"Young people in Israel have good reasons to be angry. Clearly, the dominant aspiration at the time of the creation of the Jewish State - to build a society that is a prominent symbol of social justice - has failed.” With these statements, award-winning economist Joseph Stiglitz joined in support of the almost half a million Israeli citizens who filled the streets this summer, demanding greater social justice.

Stiglitz’s words painfully recall another great Nobel laureate, Paul Samuelson, who in the first edition of his legendary Economics, first published in 1948, said with enthusiasm that the nascent Hebrew State would quickly lead the global ranking in equality.

Between past hope and present anger, Israel faces a challenge of a different nature than it has met throughout its history: to improve the distribution of national resources and return pride to its people, in their nation’s social structure and economic opportunities.

A recent report on income distribution and equity by the Organization for Economic Cooperation and Development (OECD) reveals that the gap between rich and poor in Israel is the biggest in the developed world. While 19 families earn 34 percent of the annual income generated by the top 500 companies in the country, most people turn to various sources of outside financing to pay their bills at the end of the month.

According to the Survey of Household Income of 2009, prepared by the Central Bureau of Statistics, the monthly net income of a typical family rose to $2,887 (NIS 10,690), while its expenditures are estimated at $3,308. The monthly deficit is even starker for poorer families. The average net income of a family in the poorest 10% of the population reaches $688 a month, versus expenditures of $2,014, representing a monthly shortage of nearly twice the value of their revenue.

Only the wealthiest 30% of Israelis has a monthly deficit of less than 6% of their income, while the richest 10% of the population enjoys the rare privilege of saving, on average, a fifth of their revenue. As for the composition of spending, almost three quarters of expenses in Israeli society are concentrated in four areas: housing (24.4%), transport and communications (19.1%), food (16.3%), and education and entertainment (13.9%). As expected, poorer families tend to devote most of their resources to housing and food (which account for, on average, half of their expenses), and the richest families spend 35% of their expenditure on education, entertainment, communications and transportation, but housing is, even for them, the main component of their cash outflow.

Demography is also connected to the distribution of national wealth. Ten percent of the poorest households in Israel have an average of 4.6 members, while families that make up the richest 10% have two members less and hence household expenditure is allocated to 43.5% fewer recipients.

From a labor standpoint, households of Arabs and Orthodox Jews exhibit limited integration into the labor market. Increasing their assimilation into the workplace would create more equity in the distribution of the tax burden and public subsidies as well. As indicated recently by Dr. Arnon Soffer, an internationally known demographer at the University of Haifa, 50.3% of Israeli Arabs and 52% of Orthodox Jews in Israel over 20 years of age are not economically active.

It is estimated that Israeli Arabs account for 20.4% of the population, while the Orthodox Jewish population does not exceed 10%. Unequal income distribution is highly correlated with resistance from Orthodox Jewish men and Arab women to formally join the workforce. The poorest third of Israeli families have, on average, less than one wage earner, while the top third have more than 1.6 wage earners per household, often employed in highly profitable professions.

According to research driven by TrendIT, 49% of the “outraged” Israelis in the streets demanding greater social justice belong to the richest 30% of society, and 87% of the protesters belong to the richer half.

Responding to the protesters’ demands requires understanding of the root causes of the income distribution gap in Israel. Any genuine solution must cover at least three fronts:

1. Politics and security: Achieve a reasonable solution with the Palestinian Authority for the creation and construction of a Palestinian State, offering the Israeli population greater security at a lower cost.


2. Reallocating resources: Redirect funds currently used to perpetuate the Israeli influence in the West Bank to the social sectors that represent the true national interests of Israel.

3. Regulation: Coordinate appropriate measures to ensure a welfare state. In particular, offer public education from a younger age than the current six years, release more public land to enable more families to acquire their first property, and allow for increased competition in sectors such as food and consumer goods in general.

Now is the time to abandon biases and to start working. Israel’s future depends on it.

The writer is managing director of Bacalor Strategic Consulting.

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