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Renowned Israeli Economist Predicts Economic Catastrophe for Israel

israeli povertyThey say that economics is “the dismal science.”  Frankly, I never excelled in math or science in school.  That was my brother’s field and he ended up a university chemist.  But over the past decades, economics has become a crucial element in understanding societies, wealth and national politics.  That holds doubly true in the case of Israel and Palestine.

As with everything concerning this subject, there is a propaganda “line” that Israel-advocates sell the world.  First, there was the pioneer nation that made the desert bloom, turning it into a modern society.  Lately, it’s become the “start-up nation.”  This myth sells an Israel full of technical geniuses coding their hearts out to bring innovation to the world.  It suggests an Israel in tune with the democratic and entrepreneurial spirit of the rest of the world.  Even a nation on the cutting edge of technological discovery.  After all, if Warren Buffett invested $4-billion in one of  Israel’s most profitable companies, doesn’t that prove the case?

While there is an element of truth to this story, as there are with all myths, it conceals far more than it reveals.  A recent interview with renowned Israeli economist Dan Ben-David, exposes the rest of the sordid picture of an economy rent in two, divided between haves and have-nots, between a secular Jewish elite and all the rest.  It’s worth quoting extensively from this piece since Ben-David offers a probing, even revelatory portrait of a nation, and economy in dire straits.  It’s a picture you’ll almost never see in the mainstream media:

Professor Dan Ben-David, a noted economist, has been observing Israel’s socioeconomic policies and studying their long-term implications with consternation for more than two decades. Over the last six years, serving as the executive director of the Taub Center for Social Policy Studies in Israel, his insight by which the Zionist project could ”end in tears” has been deepening. He feels that ”the window of opportunity enabling us to save the state from collapse is getting smaller, as we reach the point of no return.”

In an interview with Al-Monitor, Ben-David explains why the path that the State of Israel is following in its 66th year will eventually lead to the system’s collapse.

Keep in mind, this isn’t Norman Finkelstein or Noam Chomsky speaking.  This is a respected Israeli economist who buys into the Zionist dream, albeit with a critical perspective.  When he declares Israel is on the road to ruin, someone ought to sit up and take notice.

Here’s more of his analysis:

When I deal with the socioeconomic aspect of Israel, I have the feeling that we’re letting the country slip through our fingers. It’s ironic. On the one hand, this really is the “startup nation.” We are on the forefront of developments in high-tech and medicine. At the same time, however, there is another country here. What we have, in effect, is two countries. We track productivity rates in Israel, and based on the data, productivity here is among the lowest in the developed world. Obviously, that has implications on growth and quality of life. All the OECD [Organisation for Economic Co-operation and Development] states beat us in that.

It is important to understand that this is a trend. It is a process that began in the 1970s, so it is possible to say that we have been in decline for the past 40 years. If, in the 1950s and 1960s, we were able to reduce the gaps between us and the world’s leading countries, the trend has reversed itself since then.

That means that even when there are people who live here and who want to live here, there will also be people who leave because they can get more somewhere else. We are passing the threshold in which more and more people will not want to live here, and that could end in tears. We have to ask ourselves where our children and grandchildren will be. It is true that we are not talking about major calamities in the next year or two. We still have time to make changes and fix the problems, but that time is running out.

The other aspect of the problem is inequality and poverty. Poverty rates in Israel are among the highest in the developed world. Of course, these two things are interconnected. If, in the 1950s and 1960s, we were an example to the West of how a country does things the right way, we have since become one of the least egalitarian countries in the world.

Behind the inequality and low productivity, we find a growing population that did not receive the tools it needed from the state to integrate into the modern workforce. By this, I mostly mean the Arab and ultra-Orthodox sectors. Their situation has a negative impact on productivity. In an economy where productivity is low, it is impossible for wages to be high. When productivity in an entire country is very, very low, it says something about that country’s ability to offer high wages. The population that continues to grow lacks the tools and condition to integrate into the market. What is needed to understand the reasons for this is to take a look at the level of the country’s education in the core subjects. Since the 1990s, the State of Israel’s achievements in international mathematics and reading tests are among the lowest in the developed world, and we can’t seem to overcome that.

…This is true even if we don’t include the ultra-Orthodox, because their children do not participate in international testing. In other words, if they were included in the test results, the situation here would be even more dismal. When we look at the achievements of Arab children, we see that the level of education we provide them in core subjects is beneath what they would get in developing countries. That has enormous implications, because if we consider the demographics, we see that almost half the children in this country are either ultra-Orthodox or Arab. When they will grow older, they will increase the percentage of the population that is unable to participate in the workforce. Productivity will then decrease and existing gaps will expand. It is the responsibility of the state to reach these children and provide them with the tools they need.

First of all, we need a structural reform in the education system. If the education we provide in the periphery is at least as good as the education in the center of the country, and if we connect those places to the center of the country with a rapid, inexpensive, reliable and readily available transportation system, it will mean that almost the entire population will be living within half an hour of the country’s center. That’s a key issue, and it’s hard for people to swallow that.

The main story is that there are gaps among us, among the part of the country that is not ultra-Orthodox or Arab. If we just look at the middle class, we find that the gap between its two extremes is among the highest in the Western world. Gaps in education hint at what will happen once children grow up, because all of this will be expressed later on as gaps in income.

That is actually incorrect [the the Netanyahu government is a major instigator of structural reforms]. We’re riding a wave of marketing. Not every wage agreement is a reform. We are avoiding any dealing with the core problems. We, the Israelis, believe that everything will work itself out. Apparently, it’s part of our nature. There have been some changes in the past decade, and it is all starting to click for quite a few people, but what is happening now is that we are treating the symptoms without treating the actual problems.

What is needed here is systematic treatment of the problems of the kind that the prime minister must lead, together with his Cabinet. What is needed is a comprehensive master plan, because we are in a race against time…And as hard as it is now, once we reach a certain point it will become absolutely impossible to do anything. We will reach the point of no return.

It won’t happen in two years. I’m talking about trends. Take the ultra-Orthodox, for example. They make up 8.5-9% of the total population. What will happen when their children grow up? We won’t be able to manage. That is why we have to reach their school-age children today. There isn’t much time left. Half of those children don’t even get a developing world education, so there is no way that they can maintain a developed world economy. They could only maintain a developing world economy, and a developing world economy can’t maintain a developed world military. At that point, there will be no country left. This is a whole new definition of national security: If we don’t have an economy that can keep everything together, we will not be able to contend with the security challenges we face.

When it comes to the ultra-Orthodox, the main emphasis should be on educating their children. There is no modern country apart from Israel that allows parents to prevent their children from receiving the education they need. There are things that every child must know.

Ben-David expounds upon his ideas in greater detail in this report published by his Taub Center at Tel Aviv University.

Shir Hever, one of Israel’s foremost economists studying the costs of Occupation and maintenance of the national security state, and a former student of Ben David’s, adds his own analysis:

…[Ben-David] doesn’t ask himself why Israel has such a faulty education system…Massive and decade-long cuts in Israel’s education system have been the direct result of unsustainable security costs…Deep discrimination within Israel’s education system has channeled resources to the illegal colonies, drying up the center. Israel’s national education system is geared towards preparing the pupils for the army, a highly militaristic system, in which Arabic, if learnt at all, is mainly seen as a tool to enter into service in a military intelligence unit. In fact, there are entire schools which are sponsored by weapons manufacturing companies.

Ben David has previously shown shocking numbers of educated Israelis who leave Israel, seeking employment elsewhere. Of course, many of those who leave do so because they hope to give their children better education somewhere else, but what about those who wish to raise their children in a less militarized environment?

What Mazal Mualem refers to as the “diplomatic process,” is a code-name for a system of colonization and aparheid. This system was accepted by the majority of the Jewish-Israeli public because it promised to discriminate in their favor, but as Ben-David shows, the discrimination and inequality tends to seep further, and has caused wide gaps even within the hegemonic group.

Also, this article didn’t really talk about what is exactly Israel’s “start-up nation.” The real question is how many of the successful companies which contribute to this image are in fact security and military companies, whose success depends on the continuation of the repression of Palestinians. Such companies are reluctant to hire Palestinian citizens of Israel, and usually ultra-Orthodox Jews as well (unless they happened to have served in the army). Therefore, the issue of occupation and apartheid is not one aspect of this story, but the very root of the problems which Ben-David so aptly describes.

In the past, Israel’s advocates here have claimed that Israel’s economic divisions are somehow not the fault of the State since the have-nots in the Palestinian and ultra-Orthodox sectors opt out of the national educational and social system.  This is simply not an excuse.  As Ben David points out, the responsibility of a government and society is to the good of the whole.  If the greater good includes educating all children so that they may support themselves and their families and contribute to society, then government must both offer a good education for all and obligate parents to participate in the educational system.  There is simply no excuse for accepting half the nation’s children getting no or substandard educational opportunity.  A society that settles for this is one that has failed, despite whatever innovation it may offer in other areas.  Israel is not a nation only of the secular educated elite.  It is a nation of all its citizens (or should be).  If it is any less, it is a failure.  Plain and simple.

Though Shir alludes here to the enormous costs of maintaining Occupation and the national security state, this article elaborates on the issue.

{ 15 comments… add one }
  • Castellio May 22, 2014, 10:06 PM

    Pertinent and timely article. Well done, Richard.

  • Elisabeth May 22, 2014, 11:43 PM

    What do people mean when they say the Palestinian sector ‘opts out’ of the ‘national’ educational system?

    It seems the Israeli government operates two separate school systems, one for Jewish children and one for Palestinian children. It is reported that three times more money per child is spent on Jewish schools than on Palestinian schools (I don’t know if these are the latest numbers) and the results are dramatic.

    Palestinian Arab children attend schools with larger classes and fewer teachers, frequently children have to travel long distances to reach the nearest schoo because of a bar on school construction in some Palestinian Arab communities (in line with government policies pressing Palestinian Arab populations to move out of some areas).
    Poor school facilities and schools requiring travel over long distances result in children dropping out of the education system altogether at a very high rate.

    • Richard Silverstein May 23, 2014, 12:11 AM

      @ Elisabeth: That was sloppy of me. I was really thinking of the false claim that Palestinian women opt out of the employment sector of their own choosing, so Israel isn’t responsible for low rates of employment among Palestinians. It was the ultra-Orthodox I was thinking of when I mentioned dropping out of the educational sector, not the Palestinians. The other argument used against Palestinians is that they refuse to pay taxes so therefore the state has no obligation to provide services to them. That’s what I meant about dropping out of the “social sector.” Again, these aren’t my views, just arguments worth keeping in mind to rebut.

  • David May 22, 2014, 11:54 PM

    I can’t make sense of Ben-David’s remarks. Hever, however, offers something of an explanation in the Israeli focus on security and the settlements, economically hollowing out the core society to serve this periphery. I have never understood how Israel could sustain the occupation, the vicious blockade of Gaza, many prisons and a top notch army and still provide a decent life that ordinary folks can be satisfied with. For this small state, these costs are enormous and the result has to be a declining standard for the majority. This tangled web is Israel’s own doing, it derives from the self-definition of its “security needs” including the settlements (remember when they were all justified as security measures?) Does anyone see any sign that Israel recognizes that it is impoverishing one society in order to create another one of security engineers and nasty settlers?? Any hint?? They probably think they can string out this imbalance to secure its settlement of the WB and then, later, address the needs of the core. That’s pretty dicey…to go way way out and hope that you can get back. The future is just not that comfortably predictable.

    • Well, it can defray some of those expenses May 23, 2014, 5:12 PM

      The top notch military is, indeed, an enormous burden. But it can defray some of that cost thanks to the largesse of the US taxpayer, and by exploiting European guilt over the holocaust.

      The USA *gives* Israel $3billion worth of military hardware each and every year, so the most expensive hardware costs aren’t borne by the Israel treasury. In addition, there are a huge number of one-off grants for such things as the Arrow and Iron Dome missile intercept systems, which the USA co-funds even though it has no interest in actually acquiring any of them.

      And European weapons are often “bought” at a greatly-subsidized discount e.g. the Dolphin submarines were sold at give-away prices, and until very recently the Israelis were still insisting on a 30% subsidy on new German-built patrol vessels.

      Indeed, the Israelis were greatly shocked when Merkel dropped that offer in retaliation for the failure of the peace talks, insisting instead that the Israelis had to pay full market value. Which, of course, the Israelis simply could not afford.

      It is much the same with the cost of the occupation, which has been underwritten by the EU since the Oslo Accords were signed.

      It’s a neat trick: the EU pays for the cost of Israel’s control over the Palestinians, and does so on the “understanding” that this is all part of Palestinian “state-building”.

      The result is “occupation on the cheap”, and Israel can keep that going for as long as they can keep the lie going i.e. for as long as the EU keeps deluding itself that all those euros aren’t being used to pay the running costs of this endless occupation.

      So, basically, Israel is indulging in an unsustainable enterprise, but that unsustainability has been disguised for some time by the Israeli’s world-champion ability to lift money out of other people’s pockets.

  • pabelmont May 23, 2014, 4:45 AM

    As well as military-overspending, it may also be “conservatism” at work.

    In the USA, elites remove themselves from the great cities to suburbs (or live in cities and send their kids to private schools) and school-taxes are kept low. “Inner city” schools are woefully underfunded.

    In the USA, this is deliberate, a successful attempt by elites to keep the rabble down. I suspect that the same mind-set plays in Israel, a country which is officially at racist war (with Palestinians) and which thus practices violent racism without any moral qualms. Israeli elites (Ashkenazim) treated the Jews from Yemen and other Arab countries very badly originally and I’d guess they still do. And the African Jews. (And Africans who are not Jews.) And, again adn again, Palestinians and other Arabs. The racism is so builtin that Israel cannot even treat American visitors properly, not even Donna Shalala. we may differ as to whether this is a good system or a system rotten to the core (I’m a “core man myself) but I think the lousy education is consistent with endemic racism and discrimination-ism.

  • Jackdaw May 23, 2014, 6:26 AM

    Underachieving Arabs and religious Jews only have yourselves to blame. They should try emancipating their women and having fewer kids.

    In the meantime…..

    • Richard Silverstein May 23, 2014, 1:02 PM

      They should try emancipating their women and having fewer kids.

      Racism is prohibited in comments. Given that you’re already moderated, you’ve lost your comment privileges.

    • Elisabeth May 23, 2014, 2:49 PM

      The underachieving of the Haredi sector may be self-inflicted, but your state spends one third of recources on Palestinians sompared to Jews, and then you say they are underachievers who have themselves to blame?
      ***k you!

      • Nonsense May 23, 2014, 4:20 PM

        Elisabeth, why are you getting so anxious ? have you examined the data ?
        for example, this article dated back to 2010 shows community payment of municipal taxes based on Social class percentile.

        The lower class in Israel sectors 7 – 10 do not pay any municipal taxes
        in the 1st bracket, 79% of the Jews Pay their fair share, while only 16% of the Arabs do.
        in the 2nd bracket 49% of the Jews Pay their fair share, while only 30% of the Arabs do.
        in the 3rd bracket 41% of the Jews Pay their fair share, while only 32% of the Arabs do.
        in the 4th bracket we have a tie of 52%
        in the 5th bracket 63% of the Jews Pay their fair share, while only 26% of the Arabs do.
        in the 5th bracket 73% of the Jews Pay their fair share, while only 47% of the Arabs do.

        As i’m sure you are aware, municipal taxes cover part of the cost for services received by the local community.
        when you don’t pay your taxes, you will get less educational services, because your local government can’t afford as much, when you don’t receive as good of an education you are going to acquire less tools that will enable you to compete in the job market etc, etc etc.

        The research was conducted by an Israeli-Arab Dr. Rafik Haj. who works for an Israeli-Arab NGO.
        entire research is available here:

        • Elisabeth May 23, 2014, 11:45 PM

          What comes first, the chicken or the egg?

          Israeli-Arab communities receive less than 5% of government development funding each year. With such massive discrimination, you should be thankful so many more than 5% are still willing to pay their taxes, subsidizing the development of Jewish communities.

        • Richard Silverstein May 24, 2014, 1:14 AM

          I find this argument both false and patently offensive. It’s also been tried before here several times and failed. You are done in this thread. I hate repetition & regurgitation. But I’m impressed that the Hasbara Library provided such efficient research.

          This is a case, as Elisabeth wrote, of which came first–the chicken or the egg. You claim the State simply can’t offer services to citizens who don’t pay their fair share. While most of the rest of us who aren’t hasbarists realize that the State never offered services to Arabs from the first moment it came into existence. In fact, the State wished they would simply go away and treated them & their communities in this way.

          Tell me this–can their communities, businesses, infrastructure grow? This is the way communities create value, which in turn creates a tax base. No building permits, no jobs, no investment by the public or private sector. Hence no growth, hence no wealth and no taxes. That’s it in a nutshell.

          Reminder: do not reply. This subject has been hashed out here before & it would bore me to tears to read anymore from you on the subject.

  • Nonsense May 23, 2014, 4:06 PM

    [comment deleted–off topic]

  • The Rahnameh May 23, 2014, 8:36 PM

    I was rather surprised when Secretary of State John Kerry emphatically called for a two-state solution and Israel did not take what I deemed bait to a strategic life-extension to the Zionist project. The two-state solution was, to me, a formalization of the Israeli entity, although terribly spurious given that the new Israel would operate with the same fiction-based paranoia and myths of the last 66 years.

    After giving it good thought, I then realized that this was the same nation that created a political climate that fostered the assassination of Rabin, and very likely, Arafat.

    Whenever a political leader of that magnitude is decapitated from the seat of power, I try to examine the era that follows and who fills the newly created power vacuum. In Israel’s case, it was Sharon, Netanyahu et. al. The Likud charter itself clearly explains Palestine doesn’t have a right to exist.

    But, even worse, the production of the “Clean Break” document by Richard Perle for Netanyahu’s government in 1996, which partners with the “Project for a New American Century” (PNAC) campaign among Neocons in America, calls for Palestine to be “wiped from the map” (a Zionist propaganda colloquialism), for the invasion of Iraq, and the take-down of Iran. See http://en.wikipedia.org/wiki/A_Clean_Break Since even the Clinton era, we began to see the implementation of this strategy in full effect.

    However, while there were initial successes towards it execution, the same age-old tale of overreach and inability to adapt to changing circumstances has occurred. There seems to be no political capital to steer Israel away from doom other than a massive regional (and very potentially global) war. Israel’s peril, like with threats of the Samson Option, becomes humanity’s greatest nightmare.

    Given the lack of opposition to steer the ship away from the cliff of catastrophe, plans more abound than ever to rebuild the Temple, to capture more land for “Greater Israel” (no longer a closely held secret), I am pessimistic about our collective futures. The obvious solution here would be to reverse all of the negative underlying policies that can no longer be hidden, hedged by the fact that Israel’s long-arms provide it a form of global strength at this juncture. But, no political capital exists among the fanatic and determined to walk away while the going’s good. That would require replacing hate with love as a basic component of the modus operandi.

  • Snordster May 31, 2014, 10:04 PM

    [Comment deleted: left wing snark is as annoying as right-wing]

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