File photo: The Dome of the Rock is seen in a wide view of Jerusalem. Nasim Mansurov

How to Turn Jerusalem Into an Economic Powerhouse

Evidence is accumulating that ultra-Orthodox Jews, East Jerusalem Arabs, religious Zionists and secular people can team up to cut the city's 46 percent poverty rate



Ramadan Dabash, who teaches civil engineering at Ort Jerusalem College, is a good example of the city’s trend toward integration in recent years. According to a study last year by the Jerusalem Institute for Policy Research, nearly half of Palestinian workers from East Jerusalem are employed in the west of the city, and nearly 1,500 students from the east are enrolled in Israeli colleges and universities. It’s hard not to notice the many Arab families spending time in the shopping centers and parks of West Jerusalem.

But to Dabash, things looks a little different. “How does it help me if I’m teaching at a college in West Jerusalem if I go home every day and see the dismal situation of our roads? No sidewalks, no lighting, garbage strewn across the streets, and the pitiful situation of all the other infrastructure?” he says.

“So you could say that integration exists, but a worker returning to this kind of reality at the end of a day’s work is hit by depression, by the understanding that he’s a lower-ranking person.”   

Other numbers reflect East Jerusalem’s anemic economy. Some 75 percent of this population group, 320,000 people, live below the poverty line. Overall in Jerusalem the number is 46 percent.

Thus in this autumn’s local elections, Dabash ran for a spot on the city council, despite his meager chances. Since 1967, most Palestinians in East Jerusalem have boycotted the municipal elections. Dabash received only 3,000 votes; he says this failure stemmed from problems with the voting booths in East Jerusalem. People often had to go to other neighborhoods to vote.

“Residents of East Jerusalem are caught in an irreconcilable political situation. They don’t want to be residents of the Palestinian Authority, but they want to retain their Palestinian identity – alongside their blue ID cards,” Dabash says, referring to Israeli ID cards.  

Emil Salman

“They receive health services through Israeli health maintenance organizations and prefer Hadassah to the hospitals in East Jerusalem. There are workers and businesspeople who travel every day to Tel Aviv and Ramat Gan for work. Slowly but surely they’re being integrated into the Israeli economy.”

Dabash’s story is but one example of the complex nature of Jerusalem, Israel’s largest city. It’s population tops 901,000 people, and it stretches over 125 square kilometers (48 square miles), from Har Homa and Gilo in the south, bordering Bethlehem, to Neveh Yaakov in the north,  abutting Ramallah.

Within those boundaries, created by the annexation after the Six-Day War, is also an ultra-Orthodox, or Haredi, community amounting to 220,000 people. Thus Jerusalem is both Israel’s largest Arab city and largest Haredi city. These two population groups essentially explain why Israel’s capital suffers in the national socioeconomic rankings despite its excellent university and outstanding high schools.

Jerusalem has for years suffered from negative migration of about 8,000 residents a year, which includes the departure of Haredim stung by high housing prices. Meanwhile, secular Jews often feel they have to fight for their existence in the city.

Although Jerusalem has enjoyed a cultural upsurge in recent years, including a resurgence of cafés, cinemas and entertainment zones active on Shabbat, the city isn’t quite the success story it would like to be, especially compared to Tel Aviv.

Haredi/religious-Zionist/secular relations, which have become a main story line in the city for 30 years, have grown even more convoluted in the past decade. In last month’s runoff mayoral election, Ofer Berkovitch presented a proposal for a religious-Zionist/secular consensus in the city, one that wouldn’t be acceptable to the Haredim. Restaurants and cinemas would be open on the Sabbath, but not stores, based on a blueprint from the early 2000s.

Emil Salman

Conversely, the secular community is putting its foot down in Kiryat Hayovel, the neighborhood in southwestern Jerusalem where Haredim have been moving in. The ultra-Orthodox have demanded control of public buildings to open kindergartens and schools, and have tried to prevent the opening of a neighborhood pub on Friday nights.

At the same time, significant changes are taking place on the Haredi side. Not only are more ultra-Orthodox men getting jobs, an increasing number of families  are adopting a more modern Haredi lifestyle. Lee Cahaner, who heads the research division at Oranim Academic College and is a researcher at the Israel Democracy Institute, says 11 percent of Haredim are so-called modern Haredim.

“These are productive groups that are looking for a niche that’s incompatible with the classic Haredi lifestyle,” she says. “For example, they want schools where core studies are included in the curriculum,” not just religious studies.

Still, the fact that they’re modern Haredim doesn’t necessarily end the friction between the groups. “At the end of the day, secular Jews see Haredim as Haredim and don’t distinguish between those who are modern and those who aren’t,” Cahaner says.

The Chinese of the Middle East

Avraham Kreuzer, who in the past decade has advised former Jerusalem Mayor Nir Barkat on Haredi affairs, says the ultra-Orthodox community’s economic potential in Jerusalem is far from being realized. “Through Intel and other plants in the city, we’re already finding a work environment suited to Haredim, but much more can be done. The Haredim are good merchants and are good at negotiating, thanks to their Talmud studies,” he says.

Emil Salman

“There is abundant potential among the Haredim as consumers as well – large families that consume a great deal of clothing and food. This is a still-developing market, and in this respect the Haredim are the Chinese of the Middle East. If in the past they bought clothes in makeshift stores in bomb shelters and in private homes, today they’re buying in shopping centers such as in the Rav Shefa district, a commercial complex of thousands of meters of floor space that yields income to the municipality from arnona property tax.”

Kreuzer believes that long-term planning and dialogue will bridge the gaps between the secular and the Haredim. “You have to understand that there’s no supreme housing council in the Haredi community that says ‘okay, we’ve  conquered Kiryat Hayovel, what’s our next takeover target?’ There’s a reality that develops,” he says.

“In Kiryat Hayovel, for example, there are a lot of apartment buildings where no one wants to live aside from university students and Haredi families, which also need kindergartens and schools. The main problem is that there’s no advance planning, so I favor the planning of separate neighborhoods for secular people and the Haredim.”  

Historically, the government has done much damage to the city, like expanding  the city’s footprint for political reasons, and giving stipends to yeshiva students. But in recent years it has been trying to repair the damage. In 2011, as part of a 10-year plan, the state approved the allocation of more than 1 billion shekels ($268 million) for economic development in the city in tourism and high-tech, as well as for closer ties with the academic world.

Much money has also been invested in the high-speed rail link to Tel Aviv that, when completed, should reduce travel time between the cities to half an hour. Some Jerusalemites fear that the railway will encourage migration to Tel Aviv, as some people will be able to keep  working in the capital but commute.  

Also, construction of a new employment district is underway as part of the City Gate project; overall construction will amount to some 1.6 million square meters (17.2 million square feet). About one-quarter of this is designated for office space, and the rest for entertainment facilities and hotels, as well as some housing.

Olivier Fitoussi

If this project of 24 buildings succeeds, it’s expected to noticeably boost the city’s receipts from commercial property tax. The new center is going up only a few minutes’ walk from the new railway station, so it’s expected to attract commuters from outside the city.

“In Jerusalem, they talk a great deal about the population that’s leaving, but you also have to ask where they’re leaving to. There will always be those who won’t feel at home in the city,” says Yair Assaf-Shapira, a researcher at the Jerusalem Institute for Policy Research.

“But does the individual who leaves continue working in Jerusalem, or does he transfer his whole life outside the city? This is a question of tremendous importance. A lot of people are concerned that the migration will increase because of the new railway, but it will also grant more people the possibility to work in the city.”

Tourism and millennials

Tourism is expected to remain a prime spoke in Jerusalem’s economy. According to the Jerusalem Development Authority, between 75 percent and 80 percent of tourists visiting Israel come to Jerusalem. Thus if in the first 10 months of the year some 3.4 million tourists arrived in Israel, between 2.5 million and 2.7 million passed through the city. Why don’t all tourists arriving in Israel, or at least 95 percent of them, visit Jerusalem – a city with unique attractions on an international scale?

“Jerusalem is like a million-dollar check but no one has covered it,” says Michael Weiss, chairman of the Jerusalem Tourism Forum. “There remains a lot more room for development of tourism in the city. We have to double the tourism budget on digital, and to make a focused approach to millennials, as well as to tourists from China.”

Lior Mizrahi

As a tourism destination, Jerusalem depends on the security situation, Weiss adds, mentioning the so-called stabbing intifada of 2015 and 2016. “Some hotels shut down entire floors to save on electricity and cut back their workforce,” he says. “Restaurants and printing shops shut down and there was a slowdown in the transportation sector. At one point there was a campaign calling on Jerusalemites to go out to eat at restaurants in the city.”

Ayal Zaum, an expert on branding cities, believes that attracting foreign tourists might change the city for the better in the long run. He mentions a project he took part in to brand Jerusalem as a place of culture, as opposed to Jerusalem as a place of history and religion. “That’s what interests the public nowadays,” he says.

“In Egypt, tourists will go to see the pyramids, but they’ll also seek out local cuisine, local culture, markets. Realizing this, the Jerusalem municipality has invested a great deal in culture – in festivals and culinary events, in various outdoor events.”

The proper development of culture in a city can also stoke economic changes. In the next few years, the Bezalel School of Art and Design is expected to move to the Russian Compound. Bezalel’s move to Mount Scopus after the Six-Day War is still considered one of downtown Jerusalem’s worst planning mistakes.  

According to former Knesset member Erel Margalit, a Jerusalem resident and head of Jerusalem Venture Partners, the move could set off a revolution. “Think of 2,400 students moving into the heart of the city,” he says. “It’s filled with action – the entire subject of digital media, photography, visual art, advertising. Businesses related to these fields could flourish with a return by Bezalel.”

Margalit links the potential of new art businesses to what could happen with the city’s high-tech. As of 2016, according to the Jerusalem Institute for Policy Research, only 5.5 percent of people employed in the city worked in high-tech. Only 6 percent of high-tech companies in Israel were located in Jerusalem – compared with 29 percent in Tel Aviv. In Jerusalem 42 percent of workers were employed in the public sector, thus there’s lots of upside potential for high-tech in Jerusalem.

Olivier Fitoussi

Every high-tech company in the city that employs a Jerusalemite receives a grant between 80,000 and 100,000 shekels per employee; these grants have been allotted for six years. Alas,  60 percent of high-tech workers live outside the city.

“We see that the number of high-tech companies in Jerusalem has greatly increased – an increase of 40 percent – and there has also been an increase in the number of people employed in the sector,” says Yamit Naftali, a researcher at the Jerusalem Institute for Israel Studies. “But actually, when you look at the city’s economy, there have been no significant changes – not in the average wage and not in the poverty rate.”

High-tech is growing, but it’s not trickling down. “I’m tired of hearing about high-tech,” she says.  “Jerusalem’s potential isn’t in high-tech; we’re seeing that the grants aren’t helping. We have to integrate Haredim and Arabs into the city’s economy.”

Naftali and her Jerusalem Institute colleague Yuval Shiftan released a study in February predicting what would happen if the workforce participation rate of women from East Jerusalem resembled that of women in the Israeli Arab community. For that to happen, the number would have to increase to 35 percent from 22 percent in 2016.

Naftali and Shiftan found that if these women earned around 5,000 shekels a month, the financial contribution to the city would reach 457 million shekels. But the two researchers say that due to low wages, not all families in which women worked would break out of the cycle of poverty.

Emil Salman

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