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.

oecd circle jerk 311 (photo credit: AP)
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.
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 afoundation of a lot of knowledge by a very few – a relatively smallpart of the population that develops innovative technology, formsstart-ups to develop it and then, unfortunately, sells it all to aforeign multinational. In any case, Israeli-style innovation probablyhas less to do with the kind of smarts you pick up at school anduniversity. A lot of the achievement is based on Israelis’ oversizedappetite for risk-taking as well as our culture of problem-solving andteam play. Those values are learned in the street and to a very largeextent in the army.
It can’t go on this way. A large and growing minority of the populationnot only gets inappropriate schooling, but takes no part in culture.The haredim have cordoned themselves off into a world of Torah studyand government allowances. Israel’s Arabs are isolated by language,religion and inferior educational resources. Neither serves in thearmy. If there was a time when this start-up nation could carry theweight of these two groups – not just driving the tanks but paying forthem with high marginal tax rates – it is coming to an end. A forecastby the Taub Center for Social Policy Studies estimates that alreadytoday half of school-age children belong to the haredi and Arabsectors, a figure that will grow to 78% in 30 years.
True, more haredim are entering the workforce, and the gap betweenJewish and Arab schools is slowly diminishing. But these positivedevelopments are coming too slowly and don’t address the kind of socialintegration Israel needs to bring about. The country today barelyproduces enough math- and science-savvy students to supply itsknowledge-based economy. Unless something fundamental changes, theeconomy will be swamped by graduates who don’t learn these subjects atall or have been taught them in the country’s worst schools.
The writer is a financial commentator.