Welfare system could cause Israel to collapse, economist warns

When people talk these days about Israel’s economy, they use words like booming, resilient, even “miracle.”

Weaning itself off socialist-influenced policies that once brought 400% inflation and 60% income-tax brackets, Israel’s economy is now growing despite the international financial slowdown. Debt is manageable, the currency is strong; Israel’s high-tech sector is admired worldwide.

But one Israeli economist is warning that beneath Israel’s back-patting lurks a hidden peril — fueled by demographic trends and political choices — that could eventually mean an end to the country.

Armed with a Power Point presentation he’s been showing to lawmakers, newspaper publishers and anyone else who will listen, Dan Ben-David, executive director of Jerusalem-based Taub Center for Social Policy Studies in Israel, says the problem is simple: Not enough Israelis are pulling their own weight.

According to Ben-David, nearly one in five Israeli men between the ages of 35 and 54 — a group that he believes has “no excuse” for not working — are not part of the labor force. That’s about 60% higher than the average among nations in the Organization of Economic Cooperation and Development, an international forum fostering market-based economies that Israel joined Monday.

Officially, Israel’s unemployment rate is about 8%. But that doesn’t include Israeli citizens who are not trying to find work, either because they feel disenfranchised, such as many Arab Israelis, or because they’ve chosen a life of state-subsidized religious study, such as many ultra-Orthodox Jews.

Nearly 27% of Arab men and 65% of ultra-Orthodox Jews don’t work, government figures show. The non-employment rate for ultra-Orthodox men has tripled since 1970, Ben-David said.

“We support a lifestyle of nonworking that is pretty unparalleled in the Western world,” said Ben-David, who is also a Tel Aviv University professor. “On the one hand, we have this state-of-the-art part of the economy. Then there is the rest of the country that is like a huge drag.”

What worries Ben-David most is that the nonproductive part of Israel’s population, which survives largely on welfare, is also the fastest growing.

Today Arabs and the ultra-Orthodox together make up less than 30% of the population, but they account for nearly half of school-age children. If trends continue unchecked, Arab and ultra-Orthodox children could make up 78% of Israeli classrooms, recent studies have shown.

“Eventually it’s going to break the bank,” the economist said. “We’re on trajectories that are not sustainable.”

But not everyone agrees with Ben-David’s dire predictions.

“He’s been very successful at scaring everyone,” said Beni Fefferman, director of the planning and research office in the Ministry of Industry, Trade and Labor. According to Fefferman, Ben-David’s analysis “grossly overstates” the extent of the problem, because data over the past decade suggest employment rates among Arabs and ultra-Orthodox Jews are improving.

But Ben-David said the government has relied too heavily on a quick fix. With heavy lobbying from ultra-Orthodox parties that often prove crucial in forming government coalitions, Israel has increased welfare payments fivefold since 1970, while the standard of living has doubled, he said.

Nearly a decade ago, Prime Minister Benjamin Netanyahu, who was then finance minister, won praise for slashing welfare payments, including monthly per-child allowances. But last year Netanyahu, in a nod to his right-wing coalition partners, agreed to nearly double some child allowances.

Reasons differ for the non-employment of Arabs and ultra-Orthodox Jews.

Over the last 30 years, the percentage of working ultra-Orthodox men has decreased because of government programs that subsidize their religious study, experts say.

Such programs are now facing a backlash from Israel’s secular and non-Orthodox citizens. A radio talk-show host recently described ultra-Orthodox Jews as “parasites.” Tel Aviv’s mayor said the fast-growing ultra-Orthodox community was “endangering” the economic strength of the “silent majority.”

But defenders of the ultra-Orthodox credit them with preserving Israel’s Jewish identity, saying that without the high birth rates of ultra-Orthodox families, Israel could see an Arab majority in future generations.

“Some people drive a taxi, others pray,” said Robert Zwirn, 63, a former doctor from Brooklyn who moved to Israel 20 years ago and gradually gave up his practice to adopt an ultra-Orthodox lifestyle. “But the Messiah won’t come on the merit of you driving a taxi. It will be on the merit of our prayer.”

For their part, many Arab Israelis say they want to work but are often shut out due to discrimination, poor schools and inadequate government services.

“If I were Jewish, it would have been much easier to find work,” said Salwa Idreis, 30, an Arab Israeli from Jerusalem who, despite earning a law degree, has been unable to find a job for five years.

“People don’t trust us because we are Palestinian,” said the mother of four. Even Arab-owned law firms won’t give her a job because they think Jewish attorneys will draw more customers, she said.

With a rising rate of non-employment, many working, tax-paying Israelis are opting to leave the country.

Computer technician Avner Coopman, 40, and his librarian wife joined the flight six months ago, quitting their jobs and moving their two children, 9 and 11, to a Vancouver suburb. They say they’re confident Canada offers more security, better education and a higher standard of living.

“The math was simple,” Coopman said, predicting that tax and poverty in Jerusalem will soar in the coming years. “It wasn’t so much about me, but about what my kids will face in 30 years.”

Ben-David said Israel should act now to prevent a financial collapse that a nation with many enemies can ill afford.

“In this neighborhood, you don’t get many chances,” Ben-David said. “For us [the opportunity to create a state] only comes around every 2,000 years.”

Batsheva Sobelman in The Times’ Jerusalem Bureau contributed to this report.