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Prime Minister Benjamin Netanyahu proudly talks about "the economic miracle of Israel." (1) Professor Avi Simchon, the head of Israel's National Economic Council, declares, "It's time to get used to the fact that the Israeli economy is doing well." (2) Indeed, the Israeli economy can point to growth: Household income is on the rise, the poverty rate has decreased slightly, economic gaps have narrowed somewhat (according to the Gini Index), and enrollment in institutes of higher learning is at a record high.

All these, believes the prime minister, can be directly attributed to the neoliberal policies he instituted as finance minister in the years 2003-2005 and as prime minister since 2009. "We reined in government spending, reduced taxes, reformed the welfare and pension systems...privatized government companies, and created new capital markets... there have been 14 years of growth...while the debt-to-GDP ratio has declined from roughly 100% to 62%." (3)

Although the government takes pride in its recent years of economic growth resulting from its macroeconomic policies, the context is important--the relative lull in violent Palestinian resistance to ongoing Israeli control, which had in the past often cast a pall on Israeli economic activity.

Although the Israeli economy did experience growth, in recent years much of this growth has stemmed from increased private consumption--car imports, for example--made possible to some extent by the lower interest rates in the wake of the global financial crisis of 2008. The increase in private consumption can be assumed to reflect the demands of the upper income deciles, as they upgrade their standard of living.

From the perspective of lower income households, however, the main positive outcome of greater private consumption has been the expansion of employment opportunities in low-income service jobs such as sales, waitressing, caregiving, security, and the like. This has meant more breadwinners in low income households--and also more income for these households.

The income pyramid, however, has not fundamentally altered. Although the overall incidence of poverty has slightly tapered, the poverty rate among wage earners has in fact mounted. Indeed, Israel's poverty rate remains among the highest in the west. And although the Gini Index fell somewhat after climbing for many years, it is still among the highest in the developed world.

The government prides itself on taking a back seat in matters concerning economic entrepreneurship, in the belief that the business sector alone can handle these matters. The business sector, spearheaded by the high-tech industry (which itself enjoys massive government investment), however, is not delivering the goods. Business is hardly living up to its portrayal as "the engine that drives the economy." As noted by the Innovation Authority in the Ministry of Economy, "Israel has become a global focus of innovation over recent decades; however, the prospering high-tech sector has largely remained insulated and the majority of the economy has yet to gain from its benefits." (4) Indeed, high tech alone cannot be expected to pull the entire economy forward: The three hundred R&D centers that the multi-nationals established in Israel are primarily interested in "milking" the ability of Israelis in these fields; the present educated labor force is enough for them, and they have no incentive to expand the "start-up nation" beyond greater Tel Aviv.

As noted, the government takes pride in cutting expenses. Tax policies favor the large holding and investment groups and high wage earners, leaving less money in the government kitty for economic development of the periphery, upgrading schools and higher education, or ensuring an effective social safety net. Civilian expenditures in Israel are among the lowest among OECD member countries. Although government debt did shrink and interest payments have eased, this has come at the price of reduced social spending, i.e., Israelis now have to pay a premium for private services that should be public, leading to widening gaps between those who can afford them and those who cannot.

Most troubling, however, is that while enrollment in higher education has indeed risen over the past two decades, the number of undergraduates has stabilized in recent years, according to the Council for Higher Education, and "these trends are expected to continue in the coming years." (5)

"Getting used to the fact that the Israeli economy is doing well," as noted by the economic advisor to the prime minister, means getting used to an economy driven by a small group, an economy with unbalanced growth that generously benefits that group. "Getting used to it" means getting used to large segments of Israeli society and its economy being left behind.
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Publication:Israel: A Social Report
Date:Jan 1, 2018
Previous Article:The Adva Center annual report, Israel: A Social Report--2008/2008 was published today.
Next Article:Capital Income of Rich Households Grew; Welfare Income of Poor Households Diminished.

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