How to Make Sure Israelis Stay Poor

It's simple: Do everything the government panel on poverty recommends.

David Rosenberg
David Rosenberg
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With state support slashed, people had to find jobs. A line outside the Employment Service in Holon.
With state support slashed, people had to find jobs. A line outside the Employment Service in Holon.Credit: Alon Ron
David Rosenberg
David Rosenberg

It took a committee of no less than 50 people six months to produce the “War on Poverty” report released this week. Yet in 64 pages devoted to the panel’s vision and recommendations, as well as to reams of statistics, it’s hard to find anything new or insightful.

The report’s mostly quantitative analysis of Israeli poverty is superficial, and the numbers seem to have little bearing on the recommendations. It’s as if the committee trotted out its analysis after it had reached its preconceived conclusions.

Without saying so, the report effectively calls for reviving the failed social policies of the 1980s and 1990s by increasing income support, hiring more social workers and building more public housing. There’s no sign that the committee learned anything about poverty and how to deal with it from Israel’s experience of the last two decades.

Do this (but don’t)
Indeed, the report’s proposal for increasing income support – the biggest budget item on the lengthy list of recommendations – was so controversial that the committee’s representatives from the Finance Ministry, Bank of Israel and Prime Minister’s Office insisted on appending a minority opinion warning of the dangers of adopting it.

The report’s analysis, such as it is, makes two broad claims to support its proposals. One is that poverty has been growing worse over time. The other is that, compared to the world’s other developed economies, Israel suffers from unusually high rates of poverty and income inequality.

Does either claim stand the test?

Based on market income – that is, a family’s income before taking into account government benefits, taxes and the like – Israel’s poverty rate has been edging down since 2002, when it was 33.9%. That was the year before Benjamin Netanyahu, as finance minister, began to slash away at social welfare programs, thereby making Israel’s social welfare system one of the stingiest among countries that belong to the Organization for Economic Cooperation and Development.

Those cutbacks meant that the poverty rate for disposable income – that is, family income including government benefits – rose in the first few years after 2002, but has since held steady.

Why? With their benefits being cut back, people had no choice but to find work. Indeed, the percentage of working-age Israelis holding a job has been steadily rising from very low levels at the start of the century.

It has been a painful process, but Netanyahu was right to act. Even the War on Poverty report has to concede, in the face of overwhelming statistics, that the real path out of poverty is not handing out more benefits and hiring more social workers, but putting people to work.

Thanks to the rising earnings of the working poor, the income level that puts families below the poverty line has risen by more than 20% in the past decade.

Silly comparisons with the OECD
The report has something of a fetish with comparing ourselves to the OECD, the club of most of the world’s richest nations.

For instance, the report says Israel should aim to reduce the percentage of people in poverty from the 18.8% it was in 2012 (the base year for the report’s analysis) to the 11.1% average for OECD countries, within a decade.

But comparing ourselves to the OECD is wrongheaded. Yes, we’re a high-tech economy, Startup Nation and all that, but the fact is that by virtually every measure – GDP per capita and labor productivity, most importantly – we are at the bottom ranks of the organization’s membership. We cannot achieve the same low levels of poverty as, say, Scandinavian countries when our GDP per capita is below the OECD average and our defense spending is four times as high. We simply don’t have the resources.

What we should be focusing on is increasing productivity and economic growth so we are rich enough to be as generous as the world’s wealthiest countries. The War on Poverty report makes a brief reference to this and then returns to its usual theme of ignoring it.

There’s another reason the report’s comparison to the OECD is flawed: It fails to identify why we are saddled with such high levels of poverty to begin with.

The true reasons for poverty
The rate of poverty among Israeli Jews overall in 2012 was 14.1%, which is not much higher than the OECD average the committee aspires to. But among Haredim, the poverty rate soars to 53.2%, and among Israeli Arabs to 54.3%.
In other words, the Israeli poverty problem is concentrated in two distinct minorities. The report makes only the barest reference to that.

We know quite well that the Haredim are impoverished because they prefer a life of study over work. Offering them more generous allowances and benefits, as the War on Poverty panel proposes, will only encourage them to continue this way and ensure that future generations will live in even deeper poverty.
Israeli Arabs are poor because they live on the outskirts of Israeli society, deprived of the same educational and job opportunities that Israeli Jews enjoy.

Offering them more benefits would enable Israel to supply the OECD’s economists with more enviable poverty statistics, but it would do nothing to actually lift Israeli Arab families out of poverty in a real sense.

Interestingly, neither group suffers from the severe social maladies that usually accompany impoverished communities, so the armies of social workers the War on Poverty committee is urging the government to deploy aren’t needed. What the Haredim need is to be forced into the labor market against their will; what Israeli Arabs need is relief from prejudice and discrimination. What all of Israel needs is a better education system that ensures that the next generation has the learning and skills to succeed in a technology-based economy.

The upshot is that Israel is not quite the basket case it is depicted as being by the War on Poverty people. There is widespread poverty, and the level is unacceptable. It needs to be reduced, but that is slowly happening on most fronts, even if addressing the Israeli Arabs is still consigned to the back burner despite the fact that they comprise a far bigger part of the population than Haredim.

Israel’s poverty problem is gradually being contained because the government is not doing what the War on Poverty committee is recommending.

It’s a pity that the War on Poverty committee failed to identify the real gaps in Israel’s policies and propose solutions to fill those gaps. Instead, by producing such an irrelevant and tendentious document, the panel has undermined its declared goal of making the fight against poverty a top priority.

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