Last summer, Prime Minister Benjamin Netanyahu held a number of intimate briefings with Israeli media outlets in an attempt to counter the negative image of him that he believed they were falsely propagating.
Laying out his vision for the country, the successes of governments that he had led, and the challenges facing the Jewish state in the coming years, Netanyahu painted a picture of Israel as a rising global superpower. The narrative according to which he was a frantic grandstander, obsessed with his own political survival and neglecting the needs of the country, was a distorted fiction, he sought to demonstrate.
Last month, at the Prime Minister’s Office’s traditional Passover toast, Netanyahu articulated directly to the public what he appeared to be trying to convey in those briefings.
“I’ll tell you what I see in the media,” Netanyahu said. “It does not reflect what the public feels. It is an industry of despair. Where they see unemployment, I see full employment. Where they see an economy in ruin, I see a flourishing economy. Where they see traffic jams, I see junctions, trains and bridges. Where they see a crumbling state nearing collapse, I see Israel as a rising global power.”
Rather than the stunning political triumphs that he often points to, or the growth in Israeli settlements he sometimes touts to Hebrew-speaking audiences, above all, he told reporters last year, it was the strong economy that topped the bill of proud achievements proving his success in transforming Israel into a force to be reckoned with.
According to the prime minister, economic might is the most important factor in building a strong country, because without it Israel will be unable to fund its military and defend itself from myriad existential threats. Diplomatic might, he said, while also necessary for the country’s success, is only a consequence of a strong economy and military and can essentially be bought by exporting Israel’s technological and military know-how.
Naturally, academic assessments of Israel’s economic prospects agree with the prime minister that a strong economy is a prerequisite for a strong military. But two new reports looking at both the immediate and long-term strength of Israel’s economy suggest that, while recent years have seen several positive economic signs in a number of areas, Israel faces “worrisome trends” that could ultimately have disastrous effects on its growing population.
According to the “Picture of the Nation 2017” report released Sunday by the Taub Center for Social Policy Studies in Israel, Israel has the highest lack of disposable income of all OECD countries and, with an aging population and rising costs across the board, its “current sources of economic growth are not sustainable.”
A separate report, released earlier this month by the Shoresh Institution for Socioeconomic Research, which looks at economic trends over the entire 69-year history of the country, says that far from guaranteeing Israel as a military and therefore a world power, the economy shows deep-seated and long-term shortcomings that threaten to weaken the army and constitute an “existential threat” to the country’s future.
“The writing is on the wall. One nation-shaking crisis – emanating from the security and/or economic spheres – could spark a process from which there will be no turning back,” the Shoresh Institution report warns apocalyptically. “Israel has reached a critical juncture. Decisions that it makes today will literally determine the existence of the country in a few decades.”
According to Prof. Dan Ben-David, founder and chair of the Shoresh Institution and co-author of the report, if Netanyahu “continues to ignore the future” the country could be facing a catastrophe of massive proportions.
“The past year has seen a decline in unemployment and a large rise in GDP,” reports the annual Picture of the Nation, but “unfortunately, it appears that this positive trend will not continue and new sources of growth must be found.”
While Gross Domestic Product, often seen as a bellwether of economic strength, has grown in the last year by four percent, the Taub Center describes the figure as an “outlier and not a trend.”
Suggesting that the cause for growth came only from a single massive investment by Intel into its Kiryat Gat plant, and a rise in car imports due to an expected change in taxation, “taking a long-term view, growth in the Israeli economy has been disappointing,” the report says. In fact, the previous year saw a further downward trend in labor productivity, following five years of slowing rates.
In addition, whereas Israel ranks near the middle of the OECD pack in terms of GDP (22nd out of 34) and market income poverty rate (24th), it is in last place for disposable income poverty — the amount of money each individual has after paying taxes and regular living costs.
And that results in a startling statistic: Among developed countries, Israel has the highest percentage of its population living below the poverty line.
Titled “Israel’s primary socioeconomic challenges and policy areas requiring core treatment,” the Shoresh Institution report was released in conjunction with this month’s 40th anniversary of the 1977 electoral “upheaval” that propelled the Likud party into the leadership for the first time in Israel’s history.
The Labor Party and its precursors, Mapai and the Alignment, ruled Israel for the country’s first 29 years, never once losing an election. It was only in 1977, when Menachem Begin’s Likud first defeated Shimon Peres’s Alignment, that the left lost its hegemony over Israeli political life.
Taking the long view, Ben-David and co-author Prof. Ayal Kimhi analyzed economic trends since 1948, and particularly during the past four decades, in order to understand the socioeconomic challenges facing Israel today and in the years ahead.
Commissioned, but not paid for, by the government’s National Economic Council, the report was prepared ahead of a detailed policy brief that the advisory body is putting together for the government. While initially intended to be an internal document, Ben-David said he and Kimhi felt it was “something that should not stay just with the government” and decided to release the findings to the public.
“We think that the public needs to be aware of our major challenges going ahead so that we can do something about it while we have the opportunity,” he told The Times of Israel. “We do have an opportunity but we need to get our act together.”
By providing historical context and international benchmarks that compare Israel to other developed countries, the report attempts to debunk the perception that the Israeli economy is doing well. Like the Taub report, it makes a point of noting signs of strength in the short term, such as growth, particularly when compared with the global economic downturn in recent years. But this optimistic analysis, the authors claim, fails to take into account deeply problematic long-term trends.
The key yardsticks to measuring the strength of Israel’s economy, they say, and the areas in it which it falls far behind other developed countries, are productivity, inequality and poverty rates.
Following the creation of the State of Israel in 1948, Israel’s productivity grew at a faster pace than America’s, almost completely eliminating its gap with the US by the 1970s. But since then, it has moved from closing gaps with the US into a steady backslide.
In terms of GDP, Israel has also been falling further and further behind the G7 average since the mid-1970s, with a more than threefold increase having developed in the gap between them. This, the report says, “reflects steadily widening disparity between what an employed person living in Israel can attain and what that person could attain in the countries that are pulling away from Israel.”
But Israel has not only fallen behind the world’s leading economies. Its labor productivity is now below that of nearly all OECD countries. In 2015, GDP per hour worked in the US hit $68, two-thirds more than the $41 in Israel.
“It’s hard to see how these trajectories can continue to pull apart from one another for several more decades without causing the exodus of educated and skilled people from Israel to reach a magnitude that may become irreversible,” the Shoresh report says.
“Productivity is really what underlies Israel’s, and other countries’, standard of living,” Ben-David said. “In our case, productivity is low and it’s been falling further and further behind the leading countries. It’s been occurring for decades and it’s a very steady and very problematic process.”
And that’s why Israel’s standard of living, normally referred to as income inequality, is increasingly becoming one of the worst in the developed world.
Income inequality is second only to the United States, but the country’s poverty levels are higher than every other developed country and nearly double the OECD average.
According to Ben-David, this is due to a “fundamentally problematic change in the country’s national priorities” beginning in the 1970s.
“National priorities moved from focusing on the general good to focusing on the demands of sectoral groups,” he said, adding that the problems have become more acute in the past decade.
In the early years, “this was a country that did not have a shekel, or a lira, to its name. It was collecting people from around the world with only the clothes on their backs and growing at a phenomenal pace in terms of population. And yet it built universities,” Ben-David said. “We were rationing food in the ’50s, but we were building hospitals. Even though the population was growing exponentially, the number of faculties in research universities was growing even faster. We had seven major research universities by 1970. We haven’t built one since.”
‘You can’t forgo half a society’
Ben-David insisted that the report’s findings must not be relegated to another stale debate about social policy.
If Israel’s educational and economic policies don’t change, its future may be in peril. “You can’t forgo half of society and say, ‘The rest will support everything,'” he said.
Yes, Israel as the startup nation is booming, producing cutting edge high-tech and bio-tech. But that is just one Israel, Ben-David said; there is another Israel that is receiving neither the tools nor the conditions to work in a modern economy. “That other Israel is huge, and it is like a huge weight on our shoulders, pulling everything down.”
Both the Taub Center and the Shoresh Institution describe an education system producing a generation of low-achieving students, low productivity in an Israeli work hour, woefully inadequate transportation infrastructures, a housing market that discourages investment, and substantial inequalities in state healthcare coverage.
For two decades, Israeli schoolchildren have consistently ranked behind other industrialized Western economies in terms of academic achievement.
In the state and state-religious schools systems, which together encompass over 50% of Israel’s elementary school students, academic achievement measured by international standardized tests does not match what is considered “first world” education.
“Children who receive third-world educations will only be capable of sustaining a third-world economy. But a third-world economy will not be able to maintain the first-world army that Israel needs in order to survive in the most dangerous region on the face of the earth,” Ben-David said.
Physical infrastructures, too, have been neglected. Israel’s roads are among the most crowded in the industrialized world, even though car ownership is lower. Since the 1970s Israel has tripled the congestion on the roads.
Healthcare standards have also dropped.
While the Taub Center report says that the overall health of the population in Israel is slightly better than in other leading European countries, it notes that with an aging population, that advantage is “likely to recede… and the state must take appropriate measures in time to deal with these expected demographic changes.”
The Shoresh Institution report is more bleak.
The number of hospital beds per capita in Israel has been falling dramatically since the late 1970s and it is now near the bottom of the OECD, it says. Likewise, Israel has one of the lowest numbers of nurses per capita, and that number, too, is dropping. Those low standards, the report says, have contributed to a doubling of the mortality rate from infectious and parasitic diseases, while the average OECD rate has remained stable over the same period.
“Hospital conditions in Israel do not befit those of a developed nation,” the report says.
Iceberg ahead, unless we change course
But it may not be too late to recover.
“Israel has not yet passed the point of no return,” the Shoresh Institute report says. However, “in light of the rapid pace of current demographic changes, there is just a small window of opportunity remaining for making decisions that are already very difficult to reach today.”
According to Ben-David, the current projections predict one of two “existential” crises: Either Israel’s economy will simply not be able to fund or provide the necessary skills for the military might that Netanyahu says its existence depends upon, or, the younger generation, seeing better opportunities and living standards elsewhere, will leave the country.
“If you continue to put pressure on them, they have a choice — they don’t have to stay here. Right now I think the choice of most is to stay here, but yes, that could change,” he said.
The Prime Minister’s Office and the government’s National Economic Council declined to comment on either report and the findings they present.
Asked if he saw any hope, given the economic policies of recent governments, Ben-David said, “We are all in the same boat. But it’s called the Titanic. And, right now, there is an iceberg ahead. It depends on whether we can change course in time.”