Mekorot - Tomer Appelbaum - 02022012
Mekorot workers can go places that others can’t. Photo by Tomer Appelbaum
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The sky's the limit. Israel's economy is one of the most dynamic and competitive in the world, and the economic power it is showing in the face of the global crisis is no fluke. Israel combines the potential of a startup nation - indeed, it is a Silicon Valley in the Middle East - with fiscal responsibility.

Like the United States, Israel is supposed to be a land of unlimited opportunity. Many of its top business and high-tech figures were born to families of meager means and have gone as far as anyone possibly can.

It is a joy to read and write these reports - and it is also easy to back them with up the evidence, like the story about the wealthy businessman who was born in an immigrant camp in Netanya, or the poor boy who became a world-famous professor, or the geek from the boondocks who sold the company he founded for millions of dollars.

The psychologist Daniel Kahneman, the 2002 Nobel Prize Laureate in Economics, discovered some time ago that we formulate perceptions and make decisions in an irrational manner. We do not really check the data, statistics and events. Rather, we are influenced by biases and apply rules of thumb that distort our perception of reality.

Until recently, no one ever bothered to examine the hard data on social and economic mobility in Israel - that is, the possibility for someone born into poverty to move up the ladder, to create and realize their potential. Our ideas about social mobility are based on anecdote, famous examples, the myths about "starting from zero" that wealthy businesspeople tell about themselves, the stories of spectacular high-tech exits.

Personality disorder

This tendency to form impressions based not on the data but rather on the extreme examples is not unique to Israel; it is common all over the world. For the past 30 years the United States retained its image as the land of limitless possibility, where anyone can succeed; the Americans have only recently begun discover that they are actually among the countries with the least social mobility.

In Israel there is another ingredient in the mix: a narcissistic personality disorder that makes us to believe we are the best, that everything we do is "special." We are innovators, but we have an exaggerated sense of the extent of our innovativeness.

Israeli high-tech is indeed a tremendous success story, as was Israeli higher education up until a few decades ago. Over the past 20 years many Israel came out of nowhere and racked up great success in business. But there is a huge gap between the perception of these success stories and the daily reality of millions of Israelis.

Last week's edition of Markerweek revealed, for the first time, research findings that will annoy many of Israel's economic leaders. The study, conducted by Galit Ben Naim and Alex Belinsky of the Finance Ministry, shatters the myth that social mobility in Israel has increased rapidly in the past several years. The data demonstrate the opposite. If hundreds of thousands of middle-class Israelis - university-educated, white-collar professionals - feel stuck, that their die has been cast and their ability to surge ahead is limited, then presumably they are right. Presumably, that is just the way things work here.

The business and technology success stories read these lines and say to themselves: "Nonsense. Anyone who strives, as I have, will make it. Anyone who is talented, as I am, will succeed." Successful people like to make inferences based on their own experience and extrapolate them to the public as a whole. But in order to form an opinion about social mobility in Israel it is better to use a sample that goes beyond ourselves, our acquaintances and the success stories we read in the newspapers.

Social mobility = equal opportunity

Why should we even care about social mobility? For the same reason that over the past year an increasing number of Israelis have taken an interest in social justice, for the first time in their lives. Social justice cannot exist without social mobility because the principle of equal opportunity underlies social mobility, just as it does inequality. Without equal opportunity, there is no social mobility. Without equal opportunity, the inequality can be expected to increase. In a nation with little social mobility, talent and ability count for much less than family background, belonging to a certain population group and the ability to connect to political or economic centers of power. That is the exact opposite of the story we like to tell ourselves.

Social mobility can be examined and measured in various ways. Our goal here is to open a public debate on the issue. Presumably, it is no accident that Sweden, Finland and Denmark have relatively high social mobility. When the state provides free, excellent educations to everyone, equal opportunity is not just a slogan.

But education is not the only factor in social mobility. The highly concentrated and centralized structure of Israel's economy - the large number of monopolies, cartels and private and public oligopolies - also encourages low mobility. The more that economic power is concentrated in a small number of hands, the more harm is done to the meritocracy - and mediocrity wins out.

If you connect to the centers of power, they will take care of you and you will take care of them. Israel's concentrated capital market reinforces this phenomenon: When a huge part of the country's financial resources go to the same small number of connected groups, it looks like a game in which the cards are marked and dealt in advance. The result of these structural ills is the closing of doors in the face of talented Israelis, who in a healthier economy would succeed in moving themselves up into better positions - the very positions that are taken today by those who benefit from the status quo.

The findings of the Finance Ministry study shatter not only the myth of mobility but also a number of absolute "truths," such as the contribution of the high-tech revolution. It turns out that the tremendous high-tech engine for growth is not increasing social mobility in Israel. Those who start at the bottom in the technology sector tend to stay there. It is depressing to find that the greatest leaps forward in pay belong to the top deciles in the highly concentrated finance and communications sectors.

These findings support those of another recent Finance Ministry study, conducted in connection to the committee on increasing competitiveness in the economy. That study showed that the biggest gaps between senior executives and junior employees workers were created over the past several years, and in Israel's largest business groups. Their monopolistic power enabled them to inflate executive pay and leave the tens of thousands of workers lower on the totem pole behind.

The United States, the most capitalist nation in the world, has gradually begun to come to terms with the real face of its economic structure. In a speech in Kansas two months ago, President Barack Obama spoke about the need to bring America back to the time when everyone had an opportunity.

In Israel, where everyone talks loftily about social solidarity, politicians and businesspeople rarely mention the issue. Once they reach the top they have no interest in changing the economic and social order.

In recent years Israel has adopted some of the ugliest aspects of Western crony capitalism. Its economic policy, the high degree of business concentration and the low effectiveness of the public sector presage ill. The main change taking place today is one of awareness: Every day more Israelis are getting wise to the deception. They are spitting out the goods being force-fed to us by a media that is controlled by political and business interests. We are too small and interconnected a country to continue buying the hogwash of an ethos being marketed to us.