Emperor Bibi Fiddles While Israeli Economy Burns

The treasury’s chief economist says the country will be bankrupt by 2059 unless demographic trends are addressed. So what does our prime minister do? The very opposite of what’s needed.

Prime Minister Benjamin Netanyahu, May 22, 2016.
Ronen Zvulun/Reuters

The report that first-quarter economic growth ran at a measly 0.8% hit Israel’s economic leaders hard.

Even those who assume that the figure is a preliminary one to be revised upward, or argue that it simply offsets the high growth figure posted for the fourth quarter of 2015, have to be concerned by the persisting weakness of Israel’s main economic growth drivers.

Exports have suffered a protracted decline, diving by a cool 13% in the first quarter of 2015. Investments are drying up. It’s true that investments grew in the first quarter, but that was almost entirely due to investment in construction. Investment in equipment and industry continue to diminish.

In fact, the only growth driver holding Israel’s head above water for the past two years is private consumption. But that growth engine can’t run forever without an increase in exports, manufacturing and investments.

Indeed, Israel’s economic leaders are losing sleep over the slowing pace of growth. Bank of Israel Governor Karnit Flug devoted her lecture to the subject at the Israeli Economic Association’s annual conference last week. Flug foresees that Israeli economic growth is likely to slow in the future due to demographic trends: the proportion of groups among whom employment is relatively low has been rising; and growth of the working age population has been slowing. Also, improving education can only contribute so much – Israel needs an active policy to counter these trends, she argued.

The future looks bleak

Flug illustrated her point with a slide based on research by Finance Ministry chief economist Assaf Geva about Israel’s future growth rates, based on those demographic trends – the ever-growing ultra-Orthodox and Arab communities, where education standards are lower, as is their workplace participation, productivity and income. There is, therefore, no doubt that Israel’s growth will slow. If we continue along the track we’re on, Israel’s future looks bleak.

In fact, if Israel continues with “business as usual,” as Geva put it, and doesn’t improve the education, employment and productivity of the ultra-Orthodox and Arab communities, it will be headed for financial collapse. If the Haredim and Arabs don’t increase their participation in the workforce, Geva writes, bad things will happen to Israel’s gross domestic product/debt ratio because tax income will shrink. “Business as usual” will lead to fiscal bankruptcy in the medium- to long-term, and to greater inequality.

Note that what we have here is a leading government economist, writing in a research paper that “business as usual will lead to bankruptcy” unless the State of Israel has the nous to handle the serious problems of these two groups.

Put even more simply, the problems of the ultra-Orthodox and Arab communities aren’t their problems alone. They’re the State of Israel’s problem, because unless these problems are handled, the nation is heading for bankruptcy. It’s as plain as that.

Business as usual for PM

While the Bank of Israel and Finance Ministry quake as growth fades and warn that insolvency looms, it’s business as usual over at the Prime Minister’s Office.

The same week Geva’s frightening forecast about slowing growth actually started to manifest itself, Prime Minister Benjamin Netanyahu let the Ministerial Committee for Legislation proceed with a bill sponsored by the ultra-Orthodox, to cancel the mandatory core curriculum.

In the coalition agreement struck last year between Likud and the ultra-Orthodox parties, the government agreed to cancel all the changes instituted by the previous government (when Yesh Atid’s Yair Lapid was finance minister and Shay Piron was education minister), which forced ultra-Orthodox children to learn the core subjects.

Actually, Piron made continued budgetary support for ultra-Orthodox elementary schools contingent on teaching 55% of the core material (subjects such as math and English), taking Education Ministry tests, reporting to the Education Ministry on teachers, etc.

All these duties should have been taken for granted. After all, the law already requires ultra-Orthodox schools to teach the core subjects. It discusses the amount of funding received by an ultra-Orthodox school in relation to secular schools, and the scope of the core curriculum that it must teach: Qualifying for 100% funding requires compliance with 100% of the mandatory core material; 75% compliance means 75% funding, and so on.

Yet these obligations have been abandoned over the years, and the Education Ministry has been allocating money to ultra-Orthodox schools while not carefully checking whether they meet their curriculum duties.

Piron reinstated the meaning of the law, making clear that Haredi schools not teaching the core subjects wouldn’t get the full funding. That correlation, which is both legal and completely moral, was thrown out by the new coalition agreement. Furthermore, the ministers are expected to approve a bill this week that sets the coalition agreement in stone.

In fact, we are going backward and enabling the ultra-Orthodox to receive state budgets to finance schools that teach no core subjects and don’t prepare the next generation of Haredim for the labor market.

A place in history

This is, of course, Netanyahu’s management at its finest. The State of Israel, under his watch, knows that it is striding toward insolvency if it doesn’t improve education, employment and productivity by the ultra-Orthodox and Arab communities. The State of Israel knows that the forecasts about the decline of growth are coming true.

And what does the State of Israel do in the very week when the forecasts are realized?

Yes! It promotes the one move that will never ever allow the Haredim to improve their education, employment or productivity. In fact, the State of Israel is letting ultra-Orthodox politicians bury the future of ultra-Orthodox children – and the fate of the State of Israel along with it.

Israel is doing all this with its eyes wide open, totally aware and utterly cynically.

Netanyahu knows that the coalition agreement he reached will bury the State of Israel’s future. He knows that by 2059 – the year for which Geva did the math – the State of Israel will be insolvent.

But he couldn’t care less about 2059. The only thing he sees is his own survival as prime minister until 2019. Netanyahu doesn’t care about Israel’s future economic growth; only his personal growth as premier. Thus, he guarantees his own place in history: as the nation’s longest-serving prime minister, who did the very most to ensure its destruction.