Israel’s economy is on top, but relative poverty is dismal

Commerce in Tel Aviv has boosted Israel’s OECD ranking

Commerce in Tel Aviv has boosted Israel’s OECD ranking

Diaspora Jews are rightly proud of Israel’s stellar economy and its renowned science and technology.

The Jewish state was one of the few advanced economies — out of the 34 countries under the Organisation for Economic Co-operation and Development (OECD) — to survive the “Great Panic” and subsequent recession virtually unscathed.

The latest OECD forecast projects output growth of 3.75 per cent for Israel this year and 3.5 per cent in 2014 — which is a better outcome than the United States, Britain and Germany. Unemployment is at historically low levels and production of natural gas added 1 per cent to gross domestic product in 2013 and is expected to add a further 0.7 per cent in 2014.

Moreover, inflation remains firmly under control as a result of careful monetary management by the central bank. But the OECD warns that there is little spare capacity and inflationary pressures could escalate over the next couple of years if demand remains as strong as it has been. It also fears a house price bubble fuelled by a rapid rise in mortgage lending and recommends direct action by government and the central bank to curtail mortgage lending.

But despite the overall buoyant picture, the OECD has real concerns about some of the structural weaknesses in Israel’s educational and social infrastructure. While Israel might have superior living standards to its civil war ravaged neighbours but against the standards of the advanced countries which it likes to be measured, living standards are well below those among the better performing OECD nations. To Israel’s embarrassment, the standard of relative poverty is the lowest in the OECD. For instance, the income of one in five Israeli households falls below the poverty line.

The numbers are skewered by the rapidly growing Charedi community, where one in two families fall below the poverty line, and among the Arab population where female participation in the workforce is low. The OECD suggests that weak educational standards for the ultra-Orthodox — in science, maths and literacy — restrict earning capacity compared with the rest of the population.

Unlike the International Monetary Fund, that focuses on the macro-economic health of nations, the Paris-based OECD, which was set up after the Second World War to help administer the Marshall Plan and the reconstruction of Europe, tends to focus on the socio-economic underpinnings of Western societies.

Britain recently attracted negative headlines from the OECD when it ranked science and maths education 23rd overall among the countries surveyed, with South Korea at the top of the table. Relatively speaking Israel does much better than the UK and was ranked 14th out of 34 countries in the recent OECD tests.

The OECD report is full of praise for Israel’s health care system that is producing “impressively” high life expectancy. But even this faces challenges. Hospitals are overcrowded and an ageing population is fuelling demand for medical services. There was a time when every other person in Israel seemed to be a medic. However, the imminent retirement of many physicians that were immigrants from Europe and shortages of qualified nurses pose a new challenge in addition to the tension between those dependent on public health care and others who can afford access to private systems. There are concerns that the cost of an ageing population maybe an end to universal health care.

The OECD makes wide ranging recommendations for improving the social condition in Israel. In particular it would like to see proposed reforms in primary and secondary education implemented and education for Israeli-Arabs strengthened. Charedi schools are also encouraged to “forcefully” focus on core subjects.

Israel also needs to adopt policies that take people off the welfare budget. It suggests the US style welfare-to-work programme, reform of disability benefits and encouragement for people to take up earned income tax credits.

So as to maintain the fine health-care system it argues for an expansion of medical schools and nurse training and modernisation of government-run hospitals. To deal with the ageing problem it suggests reforms of the tax treatment of pensions and an increase in the retirement age of women. On tax the OECD suggests that VAT be raised rather than income taxes – because of the high level of avoidance and evasion. If VAT weighs too heavily on poorer families then there should be compensating increase in welfare payments.

Overall there is much to be proud of in Israel. But amid the new prosperity there are social injustices crying out for reform.

Alex Brummer is City Editor of the Daily Mail

Last updated: 10:45am, December 20 2013