Israel’s national pivot in the 1970s
In the 1970s, Israel changed its national priorities. It shifted from a fast growing trajectory to a new, very steady, but substantially slower growth path. Today, the labor productivity gap between the average of the leading G7 countries and Israel is three times the gap that existed in the mid-1970s.
During the 1950s through the early 1970s, Israel’s economy grew at a pace rivaled by few nations. South Korea and Taiwan, with just a quarter of Israel’s living standards in 1950 – were among the very few nations that managed to kept pace in growth, so the relative income gaps remained largely unchanged by 1972. The turning point came after 1973, when Israel reoriented its focus from national priorities to sectoral and personal ones. South Korea and Taiwan stayed on track – and went on to overtake Israel in per capita GDP.
A growing dependence on a limited skilled workforce
Only 10% of Israelis work in hi-tech. Their productivity is 25% above the OECD average, and they are responsible for half of Israel’s exports. Because education and other vital infrastructures have undergone rampant neglect, the average productivity of all remaining Israelis is 40% below the OECD average.
Poorly skilled and educated individuals earn very little. As a result, one-half of Israelis are so poor that they do not reach the bottom rung of the income tax ladder, and they pay no income tax. 90% of all Israel’s income tax revenue is shouldered by just 20% of the population.
Israel’s hi-tech professionals keep its economy in the developed world. Its physicians keep the country’s healthcare system in the developed world. Israel’s universities are responsible for educating these highly trained experts. In a nation of ten million, the above professionals total fewer than 300,000 individuals. If a critical mass of these people decide to leave, Israel will enter a spiral of collapse.
Why are so few skilled individuals shouldering the burden?
Israel’s average educational achievement over the past two decades in core subjects (math, science and reading) is below nearly all OECD countries. Had Haredi boys – who do not even study the material – taken the exam, the average Israeli score would be even lower. Secular school stream achievement scores are below 57% of the OECD countries while religious (non-Haredi) stream scores are below 80% of the OECD countries. The achievements of Arab-speaking Israelis are below many third-world countries.
Roughly half of Israel’s children (including Jewish children in secular and religious streams situated in the country’s geographic and social peripheries) receive a third-world education – and they belong to the fastest-growing population groups. As adults, they will only be able to support a third-world economy, which cannot maintain first-world healthcare and welfare systems, nor the first-world military capabilities that Israel will need to defend itself in the future. Such an Israel will not become a third-world nation. It simply will not be.
Although increasing numbers of Haredim are deciding to attend college, most are unable to overcome the extremely poor education that they receive as children and do not complete their degrees. Despite a slight increase in recent years among Haredi women, the share of Haredi men and women with academic degrees has remained very low and relatively stable over the past two decades.
Israel’s demographic direction
The Haredim, who deprive their boys of a core education that would provide them with opportunities later in life, have roughly three times as many children per family than do other population groups. Consequently, their share in Israel’s overall population is growing exponentially.
The percentage of Haredim in Israel’s population is doubling every 25 years – i.e. every generation. For example, Haredim comprise 6% of the 50-54 year old grandparents while their grandchildren are already 26% of the 0-4 year olds. These grandchildren have already been born. Tomorrow, they will be in school. The day after tomorrow, they’ll bear their share of the national economic and defense burdens – or not. If not, what then?
Municipal spirals of collapse
The four Israeli towns that fell the farthest in Israel’s socioeconomic classifications over the past three decades are Jerusalem, Beit Shemesh, Arad and Givat Zeev – towns with rapidly shrinking secular populations (the people who tend to be the more educated). In the mid-nineties, Jerusalem and Beit Shemesh were rated 5 on a scale from 1 (poorest) to 10 (wealthiest). Today, they are at 2. Arad dropped from 6 to 3, while Givat Zeev fell from 8 to 5.
In just three and a half decades, the share of secular primary school children in Jerusalem plummeted from 33% in 1988 to 9% in 2021. In 2021, 46% of the Jerusalem’s primary school pupils were Haredim, 33% Arabs, 11% religious (non-Haredi) Jews (down from nearly 20% three decades earlier). Beit Shemesh, Arad and Givat Zeev experienced dramatic shifts in the composition of their primary school populations. In 2000, Arad and Givat Zeev had large secular majorities. Within just two and a half decades, however, Haredi children became the overwhelming majority in each of these towns, while the secular share simply collapsed.
Excerpts from 2024 warning letter signed by 130 of Israel’s leading economists
(Among the signers were 119 university professors, including six deans and one past university president and the current and past presidents of the Israel Economic Association. Signers also included economists who served in leadership positions at the Finance Ministry, Bank of Israel and the Prime Minister’s Office.)
“Without a change in the current trajectory, these processes endanger the country’s very existence. Many of those who bear the burden will prefer to emigrate from Israel. The first to leave will be those with opportunities abroad … Israel’s remaining population will be less educated and less productive, thus increasing the burden on the remaining productive population. This, in turn, will encourage further emigration from Israel. This process of a ‘spiral of collapse’ in which increasingly larger groups decide to emigrate, will further deteriorate the conditions of those who remain, while severely impacting populations with fewer emigration options, including the Haredi population itself. The demographic and economic processes that the city of Jerusalem has undergone in recent decades – its rapid decline in socioeconomic indicators and its increasing abandonment by large segments of its secular population – clearly illustrate this spiral of collapse phenomenon and the dangers facing the entire State of Israel.”
“Jerusalem has Israel to support it. But Israel has only itself.”
“This is a clear and present danger to the country, one that we assess has a very high probability of realization … The danger is clear, and in our estimation, the probability of its realization is very high... This is a real alarm. History will not forgive the State’s leaders in the present and future – from all ends of the political spectrum – if they stand by.”
complete letter: https://economists-for-israeli-democracy.com/files/letter_2024-05-28_eng.pdf
Emigration
Net migration out of Israel has been occurring at a steady pace for decades, albeit in relatively small numbers. Over the past two decades, the number of Israeli physicians practicing in other OECD countries has more than doubled in relation to those still practicing in Israel.
Since the government judicial coup attempt began in 2023, there has been a pronounced surge in the number of Israelis leaving the country. While the overall numbers are still relatively small for a country with a population of 10 million, the key question is whether a critical mass of the 300,000 highly-trained professionals in hi-tech, physicians and university faculty will conclude that preventing a national spiral of collapse is no longer possible and choose to emigrate.
The Israel 2.0 Roadmap for avoiding a national spiral of collapse
- The key to national change of direction is a complete overhaul of Israel’s education system. A significant upgrade in the core curriculum for all Israeli children, with special emphasis on the weaker parts of society – and no more exceptions for the Haredim. We need them, and they need the opportunities that will open up for them when they receive a first-world education.
- An overhaul of budgetary priorities will incentivize compliance with the education overhaul. Israel’s need to allocate tens of billions of shekels to recover from the October 7 war will necessitate, among other things, a complete cessation of direct and indirect funding (a) for schools that won’t teach the upgraded core curriculum in its entirety, and (b) for lifestyles of non-work.
- Reforming Israel’s system of government will enable the implementation of the education and budgetary overhauls. A government with few ministers, but those who actually understand what their ministries do. An executive branch with the ability to implement and enforce, alongside independent legislative and judicial branches, with checks and balances among all three branches of government.
- Drafting and passing a constitution that will firmly entrench the basic rules for the road ahead. While rapid the demographic changes will allow future populations to undo the changes in the constitution and the system of government, the hope is that an upgraded education system in Israel will have done its part during these decades, and future generations will not want to turn back the clock to the reality that we currently live in.