(photo credit: REUTERS/Ronen Zvulun)
After hemorrhaging an estimated daily loss of between NIS 140,000 and NIS
170,000, and after failing – at least as of press time – to reach an agreement
with businessman Ronen Levi of Retail 3000, Office Depot was pronounced
bankrupt. As a result, all of the chain’s stores will close and about 800
employees will be fired.
Office Depot’s apparent demise is the latest in
a series of ominous signs that our economy is running into difficulties. Last
month, Teva Pharmaceutical Industries announced it planned to fire hundreds of
workers and Bazan Oil Refineries will make about 1,000 workers redundant. This
week, the Central Bureau of Statistics announced that economic growth slowed to
a 2.2 percent annual rate in the third quarter of the year. Lower exports caused
by a strong shekel, which makes Israeli products and manpower relatively more
expensive and less competitive compared to the products of countries with weaker
currencies, were the primary cause of the slowdown in growth. And the OECD
lowered Israel’s GDP growth forecast for 2013 from 3.9% to 3.7%.
be premature to diagnose an economic recession. These are still impressive
growth rates. And the OECD lowered its unemployment rate forecast for Israel for
2013 from 7.2% to 6.8%. Participation in the labor market, traditionally low in
Israel due to low employment rates among haredi men and Arab women, has reached
74.5%, though most of the increase in jobs was in the public
Still, as noted by Bank of Israel Governor Karnit Flug in a
speech Tuesday at a financial markets conference organized by the Calcalist
newspaper, Israel’s real challenge in the medium- to long-term is to fight
income inequality by striving for “inclusive growth.”
The term, used by
economists such as Joseph Stiglitz and Amartya Sen who have been critical of
neo-liberal economic policies, refers to the sort of growth that lowers income
inequalities in countries and between countries instead of exacerbating
Increasingly, as higher paying jobs become knowledge- based and as
traditional industries relocate to countries with cheaper labor costs or
outsource jobs, economic growth has benefited fewer people while income
inequality, as measured by the Gini coefficient, has grown.
phenomenon is not unique to Israel. Almost everywhere, success is inequitably
shared. But in Israel the trend is more pronounced. Israel is ranked 28th out of
33 OECD countries when it comes to income inequality (the difference between the
income of the top 20% and the bottom 20%).
There are no easy solutions.
Attempts to redistribute income do not cure the underlying forces that led to
inequality in the first place, requiring still more aggressive redistribution.
And redistribution produces resentment and stymies the drivers of economic
growth. Using government policy to close the gaps by offering preferential
treatment to underperformers inevitably creates a sense of injustice among the
rest of the population. And by promoting less-qualified individuals to positions
they would never attain in a meritocracy, we undermine the efficiency of the
economy and dampen ambition.
In Israel, more can be done to improve free
competition and do away with nepotism and with discrimination against Israelis
who did not serve in the IDF such as haredim and Arabs. These sorts of
discriminatory behaviors – like India’s caste system or the high rates of
illiteracy among women in Muslim countries – prevent us from tapping into
The challenge for Israel and other countries is to
maintain a level of economic dynamism that will, as much as possible and in the
fairest and most equitable way, provide increasing benefits for all while still
managing to pay for the social welfare programs required to make citizens’ lives
bearable under conditions of increasing income inequality.
The wave of
layoffs at Office Depot, Bazan and Teva is a reminder that we live in an
increasingly globalized and competitive world economy. Attaining “inclusive
growth” has become increasingly difficult. But it is nevertheless a worthy
aspiration for it fosters social cohesion, provides citizens with more equal
opportunities and fosters political stability.