Analysis |

Israel Isn’t One of the World’s Richest Countries, and Netanyahu’s at Fault

Meirav Arlosoroff
Meirav Arlosoroff
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Israelis celebrate Independence Day on the beach in Tel Aviv, April 25, 2018.
Israelis celebrate Independence Day on the beach in Tel Aviv, April 25, 2018.Credit: \ Alex Levac
Meirav Arlosoroff
Meirav Arlosoroff

When he first made it, Prime Minister Benjamin Netanyahu’s aspirations for the future of the Israeli economy were inspiring: Within 15 years Israel would be among the top 15 countries in the world in terms of standard of living. He made the promise once as finance minister in 2005 and again as prime minister in 2010.

Fourteen years later, it still hasn’t happened. Comparative figures show that for 1980, Israel was No. 23 globally in terms of GDP per capita, the usual benchmark for measuring standard of living. In 1990, we were at the same level. In 2000, on the eve of the Second Intifada and the dot-com bust, Israel was still only at No. 22. In 2010, when Netanyahu, now prime minister, reaffirmed his goal, Israel had fallen back to 23rd place. We were still there in 2018.

Haaretz Weekly Ep. 40

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For 40 years, including the decade that Netanyahu has been prime minister, Israel has been treading water.

Much like his finance minister, Moshe Kahlon, who vowed to lower housing prices and failed, Netanyahu hasn’t kept his promise. But in contrast to Kahlon, who at least tried, Netanyahu’s failure is more damning because he never really worked to achieve it. While he takes pride in Israel’s rising standard of living in recent years, these are the fruit of measures taken in the years 1985-2003.

In the last decade, the one where Netanyahu could have realized his vision as prime minister, saw no efforts to do so – and that was intentional: For Israel to have advanced into the ranks of the top 15 would have required it to raise the standard of living for the country’s ultra-Orthodox and Arab citizens. And Netanyahu had no intention of doing that.

Last month, the Bank of Israel published a report on raising the country’s standard of living by increasing labor productivity. It offered a long to-do list of things Israel needs to improve to reach the top 15. They mainly relate to human capital, in particular low education levels, labor force participation and productivity for Israeli Arabs and the Haredim, who together comprise about 30% of Israel’s population.

When you compare Israeli students’ performance in school with their peers overseas (using the international PISA exam for reading, math and other skills) and the workplace skills of Israeli adults (using the PIAAC exam), the top Israeli scorers achieve acceptably strong results. Despite the reputation of the Jewish brain, our best do as well as the best of other Organization for Economic Cooperation and Development countries – but no better.

On the other hand, our worst performers are really bad, even worryingly so. They perform so badly that they weigh down the growth prospects for the rest, as well as Israel’s ability to reach the top 15.

The Bank of Israel found that the gap between Israel’s bottom 10% PIAAC scorers and the bottom 10% of other countries has widened by 19% over the last decade. Gilad Brand of the Taub Center for Social Policy Studies found that while secular Israeli Jews score only slightly under the OECD average on the PIAAC, ultra-Orthodox Jews score sharply lower and Israeli Arabs do even worse than that – their results are the equivalent of having three fewer years of formal education.

Even more discouraging is Brand’s analysis of generational changes. On the one hand, the youngest Israelis do better than their elders. Non-Haredi Jews score higher than the OECD average on the PIAAC. Among Arabs there has been improvement, too, and the youngest score better than older cohorts, but their scores are still distressingly low.

Among Haredim, however, it’s a different story: There has been no improvement among young people, who score just as miserably as their parents. That’s what Brand found. The Bank of Israel says the situation is even worse: that the young perform even more poorly than their elders. This is going to have a profound effect on Israel because the ultra-Orthodox share of the population is growing and will reach a fifth of all students by the year 2024.

Ultra-Orthodox children walk to school in Mea Shearim, Jerusalem, January 3, 2012.Credit: Sebastian Scheiner / AP

While the Israeli Arab birthrate is falling and their human capital metrics are improving – in other words, there is hope for the future – the situation among the ultra-Orthodox is dire. Their birthrate is soaring (seven children per woman on average, the highest in the world except for some African countries) and their level of human capital is falling. The reason is the absence of a core curriculum of studies in basic subjects like math, science and English in ultra-Orthodox schools.

To reach the top 15, Israel has no choice but to raise the standard of living of Haredim and Israeli Arabs. But in the last decade, Netanyahu has done almost exactly the opposite.

Why almost? Because the prime minister has taken some dramatic steps with regard to the Arab community, even historic ones: The five-year programs for the Arab and Bedouin populations for the first time gave budgetary priority to minorities and contributed in no small measure to the progress that Israeli Arabs have made in the last several years.

Netanyahu won approval for the plans despite strong opposition from rightist ministers, and for that he should be given credit. They may go down as one of the most important things he has done over the last decade. However, he has done a lot to undermine that signal achievement by labeling Israeli Arabs as a fifth column who steal elections and want to kill Jews. Those messages, which stray into racist territory, neutralize the budgetary undertakings.

In the case of the ultra-Orthodox, Netanyahu’s policies have been nothing but destructive. His willingness to do anything to ensure support from the Haredi political parties and guarantee his continued rule has caused him to backtrack on everything that had been done to improve educational achievements for the Haredim.

There has been a big increase in the number of Haredim enrolled in higher education, but the dropout rate for men is an astounding 76%. The result is that the percentage of ultra-Orthodox men with college degrees has remained stuck at less than 13% since 2014.

Employment rates for ultra-Orthodox men were also rising until Netanyahu’s coalition agreements raised allowances for yeshiva students. As a result, the labor force participation rate for them is 50%, 37 percentage points less than for non-Haredi Jewish men.

The goal of reaching the top 15 looks further away than ever. The only way to achieve it is to require Haredim to study the core curriculum and enter the workforce in larger numbers. Shai Piron, when he was education minister in the 23013-15 government, sought to do just that by cutting budgets from schools that didn’t teach it and by opening new schools for ultra-Orthodox students that did.

But Netanyahu stopped all that in its tracks, pushing Piron’s Yesh Atid party out of the coalition and calling an election that enabled him to form a new government with Haredi partners instead. This was at a time when the ultra-Orthodox community comprised less than 12% of the voters. What happens when they reach 30%? What politician will dare challenge the rabbis even as Israel’s economy is going from bad to worse?

Netanyahu isn’t interested in such questions – the only thing he cares about is making sure he returns to power.