to 10% now); the Arab population has grown as well, but much more slowly (from 16% in 1980 to 20% now). The two groups are responsible for most poverty in Israel, mainly because they are 1-income families; 60% of Haredi men do not work, while 80% of Arab women stay at home. And the Haredi women and Arab men who do work tend to earn less than other groups. In addition, both Haredim and Arabs have more children on average than most Israelis, so even families where there is a decent income can find themselves close to the poverty line.
In other words, there are a lot of able-bodied Israelis whose families are being “carried” by the taxpayers — and the problem will only get worse. “At current population-growth trends, Haredim will be 26% of the population in the next 50 years, and Israeli Arabs will be 24%.” Although being Arab or Haredi does not automatically mean a family will be poor, nearly half the families in both sectors are below the poverty line. “Economically this just doesn’t work, and it cannot continue,” said Fischer.
The Bank of Israel has analyzed the problem down to the nth degree, but, as a non-political institution, it does not make social policy recommendations. Therefore, beyond describing the vast nature of the problem, Fischer did not offer specifics on to how to solve it. But he did give some very broad hints. “The solution, I believe, will come from within and from outside the communities. I think the results of the recent elections show how Israelis feel about this,” Fischer said, alluding to the rise of Yesh Atid, one of whose central party planks is requiring Haredim to serve in the IDF. “Israelis are not prepared to put up with this for another 50 years.”
Based on Fischer’s remarks, it seemed as if he was more concerned that Haredim get into the workforce than into the IDF. Would he favor lowering the exemption age from 28 (the age at which Haredim who were exempt from IDF service were permitted to work under the now-defunct Tal Law), just to give them an incentive to work? “That’s a political issue, but I know there is at least one party that has proposed that,” Fischer said in response to a Times of Israel question. “I have my own opinion on the matter that I cannot give in this context.”
That is, of course, because he is the head of a “politically secular” institution; but what if he had a political post, like that of finance minister? When asked about this possibility in recent weeks, Fischer had glossed over the question, but at Wednesday’s event, he said that the subject may just be on the agenda. In fact, he said, “There’s a rumor to the effect” that he was asked to take on the job. “I don’t like to talk about one-on-one conversations,” he added.
Fischer said that he felt comfortable about the future of the bank he has led for the past 8 years. “What I said to myself is, ‘Until I know that the new Bank of Israel law is working, I’m going to stay,’ ” Fischer said. “I think the Bank of Israel law is working. I think the monetary policy decisions are being made in a better framework than they were some time ago.”
If he were to move on next to the job of finance minister, of course, he could help set policies to boost participation in the work force. And then perhaps Fischer would come to feel as comfortable about the future of the overall Israeli economy as he does about the central bank.