By Deganit M. Perez
Along with numerous highly publicized and very questionable remarks on the turnout of Arab Israeli voters and his support for a two-state solution, Israeli Prime Minister Benjamin Netanyahu frequently touted his respectable economic record throughout the lead up to Israeli elections last month. As with most political boasting, Netanyahu’s achievements can be attributable to economic forces beyond any one leader’s control, though he can take credit for more or less staying out of the way of Israel’s somewhat inevitable recent success.
In that regard, Israel’s good fortune is largely thanks to the fact the country was spared by the 2008 global financial crisis, which lead to a steadily decreasing unemployment rate. Israel is also considered to be the second greatest hot spot for start ups, generating entrepreneurs on levels only second to Silicon Valley.
Up until recently, the country has been able to rely on steady economic growth reinforced by the 1999 discovery of important maritime reserves of natural gas. One of the fields, Tamar, began extraction in 2013 while larger reserves will be ready over the course of the next decade, promising steady taxes and royalties revenues for the government which is seeking to increase spending and reduced state debts.
But there is a darker side to this rosy picture. A detailed study led by Global Entrepreneurship Monitor (GEM) in 2013 shows that Israel ranks far from the top when it comes to stimulating entrepreneurial ventures. Its main weaknesses are government funding and subsidies, where it ranks 61st among 70 countries, as well as the efficiency of governmental regulation which monitors difficulties in obtaining business licenses, lack of uniform policies, taxation, and bureaucracy.
The research also highlights the failure of Netanyahu’s government to successfully promote the creation of new businesses, because of the incompetence of employees who are supposed to assist new entrepreneurs with the initial research into their possible ventures. The report specifically highlighted the “unprofessionalism of the government clerks” who were put in charge of providing such information.
Furthermore, while Israel has quite a successful higher-education system—with effective college and university training for the business market—its primary and secondary schools receive relatively low scores, leaving Israel ranked 42nd out of the GEM’s list of 70. Access to financial support and banking also proves problematic (56th), as well as the Israeli market’s dynamism (57th) and its openness to new companies (62nd).
The latter three rankings stem from the fact that Israel’s economy is plagued by a group of large companies who all work together to exercise control over the market and preserve their respective monopolies. Not only has the current government proven incompetent when it comes to dismantling such monopolies, but often success in business depends on privileged relationships between government members and business owners. Thus, GDP growth often doesn’t trickle down to the underprivileged part of the population.
This reality becomes more apparent when it comes to poverty rates and inequality gaps. Israel has the highest poverty rate of all so-called developed countries, according to a report released by the Organization for Economic Cooperation and Development (OECD) in 2014. The country also has one of the highest rates of income inequality, only surpassed by four other countries. The top 10 percent of Israelis earn on average 14 times what the bottom 10 percent manages to make and social spending is lower than that of the average other countries reviewed.
In 2011, this situation led the Israeli middle class to take to the streets to protest the rise of the cost of living in the country. Nearly four years later, the release of a report concerning the rise of housing prices—showing that the average apartment’s price has raised by 55 percent between 2008 and 2013—created another national debate over the state of the Israeli economy.
Netanyahu’s strategy consisting of placing national security ahead of economic reforms on his agenda has proven successful in taking the attention away from these issues and in turn, winning reelection as he did two weeks ago. However, this arrangement of priorities will most likely have a poor impact on Israel’s economy in the long-term. In addition to a faulty government and a lack of priority given to economic concerns, the roots of the problem run deep and necessitate a reshaping of the entire governmental system—a set of actions that Netanyahu is unlikely to undertake.
In Israel, ministers are appointed not according to their domain of expertise (except for defense) but according to their respective parties and political affiliations. To stay in power, they spend more time building support for their incumbency rather than launching bold reforms. Given Netanyahu’s choice to focus on nuclear talks between the U.S. and Iran, this system ensures that priority will continue to be given to national security instead of a plan for long-term economic development.
Despite the fact that the national obsession over the army has so far been an apparent advantage for the start-up scene, particularly venture capitalism into information and security industries, Netanyahu’s reelection will likely cost Israel a great deal over time. His unwillingness to address increasingly successful boycott movements such as Boycotts, Divestment, and Sanctions (BDS), his failure to promote a peace process—which will most likely turn Europe’s already negative relationship with Israel into increasing waves of boycotts—could severely impact the economy.
Each war with Gaza means a slow down in Israeli business but, more consequently, the country’s isolation and the subsequent difficulty in opening up to larger markets impairs Israel from becoming the tech-hub and start-up nation it envisions itself to be.
*****
*****
Deganit M. Perez is a Swiss-Israeli graduate of the University of Lausanne with an M.A in French and English Literature and Linguistics. She is currently pursuing an M.A in International Relations and Journalism at the New York University.
[Photo courtesy of Wikimedia Commons]