OECD exposes a bipolar Israel

Amiram Barkat

Israel's good economic performance hides extreme and worrying gaps that are liable to worsen.

"Further international testimony to the stability and strength of the Israeli economy." Minister of Finance Moshe Kahlon has a pre-set response to every report and ranking published by the various international agencies that monitor Israel's economy. This time too, the Ministry of Finance spokespeople had their work made easy. But still, it would be a mistake to look upon the OECD Economic Survey of Israel 2018 released yesterday as the latest in a series of publications complimentary to the captains of the economy.

It's true that there is no lack of praise in the report, but that is only half the picture, and in this case half of a bad picture is misleading. The OECD presents Israel as a bi-polar society: an economy of flourishing high tech and finance, versus an economy of low productivity in the rest of industry; an economy of Tel Aviv versus an economy of the periphery; an economy of the secular and modern orthodox versus an economy of haredim (ultra-Orthodox Jews) and Arabs; a positive and hopeful short term versus a long term that arouses pessimism and concern. But there are also unifying factors: we all suffer from high housing costs and intolerable road congestion. That's a comfort of sorts.

"Your greatest challenge is how to preserve social solidarity," OECD Acting Chief Economist Alvaro Pereira said at the press conference at which the survey was presented yesterday. "If we take an average, you are pretty much in the middle, but if we break down this average, we find that its components are at two poles." At the positive pole is the economy's performance: 15 years of continuous growth, a rare achievement by any international standard; a low debt to GDP ratio; a thriving labor market; a strong finance sector; exports of natural gas on the way; and high tech, oh high tech. At the negative pole are poverty levels; regulation; and huge deficits in infrastructure and education. We lead on those measures too, only from the wrong end.

Take poverty levels, for example. The relative poverty level in Israel stands at a little over 18% of the population. Turkey is in second place after us, with 17%. If you exclude haredim and Arabs from Israel's statistics, you get a country right on the OECD average. Take the Arabs and haredim by themselves, and the poverty rate jumps to nearly 50%. It's true that in recent years haredi women and Arab men have become more integrated into the workforce, but they work in low-pay jobs.

Will the next generation of haredim and Arabs succeed in obtaining better education that will ensure them better jobs? There's no certainty about that. It's easy to focus the blame on the haredim and Arabs, but the problems do not stop there. Take productivity, for example: since 2006, the Israeli worker has produced two-thirds of what a worker in the top half of the developed countries produces per hour. This gap has remained despite the phenomenal growth and the despite the high-tech miracle. What's the explanation? While industries like high tech have charged forwards, others, such as construction, have marked time.

Take transport, for example. Israel has nearly 2,800 vehicles per kilometer of road. Road congestion in Israel is the highest by some way. In Spain, the next most congested country, the figure is 1,300 vehicles per kilometer, less than half.

Take taxation on business. The tax burden on business in Israel is the highest, and by some way. Businesses in Israel are required to pay 33 taxes, charges and levies of different kinds. The corresponding figure for Luxemburg, number two in the ranking, is 23.

What's next? The short term looks good. The long term does not look good. Within less than 50 years, every third Israeli will be haredi. But even if the integration of the haredim succeeds, even if they study the core curriculum in school and receive training identical to what other Israelis receive, even then Israel will have to run to stay on the spot in productivity, standard of living, and certainly road congestion.

Published by Globes [online], Israel business news - www.globes-online.com - on March 12, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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