For once, is it ‘the economy, stupid’? by Alan Johnson and Toby Greene

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestShare on RedditPrint this pageEmail this to someone

Unusually, this election campaign is about the shape of Israeli economy and society as much as the traditional issues of peace and security. Clearly this reflects a mood change since the 2011 social protest movement brought hundreds of thousands of Israelis on to the streets. What’s driving this and where do the parties stand?

Is there anything really wrong with the Israeli economy?

The Israeli economy is a mixed picture. At one level, things are rosy. 2010 GDP was calculated at $220 billion, larger than all of its immediate neighbours combined and Israel has the highest average living standards in the Middle East. In proportion to its population, Israel also has the largest number of start-up companies in the world, mostly in hi-tech. Actually, it has more than any other country in the world except the US.

Growth has also been impressive. From 2009 to 2012, the Israeli economy grew by 14.7 per cent – that’s more than any other developed nation. The credit ratings agency Savings and Poor gave Israel an A+ rating in 2012 citing ‘consistent growth and careful macroeconomic management.’ The impact of an anticipated slowdown in 2013 is being offset somewhat by the expectation that Israel’s offshore gas finds will start to come on stream.

In general Netanyahu would rather the election were about security, rather than the economy, But insofar as the economy enters the picture, Netanyahu wants the economic debate to be about this Israeli macroeconomic success amidst global turmoil, with his campaign trumpeting ‘350,000 jobs created.’

So why were people protesting in the streets?

Opposition parties, some of which now include leaders of the 2011 social protest movement, tell a different story. They point to widening social gaps, frayed public services, and the 20 per cent of the population that lives below the poverty line. The middle class feels like ‘frayers’ (Hebrew for ‘suckers’) – squeezed and neglected, increasingly angry about both the growing welfare stipend given to the ultra-Orthodox, and revolted by the ostentatious displays of wealth enjoyed by the super-rich. While the price of food in Israel is higher than in the UK, the median annual salary in Israel is around £12,000 compared to around £21,000 in the UK. The opposition to Netanyahu wants the debate to be about all this.

Will Israelis vote their wallets or is still ‘our security, stupid’?

Certainly, the Labour Party thinks, ‘it’s the economy, stupid!’ They are banking that floating centre ground voters care more about the cost of living, employment, education and social inequality than terror and Iran. For some voters they might be right. A Times of Israel survey found 43 per cent of voters rate the economy as the most important issue. But there is a big divide here. Concern with economics was ‘driven by left-wing and centrist voters’ while the right bloc is more focussed on security.

There are also still voters on the centre-left who want resolving the Palestinian conflict to stay high on the agenda. Labour Party leader Shelley Yachimovich has been criticised by some for not talking more about the peace process, and some voters may support Tzipi Livni’s new party ‘Hatnuah’ for this reason. Livni is the only centrist candidate who is banging the drum for the peace process as the issue of primary importance, and her party is arguing that economic challenges cannot be separated from security threats, which inject uncertainty and fragility into the economy.

What economic issues are dominating the campaign?

There are a number of key economic issues in the campaign, including managing Israel’s economic slowdown in the next Israeli budget, addressing rising social inequalities, middle class anger about so-called ‘burden-sharing’, and the cost of housing.

Passing a budget

The most immediate challenge is passing a budget. Israel’s economy is slowing, the outlook is for regional and global uncertainty, and Netanyahu, a fiscal conservative, is expected to try and tighten belts. The political challenge this presented to him was one of the factors which motivated his decision to call an early election. Economists differ on how serious the fiscal situation is. Michel Strawczynski, who heads the Economics and Society Program at Jerusalem’s Van Leer Institute says it is not an emergency. ‘The government succeeded in raising taxes before the election and the fiscal situation, on the whole, is under control.’

Nonetheless, there is certainly a growing budget deficit that has to be dealt with. The Finance Ministry announced last week that Israel’s budget deficit for 2012 was more than double the government’s target. Public debt is 74 per cent of GDP. Pay raises awarded to public-sector workers during the Netanyahu government – many of whom were previously so poorly paid as to qualify as low-income workers – amount to NIS 15-16 billion. Stanley Fischer, the high-profile and hugely respected Governor of the Bank of Israel has called for a mix of tax increase and spending cuts to restore fiscal stability.

This is in direct contravention of the spirit of the social protest movement, since adopted by Labour, which is warning the electorate of Netanyahu’s planned swingeing cuts, and calls for expanding the public purse with income tax increases for higher earners and businesses.

Rising social inequality

Amongst OECD countries, Israel ranks fifth out of 27 when it comes to income inequality. There are various sources of inequality in the Israeli economy. For a range of social, cultural and political reasons, Arabs and ultra-Orthodox Jews are the poorest sectors of Israeli society.

But the issue which angers middle class swing voters, and which is therefore the one of relevance in the election, is the concentration of ownership of the economy in the hands of a few super-rich families, with the lack of adequate competition driving up prices, whilst wages in many sectors, including the public sector, remain low. A 2011 report found ‘the average wage of an Israeli worker was NIS 8,741 (some $2,300), and the minimum wage for full-time work was NIS 4,100. In contrast, the CEOs of the 100 largest companies received an average of around NIS 540,000 per month, 62 times the average wage and 132 times the minimum wage.’

Burden sharing

The third economic issue is burden-sharing, i.e. the failure of the Haredim to contribute a fair share to the economy. This is a central campaign issue in particular for Yair Lapid’s Yesh Atid party. Ultra-Orthodox men are on the whole still not being drafted to the army despite the law under which they were exempted having been made void by Israel’s Supreme Court, and continue to receive stipends to study in Yeshivot (religious seminaries). They are also not contributing in significant numbers to the work force. There was a 57 per cent growth in ultra-Orthodox elementary school enrolment between 2000 and 2010, yet their education, focussed on religious study is simply not preparing students for the workforce.

Cost of housing

The one socio-economic issue Netanyahu has made a clear stand on is the question of housing, the issue which triggered the social protest protests in 2011, when disgruntled tenant Daphni Leef pitched her famous tent in Rothschild Boulevard. Netanyahu committed to reforming the housing market and freeing up more land for construction at the beginning of his last term but house prices still rose steeply.

In the last few weeks Netanyahu has stated that he will keep the housing ministry in the hands of his own party, and not allow the ultra-Orthodox Shas party to keep control of it. Shas has been criticised for skewing housing assistance to its own constituents, the Haredim. Netanyahu’s commitment to wrestle the housing ministry away from Shas has sparked a harsh war of words between the parties.

Is Israel ignoring the iceberg?

Some argue that the debate in the current election is only looking at the tip of the iceberg. The 2012 Taub Center State of the Nation Report highlighted serious long term problems in education, infrastructure and labour productivity, not to forget the disproportionate levels of its resources that Israel invests in defence. Of particular concern is the rapid growth of Arab and ultra-Orthodox Jews populations, with inadequate levels of education to prepare them for the jobs that are needed to sustain an OECD economy.

That’s why Professor Dan Ben-David, director of the Taub Center for social policy research at Tel-Aviv University claims the 2013 election debate on the economy is ‘very shallow’. Indeed, none of the candidates are talking about the long term structural challenges that Israel will have to face to build on its economic success to date.