Poverty Gap in Israel

Down and out in the start-up nation – the two-way split in Israel’s economy

Ever since its inception, Israel has faced and overcome numerous existential challenges. Just think about what the nation has been through in terms of military confrontations and unrest since 2000. It’s amazing that the country is now in its 14th straight year of economic growth, even when counting the years of the financial crisis.

However, at the heart of the start-up nation’s truly remarkable achievements lies a serious paradox. For all its successes, Israel has the second-highest poverty rate among OECD countries (i.e. developed nations) at 18.8%, only surpassed by Mexico’s. Measured on childhood poverty alone, nearly one in three of Israel’s children lives in poverty. So even though the overall economy as such is not in crisis, many of its individual participants are, and Israel’s economy is headed for a two-way split.

This is not an unusual problem for today’s advanced economies, but one that may have serious repercussions for a nation that needs to maintain a high level of military readiness and qualitative superiority, along with strong social cohesion to keep fighting and / or deterring its adversaries. But how to properly address this issue? First of all, we need to understand Israel’s current strengths and weaknesses.

Here’s where Israel is successful
You cannot but marvel when you consider the long-term dynamic and innovative contributions Israel has made to the global economy. Israel’s brainchildren span all business sectors from smart-drip irrigation to Intel chips for computer processors. The country is the number one generator of startups outside of Silicon Valley, boasting its own Silicon Wadi. Further world-beating statistics concern Israel’s number one ranking in medical patents per capita and the fact that the country outspends the world in R&D relative to its economy. In macroeconomic terms, these successes have translated into:

1) Low unemployment
2) High GDP growth
3) A relatively low level of public debt and inflation

Here’s where Israel’s success is lacking
Israel’s economy is growing and dynamic sectors are outperforming, but the country’s current growth pattern is not inclusive. Israel’s main challenges lie within the following domains:

1. Low wage and productivity growth
2. Cost of housing and living is becoming unaffordable
3. Low government expenditure on education and infrastructure

These lagging indicators can be put down to the cost of dealing with Israel’s security challenges, its import-dependent economy and fractious political system, and its peculiar demographic challenges in the Ultra-Orthodox, immigrant, and Arab-Israeli population segments.

It is important to point out that these issues are part of the national debate and that steps are being taken at the government level. Calls for reducing Israel’s poverty rate (18.8% overall and 31% for childhood poverty, with some communities suffering poverty rates over 50%) and accompanying proposals have been put forth in the Knesset. Yet funds still fall short of carrying out many of the good intentions. Israel’s economy overall is not in crisis but many of its citizens are, and they are falling further and further behind with ramifications for the future strength of Israel.

Why timely action is important
Even though these developments are a social issue, the reason to act is not primarily social or ideological but economic and strategic. Excessive inequality implies wasted potential, which by some estimates cost 2-3% in GDP growth. This is poor business and leaves Israel less leeway to bolster its defence systems or its social and educational programmes.

The solutions are out there
Israelis continue to display a high level of societal ethos but this is very much a real crisis, which is why action at both the grassroots and governmental level is necessary to change the negative trends.

The ICEJ wants to be an active partner in these efforts, which is the reason we want to brief our readers on the backdrop for ICEJ Aid’s efforts and projects in Israeli society. Indeed, because of the political gridlock and sensitivities, some people see dedicated non-profit organizations, such as the ICEJ, as the best way forward. Our strength lies in building strong partnerships and nimbly implementing workable programmes and solutions.

The ICEJ wants to actively tackle this problem and help Israel’s down and out get back in the game and up to speed with the successful sectors of the start-up nation. 

Partner with us today at: icej.org/donate