Still Far From Economic Independence

Israel's economic data on the eve of its 60th anniversary are quite impressive. Does all this mean that we have achieved economic independence, and all of our socioeconomic problems have been solved?

Israel's economic data on the eve of its 60th anniversary are quite impressive. The economy is growing at a rate of about 5 percent, for the fifth year in a row; per capita gross national product has reached $25,000; unemployment has fallen to 6.5 percent; the shekel is appreciating against the dollar; interest rates are low; and we even have a balance of payments surplus. Does all this mean that we have achieved economic independence, and all of our socioeconomic problems have been solved?

Not necessarily. Israel is still a highly unstable country, both internally and externally. It faces major security threats and numerous economic and social problems, and it is very dependent on the rest of the world, especially the United States. Therefore, we are still very far from economic independence.

All it would take to upend our excellent economic situation would be for a U.S. president to murmur something like "I'm mulling my relationship with Israel." Banks would instantly cut off our credit lines, the dollar would soar against the shekel, inflation would surge, foreign investors would flee, the balance of payments surplus would become a deficit, and growth would be replaced by recession. After all, the world knows that without American support, tiny Israel would instantly resume its true proportions.

Israel knows that without America's veto in the Security Council, it would long since have been subject to South Africa-style economic sanctions because of its occupation of the West Bank and Gaza Strip. Israel also knows that without U.S. aid, it would not be able to maintain such a large army and equip it appropriately.

But Israel is also far from true independence because of domestic problems - first and foremost, its social gaps. Despite the rapid growth of the past five years, the proportion of families below the poverty line has remained at 20 percent. This is a high, even threatening, rate, and must be reduced. The problem is concentrated mainly in two sectors: the Arabs and the Haredim (ultra-Orthodox). If they are eliminated from the statistics, the poverty rate among the rest of the population is 13 percent, which is a reasonable rate by European standards.

In other words, we need to improve the situation among Haredim and Arabs. This means requiring a core curriculum in Haredi schools (in contrast to the sanctimonious position adopted by Education Minister Yuli Tamir) and improving the level of education in Arab schools. In addition, both populations must be encouraged to enter the job market - especially Haredi men and Arab women.

Total work force participation in Israel stands at only 56 percent. That is far lower than the European average of 65 percent. In Scandinavia, the figure reaches 75 percent.

Another crucial problem is the education system, which wastes a great deal of money while producing poor results. The truth is that the system is not short of funds; per-pupil expenditures here are similar to the European average. But due to bureaucracy, redundancy, ponderous mechanisms and unnecessary districts, it wastes billions of shekels. The Dovrat Committee proposed a solution: giving higher wages to good teachers while getting rid of unsuitable ones. But the teachers' unions prevented this reform. And until it is implemented, no amount of band-aids will suffice.

Yet another problem is Israel's lack of political stability. Being an Israeli prime minister is tough. From the moment he is elected, he must contend with forces calling for his ouster and seeking to topple him. The result is that prime ministers, as well as other ministers, are replaced about every two years. Thus no one thinks long-term; everyone spends all his time putting out fires. And that is obviously bad for growth and the economy.

There are other problems as well: an excessively large public sector, accounting for 45 percent of gross domestic product; an oppressive and obstructive bureaucracy; a brain drain from the universities; a shortage of investment in roads, ports, water, sewage and the environment; traditional industries; service sectors where productivity is lower than the Western norm; and an excess of foreign workers.

But all of the above are a drop in the bucket compared to the enormous security burden. Israel's defense budget is already large and oppressive, and it is expected to grow still further in the coming years.

No other nation in the world faces a genuine existential threat from a country that openly threatens it with annihilation. And if, to this Iranian threat, we add the threats from Syria, Hezbollah and the Palestinians, we are left with too many fronts for one small country.

These threats create an atmosphere of uncertainty and perpetual fear of the future, which results in reduced investment and lower growth. Moreover, such threats do not allow the government to concentrate on solving our educational, labor and welfare problems.

Therefore, we are still very far from independence. Neither growth nor any of our other economic achievements are stable. They rest on shaky foundations, and any regional wind could overturn them. Thus until a regional peace agreement has been signed, one that includes both Syria and the Palestinians, we will not be able to say we have achieved independence.