In a state founded on principles of collectivism, social justice, and equality, today, Israel’s government espouses economic policies that are radically different from the original ideals, and the negative consequences are catching up.
Prime Minister Netanyahu has consistently pushed for neo-conservative measures. His attempts to liberalize the economy include expanding how much credit Israeli citizens have access to, increasing privatization of state enterprises, instituting regressive taxation which benefits businesses and wealthy individuals, and reducing the overall role of government in the market.
The lack of regulation and stronger capitalism has allowed for a few, wealthy families to take part in pyramid schemes. According to Hebrew University economist Eytan Sheshinski, “these are called pyramid schemes because through shares in one company they take control of a second company and, through that, of another one on down a chain of holdings.” He explains that such schemes are not possible in the U.S. due to the tax system. The concentration of wealth results in slow economic growth, less competition, and greater instability, especially because the wealthy heavily borrow money, which generates risk.
One of the most noticeable consequences of the liberalization of the economy is the extreme income inequality. According to an Oct. 2010 report by Israel’s Bureau of Statistics, income inequality is greater in Israel than in any of the European Union nations. The Organization for Economic Cooperation and Development ranks Israel in 30th place out of 35 member nations in social equality. The Taub Center for Social Policy Studies in Israel released a report in 2011 explaining some factors behind this phenomenon. For instance, although Israel has one of the highest minimum wages in the Western world, labor laws go largely unenforced. Cutbacks in the National Insurance Institute point to the rise in poverty rates by disposable income. The education level also highlights income disparities. The income gap between those who have up to twelve years of education and those who are better educated has consistently expanded. Although there is a demand for workers, this demand lies mostly in high-tech and information-tech areas, which hire fewer less-well-educated workers.
Social spending, which further shrinks the middle class, widens income inequality. For example, the health care system has experienced decreased medical services despite the overwhelming support from Israelis for free health care for people without insurance (82 percent are in favor, according to a Dec. 2010 Israel Democracy Institute poll). Education and unemployment benefits have similarly been slashed. Such cuts hinder socioeconomic upward mobility. Omer, a protestor in a Jan. 22, 2013 Public Broadcasting Service report, explains: “I’m not against capitalism, but to what extent do you take it? It’s a matter of things moving in the wrong direction. […] There’s not enough money going to the educational and welfare systems. These are the programs that generate the future of the state.”
Israeli citizens, discontent with the situation, responded with an Occupy-like demonstration during the summer of 2011. The “movement for social justice” built a tent city through Tel Aviv, and next to the parliament in Jerusalem, in protest of a variety of socioeconomic inequalities. One major point of contention was the exorbitantly priced housing. The proposed solution to a variety of the protestors’ concerns echoed loudly: greater government regulation. Higher taxation for the rich, more beds in hospitals, government-controlled rent prices, gratis nursery school, and the list goes on.
In an effort to placate the public’s demands, Netanyahu has made some concessions. As of 2013, public preschool education is to be free from the age of three and up. Wages for workers in employment agencies increased. And, in July 2012, the Bank of Israel raised the Value-Added Tax (according to Investopedia, “a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale”) by one percent and increased corporate taxes and taxes on the wealthy. However, his critics are not convinced. Labor party leader Shelly Yechimovich blamed the initial budgetary gap on Netanyahu’s “wildly reduced” taxes for the rich. The VAT increase is an across-the-board cut, affecting the lower and middle classes. The cuts on education, housing, health care, and other welfare services “hurts the weaker sectors of society too, widening the gap,” says Hadash party Knesset member Dov Khenin. He concludes that “Netanyahu has proved again that he didn’t learn anything from the social protest.”
The economic policies of the currently forming coalition are, as of yet, uncertain. Yesh Atid (the party with the second-most Parliament seats) and the Labor party (coming in third) attract secular, middle class constituencies. Netanyahu has pledged to create as diverse a coalition as possible. He paid lip service to this desire, promising to ensure “a more equal sharing of the burden” by the government-services-dependent ultra-Orthodox population. A further compromise includes pledging to make housing more affordable. The practicality of these changes is debatable. In response to the tent protests of 2011, an aide to Netanyahu said to the New York Times: “It used to be politically impossible to go after the cartels, but now that 300,000 people have gone out in the street, we have a mandate. But the prime minister is not going to make this a socialist country again.”