Guest Column: After the flotilla, a sinking ship

There are all kinds of worrying economic data that may one day cause Israel to be unceremoniously kicked out of the OECD.

By
June 11, 2010 16:42
4 minute read.
From Left, Estonia’s PM Andrus Ansip, Chile’s Fina

oecd circle jerk 311. (photo credit: AP)

Long before it was rich enough to be a developed economy, Israel was sending satellites into orbit and producing world-class scientific research. Its system of proportional representation is an exercise in hyper-democracy, yet it has ruled undemocratically over millions of West Bank Palestinians for four decades and imposes religious law on its inhabitants, contradictions that enrage those who insist their liberal democracy be untarnished.

No matter, Israel is now a full-fledged member of the Organization for Economic Cooperation and Development, the global rich countries’ club. Our finance ministers and central bankers are entitled to mix with their peers from Sweden and Singapore, and share statistics on per-capita GDP and Internet usage that leave the rest of the world in the dust. Belonging to the OECD is also about as close as you can get to joining the club of liberal democracies. Welcomed into the club three weeks ago, Bibi Netanyahu was being feted in Paris by the likes of Nicolas Sarkozy and Silvio Berlusconi.

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Sic transit gloria mundi.

FOUR DAYS after the party, Israeli commandos kill nine people on the Free Gaza flotilla. True, the flotilla victims weren’t exactly peaceful protesters, but then some OECD members have spotty histories with democracy and aren’t as economically advanced as their membership implies. Take Turkey, for example. Nothing is ever quite what it’s made out to be, but why set the bar for irony so impossibly high? Grading a country’s democratic credentials is a difficult business, although there are those who try to do it (The Economist magazine, for instance, ranked Israel among the world’s “flawed” democracies in 2008; Freedom House gives Israel its highest rating as “free,” with a less-than-perfect score on civil liberties).

Economic statistics are harder to fudge, notwithstanding that Greece did so for a while. On economics alone, Israel has no trouble making the grade. Gross domestic product per capita, which measures how much each person in the population is producing every year, was $27,900 in 2008, putting it just behind Greece (if you can believe the Greeks) and ahead of Slovenia and New Zealand. Here and there, Israel’s developed-country credentials are a little tainted – poor transportation infrastructure, for instance – but on others, such as research and development spending as a percentage of GDP and patents filed per capita, it is at the top of the top. If the OECD were a country club, Israel wouldn’t be racking up victories on the tennis courts, but we would be everyone’s preferred Scrabble partner.

Yet, there are also the kind of worrying data that may one day cause Israel to be unceremoniously kicked out of the OECD. The first is the horrendously high level of poverty and income inequality. At about 21 percent, its relative poverty rate was highest among all OECD countries in 2005 (the last year for which comparative data are available). Only the US, Portugal, Turkey and Mexico exceed Israel on gaps between the rich and poor. The second is education. In the most recent Trends in International Mathematics and Science Study, Israeli students placed 23rd in the world, behind a lot of countries whose industries bang metal rather than etch silicon. The surprising thing about both these sorry statistics is that they have characterized the country for decades, as the economy rose up from the ashes of 1980s stagflation and became a hi-tech powerhouse.

HOW IS it that Israelis were developing advanced algorithms and winning Nobel Prizes even though on average they couldn’t do algebra any better than a Cypriot or Thai, and large numbers weren’t earning enough to afford a computer or Internet?


The answer is that the country’s knowledge economy is built on a foundation of a lot of knowledge by a very few – a relatively small part of the population that develops innovative technology, forms start-ups to develop it and then, unfortunately, sells it all to a foreign multinational. In any case, Israeli-style innovation probably has less to do with the kind of smarts you pick up at school and university. A lot of the achievement is based on Israelis’ oversized appetite for risk-taking as well as our culture of problem-solving and team play. Those values are learned in the street and to a very large extent in the army.

It can’t go on this way. A large and growing minority of the population not only gets inappropriate schooling, but takes no part in culture. The haredim have cordoned themselves off into a world of Torah study and government allowances. Israel’s Arabs are isolated by language, religion and inferior educational resources. Neither serves in the army. If there was a time when this start-up nation could carry the weight of these two groups – not just driving the tanks but paying for them with high marginal tax rates – it is coming to an end. A forecast by the Taub Center for Social Policy Studies estimates that already today half of school-age children belong to the haredi and Arab sectors, a figure that will grow to 78% in 30 years.

True, more haredim are entering the workforce, and the gap between Jewish and Arab schools is slowly diminishing. But these positive developments are coming too slowly and don’t address the kind of social integration Israel needs to bring about. The country today barely produces enough math- and science-savvy students to supply its knowledge-based economy. Unless something fundamental changes, the economy will be swamped by graduates who don’t learn these subjects at all or have been taught them in the country’s worst schools.

The writer is a financial commentator.


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