Strategic breathers and strategic threats

Two reports of interest to Israel came out over the past week: One offered some cause for comfort, the other a lot of cause for concern. Albeit in vague words, the annual National Intelligence Estimate – while noting there is a chance of war with Hamas in the South or Hezbollah in the North, as well as a possible conflagration in the West Bank – acknowledged that the collapse of states in the Middle East and the nuclear deal with Tehran have given Israel a breather on the Iranian front and improved its overall strategic position. The OECD also issued its annual report on Israel, which noted that the economy is resilient, has sound fundamentals, and that the government is following prudent macroeconomic policies – but also rang several warning bells. The report noted challenges facing the economy, such as weak productivity, sky-high housing prices and poor infrastructure, and also issued stern warnings about the poor overall quality of education and the lack of economic integration of haredim and Israeli Arabs. Given the growing demographic weighting of these two groups and the importance of maintaining an educated workforce, there is no less than a strategic threat to Israel should its leaders fail to rectify the situation. At the same time as Israel has a strategic respite on the security front, dark clouds are gathering on the horizon and threatening its economic future, and the window of opportunity for it to make the policy changes required to stave off that threat is about to slam shut. As things stand today, some 50 percent of the working population does not reach the tax threshold as it is employed in low paying jobs, while some 20 percent of the population pays around 90 percent of taxes. The proportion of the population without the requisite skills for a modern economy is growing, and this is unsustainable. The political demography of the country is also changing and approaching the point where making changes in national policy in order to prevent disaster will become simply impossible. “We will pass a democratic demographic point of no return and that's it, game over,” Dan Ben David, founder of the Shoresh Institute for Socioeconomic Research and an economist at Tel Aviv University, tells me. National security isn't just about jets, tanks and battalions, says Ben David. It also requires that civil society be capable of sustaining a flourishing and innovative economy that can support Israel's existential needs. “Children receiving a thirdworld education will only be able to maintain a third world economy which cannot support the first-world defense that Israel requires to physically remain alive in the extremely violent neighborhood that it lives in,” he warns. Only a small percentage of the population is part of the start-up nation, he says, while the rest, which isn't part of that phenomenal success, is growing at a much faster rate. That means that if nothing is done about the situation, the burden for educated young people may become too much and many may opt to leave the country and take their skills elsewhere, causing further stress on the system. “They aren't leaving yet,” says Ben David, “but they are taking foreign passports as a short of insurance policy.” Israel's situation, says Ben David, is analogous to the passengers and crew of the Titanic, who instead of focusing on the huge iceberg they were about to hit and urgently changing course are playing around with the deck chairs and preparing for the evening cocktail party. “The problem,” he says, “is that we are simply not looking beyond our noses. We don't think about long term consequences, we don't think strategically.” But not all is lost.. there is still time to wake people up and put things back in the right direction. Ben David says he remains hopeful and quotes Abba Eban, who famously said that political leaders do not adopt the right policy before exhausting all the wrong options. “That's kind of been the way that we operate,” he says. “'Don't worry, everything will be all alright.' It's part of our culture. We wait until things are going bad and then we tend to fix them. But this is more insidious; it's not like war which is in your face. It's something that by the time the coin drops, it may be too late for us to get our act together.” The question is what will come first. Will the ship's captain plot a new course and navigate Israel to a place among the most developed nations of the world or will the weight of carrying an ever-growing uneducated population unable to pay taxes cause the ship to capsize and sink.

Strategic breathers and strategic threats

With relative quiet on most fronts, Israel needs to wake up to the dark clouds on its economic horizon.

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