Social Gap Widening

The fissures in Israeli society have traditionally been defined by religion, ethnicity and how to make peace with the Arabs. Now economics are threatening to create an even wider divide.

New free-market policies have swollen the underclass, and for many who remember the egalitarian ethos on which the Jewish state was founded, the tonic of welfare cuts, mass layoffs and conspicuous consumption is hard to swallow.

The government’s National Insurance Institute, which handles welfare payments, reported recently that shrinking social spending, coupled with tax cuts that have primarily benefited the wealthy, are widening Israel’s social gap. Between 2002 and 2004, social security payments sank 16% in inflation-adjusted terms, fueled mostly by a 40% drop in allowances paid to families with children, and a 43% decline in unemployment benefits, the report showed.

But Benjamin Netanyahu, a former prime minister who is now Israel’s finance minister, is sticking with his policies of the last two years, saying market economies are “the greatest tool for social justice.” He thinks that Israel, per capita, could become one of the world’s 10 wealthiest nations in 10 to 15 years if his policies are maintained.

U.S.-educated Netanyahu calls his critics “paleosocialists,” and they are many, starting with the center-left Labor Party, which called the policies “swinish capitalism.”

“We may have growth, we may have lower unemployment levels, we may have a higher standard of living for the middle and upper classes,” said John Gal of the School of Social Work and Social Welfare at the Hebrew University of Jerusalem. “But what he’s creating is a very, very large working poor and poor population which has very little chance of ever improving their lot.”

One of these is Marcel Seri-Levy, 33, a divorced mother of three living in a poor Jerusalem neighborhood. Her monthly welfare payments have been cut almost in half, to $330, supplemented by $380 a month in alimony. She has also lost other benefits, including discounts at nursery schools and medical co-payments.

“Things have gotten tougher since Bibi came to power,” Seri-Levy said, using Netanyahu’s nickname.

Israel’s underclass has been growing as a proportion of the population, and not just in absolute numbers, even though benefits ballooned through the 1990s.

In 1998, 17.5% of all Israeli families were living below the poverty line -- defined as $400 a month for an individual and $1,000 for a family of four, according to National Insurance Institute statistics in November. Five years later -- the latest figures available -- the proportion was up to 19.3%.

In 2003, 30.8% of all children in Israel were living in poverty, up from 22.8% five years earlier.

Netanyahu looks at these bleak statistics against the backdrop of an economy whose state was dire when he inherited it two years ago.

Economic growth, pummeled by Palestinian-Israeli violence and the global economic downturn, had contracted by close to 1% in both 2001 and 2002, and the jobless rate was nearly 11%.

Netanyahu vowed to turn that situation around by cutting taxes and social spending, getting people off unemployment rolls and into the job market, and breaking union power.

The economy has indeed rebounded, growing 4.3% in 2004. The jobless rate dropped to 9.8% by February, its lowest level in 3 1/2 years, and some 114,000 new jobs have been created.

Although the business community is thrilled with his policies, ordinary Israelis are uneasy.

Netanyahu’s approach caps a slow-moving revolution away from the egalitarian community that the country’s founders aspired to, where leaders lived modestly, conspicuous consumption was beyond the pale, and the kibbutz, or communal farm, was the utopian ideal.

Today, fancy homes are no longer isolated to tiny enclaves. Israelis dine at fancy restaurants and drive expensive cars, and marinas burst with yachts. Bank presidents earn more than $1 million a year, and technology has produced a new economic aristocracy.

Under Netanyahu, even mass sackings -- a notion that once couldn’t even be broached because unions were so strong -- have become part of the Israeli experience. Most prominently, 4,500 teachers recently received dismissal notices.

Lines at soup kitchens have grown longer, and as the aged population grows, more and more elderly are forced to decide whether to spend small incomes on food or medication.

Traditionally, poverty has tended to be associated with Israeli Arabs and immigrants from Middle Eastern and North African countries, said Barbara Epstein, director of the not-for-profit Community Advocacy program in Jerusalem. But as the population ages, the circle has widened.

A recent study by two researchers in Jerusalem showed that 40% of all Holocaust survivors in Israel lived below or just above the poverty line. Women who head nearly all single-parent families also figure heavily in the poverty figures. So, too, do large ultra-Orthodox Jewish families, although to some degree that is a matter of choice, because tens of thousands of ultra-Orthodox men shun work in favor of religious studies.

Critics say Netanyahu’s policies are creating the kinds of jobs that are going to perpetuate the wealth gap. Of the 114,000 new jobs created on his watch, 100,000 are part-time, according to the Central Bureau of Statistics.

“People in poor communities certainly are not the people who are getting the high-tech and the professional jobs,” Epstein said.

The number of service jobs has grown the most, and they usually are part-time positions that pay minimum wage and have no benefits, Epstein said. The people who take these jobs are “certainly not making any money to send their kids to college, and so that cycle [of poverty] isn’t broken,” she said.

Netanyahu says an economic recovery creates part-time jobs first, then adds full-time positions. And he scoffs at the concept of the working poor, saying welfare states create enormous unemployment, enormous taxation and human capital flight.

“This inane talk about social justice in fact consigns people to social injustice because there is no social justice in people who do not work and receive money from working people,” he said. “Real justice is people who can go to work, going to work to help those who are in need.”

By keeping people dependent on welfare, instead of developing capabilities on the job, “this so-called social justice culture has been the source of so much enormous injustice by preventing people from realizing their potential,” Netanyahu said.

Seri-Levy, a former bookkeeper, says the pickings are slim for people who have been out of the job market for years, as she has been, with employers preferring up-to-date skills and higher education. She says the salaries she has been offered yield less than the welfare benefits she gets for being jobless.

This summer, Netanyahu plans to introduce a welfare-to-work program designed to get people out of the cycle of poverty.

Epstein isn’t convinced that Netanyahu is on the right track.

“His theory of the way the market economy works is that if you give money to rich people, it’ll trickle down to poor people. They’ll make jobs, and that will make the economy move,” Epstein said. “And that hasn’t proven itself to be right.”