Israeli Election Coverage, Part III: The Economy

In light of Israel’s forthcoming municipal elections, I’ve decided to produce a series on Israeli politics. It is available as a video below, but if you can’t/don’t want to watch, a slightly expanded article to the same effect is also further down.

For most of its 70-year history, Israel has been classified as a third-world or developing nation. One of the few Middle Eastern countries without oil1, the land has no significant natural resources and throughout the 20th century subsisted on a heavily nationalized economy of agriculture, finished goods, and tourism. Despite this, growth was rapid, and the country maintained a sophisticated social welfare system and widespread unionization2, but the cracks began to show, resulting in a transition to a more market-based economy and widespread inflation.

But then the 1990s happened, and everything changed. First, the Soviet Union collapsed, and Israel ended up with one million new highly-educated citizens ready to work. Second, Israel signed a peace treaty with Jordan, freeing up a huge sector of the economy and workforce to shift from defense to civilian investment. Tel Aviv became a tech hub, the GDP exploded, Israel joined the OECD in 2010, and most Israelis now enjoy a quality of life measurably higher than that in some other developed nations.

Today, nominal wages are on the rise, and the country is enjoying its first labor shortage since the days of a predominantly state-controlled economy, but this isn’t working for everyone. Israel today has greater wealth inequality than the United States. Greater Tel Aviv, home to 40% of the country’s population, may be a jobseeker’s market, but the same can’t be said for the North, South, or even Jerusalem3. Most Arabs, who constitute a fifth of Israelis, haven’t seen the same success rates as the Jewish majority. And the ever-growing proportion of ultra-Orthodox men are often out of the workforce entirely by religious conviction. While the new economy makes household names out of corporate titans, one in five Israeli children go hungry at night.

Even for those benefitting from the new economy, the cost of living is on the rise and real wages can’t keep up. In 2011, these factors combined with high inflation sparked a wave of student protests led by Itzik Shmuli and Stav Shaffir, now members of the Knesset as part of the left-wing Zionist Union.

I’ll get into this in a later post, but the Zionist Union is actually a teamup of three parties: Labor, Hatnuah, and the Green Movement, the former of which was improbably part of the Netanyahu government at the time, and helped bring swift economic reforms. Early in the decade, the government negotiated free trade agreements with the United States and European Union, lowered value-added taxes and duties which disproportionately affected the poor and middle class, and broke up large monopolies like the communications giant Bezeq, which is why I pay $10 a month for phone and internet.

But with each successive election, the government has become ever more right-wing, and the ruling Likud Party4 has begun making eyes at major privatization. They’ve already privatized El Al and Bank Leumi, and Netanyahu himself has even discussed privatizing Israel’s land, which has almost all historically belonged to the state and thus kept costs low for much-needed infrastructure projects5. To say nothing of Mr. Netanyahu’s coziness with the country’s newly-minted oligarchs, but that’s for another video.

Netanyahu has credited the problem of unemployment in the periphery to laziness and lavish welfare payments, and has decried the power of labor unions, particularly the general labor organization or Histadrut6 .And Likud isn’t even the most economically conservative party. Coalition partner The Jewish Home7 has flirted with discredited trickle-down economics and the works of Ayn Rand. The opposition for its part has advocated for expanded housing, increased public expenditure, and protecting unions. and in response to Likud’s rightward shift, several former party members have broken away to form the more moderate Kulanu8.

But don’t be surprised if economics never comes up again in this election cycle. Obviously, an economic crisis would upend the current partisan alignment, but things are going well enough for enough people that economics is not a major factor for Israeli voters right now. Even I would rather be poor here than poor in the United States, where I couldn’t get medical treatment for inability to pay inflated market prices9. And most Israelis didn’t grow up knowing the kind of prosperity I did.

Even during the Great Recession, the spike in national unemployment was tempered by a much larger trend away from even higher jobless rates in the 1980s and 90s. And since the 2011 protests, natural gas deposits have been discovered on the edge of Israel’s exclusive economic zone in the Mediterranean, driving down both the cost of energy and the rate of inflation. Despite repeated threats of government collapse, the economy is the one thing keeping this government united and popular (sounds familiar), and that could be a blessing as well as a curse.

Come back next week when I discuss security policy. If you liked the video, feel free to share it. If you have any suggestions or questions, please offer them in the comments. And as in all other threads, respect the site guidelines and do not threaten any Mayors McSquirrel.

Happy Sukkot!