Herzliya Diary

Feb. 2, 2012: Stanley Fischer, the governor of Israel’s Central Bank, delivered a harsh message yesterday to Israel’s ultra-Orthodox and Arab citizens: Stop having so many children and get to work.

OK, Israel’s banker-in-chief didn’t put it quite that way in his keynote speech on the second day of the Herzliya conference, Israel’s premier national-security gathering. Fischer instead called the skyrocketing growth of these two distinct minorities “unsustainable.” He expressed particular concern about the ultra-Orthodox, who don’t work or serve in the army but receive a disproportionate share of government benefits.

While claiming to “very much appreciate our religion and our religious people,” he argued that having so large a group that does not work “cannot continue.” If it does, Fischer warned, “in the long run it’s going to be very difficult in our economy to supply our citizens with a standard of life that keeps improving.”

The numbers are all too well-known to Israelis, but less so abroad, where Israel is known largely as an economic miracle, given its small population and lack of oil and other natural resources. Indeed, most of the economists who spoke at a succession of panels yesterday highlighted aspects of Israel’s impressive economic performance, particularly in light of the global recession. The Jewish state enjoyed a growth rate of 4.8 percent in 2011, with low inflation (2.2 percent).

But Fischer stressed, and others agreed, that the country’s growth—not to mention its social cohesion—would be seriously jeopardized unless the country finds a way to address the challenge posed by these two burgeoning sectors of society.

The numbers he and others cited are truly staggering. In 1980, non-Orthodox Jews constituted 80 percent of the population. Since then, that population had dropped by some 12 percent. By contrast, in 1980 ultra-Orthodox Jews constituted 4 percent of the population; today they account for over 7 percent. While Israeli Arabs made up 15 percent of Israel’s population in 1980, they are over 20 percent today. Only 40 percent of ultra-Orthodox men are employed, while among Arab Israelis, less than a quarter of the women work. Such non-participation rates in the Israeli economy are stunning considering that unemployment in Israel hovers around 5 percent.

The growth of such large ultra-Orthodox and Arab families living off government pensions and other benefits has triggered a sharp rise in poverty in Israel, a situation that Prof. Alex Mintz, the dean of the Lauder School of Government at the Herzliya Interdisciplinary Center, called “intolerable” in his talk. The Israeli government, he said, had to declare a “war on poverty” before the gap between have and have-not Israelis grew even more dramatic.

Fischer and other economists stressed that poverty rates are tied to the growing number of unemployed ultra-Orthodox and Arab-Israelis: The larger the number of children a family has, the more likely it is that the children will be poor. In families where two parents were working, he said, there is little poverty. In families where no one works, poverty rates stand at 80 percent.

How is Israel’s middle class faring? Not great, it turns out.

A recent study by the Finance Ministry published by Haaretz found that wage mobility has been declining for decades and fell particularly sharply over the past 10 years. The study’s authors, Galit Ben Naim and Alex Belinsky, found that Israel had relatively little socioeconomic mobility compared to other Western countries. Tracking salary data for over a million Israelis between 2003 and 2009, the study showed that 65 percent of the people in the bottom 10 percent on average in a given year were likely to remain there in the following year. It also found that overall mobility decreased during the 6-year period they studied. While 49 percent of those in the lowest economic rung remained there a year later in 2004, 56 percent of those in that same category in 2008 remained there in 2009.

Dahlia Moore, dean of the department of behavioral science at the College of Management Academic Studies in Rishon LeZion, called this the “sticky floor.” But there’s apparently a sticky ceiling in Israel as well: Some 86 percent of the top 10 percent of earners were likely to stay there the next year. The lack of downward mobility was even higher for the top 1 percent and the top 0.1 percent. These lack of mobility rates are far higher than those of the United States and the European Union.

Such inequalities helped trigger the middle-class protests last summer in Tel Aviv and around the country—Israel’s own version of “Occupy Wall Street.” While the demonstrators did not openly blame the ultra-Orthodox for the growing financial pressures and rising housing prices they face, resentment about what secular Israelis consider a “leech” class, as one young student at the conference called them, runs deep.

The solution to such growing poverty and income inequality depends on “changes in behavior,” Fischer told the conference. Other experts spelled out what he implied: having smaller families, joining the army, and getting jobs. Some 6,000 ultra-Orthodox Israelis are now in college, Fischer said, a good indication that they might work after graduating. He added that there are already signs that reduced government welfare payments were having a positive impact on Arab-Israeli families: More Arab men are now starting their own businesses or seeking work.

Fischer’s tough warning is consistent with his blunt style. Greatly admired within the business community for his creative, but cautious, stewardship of the central bank, he is credited with having helped Israel avoid the financial bubbles that have swamped Europe in recent years by keeping credit tight and buying up billions of dollars in foreign currency reserves to ensure that, in a time of financial stress, Israel would not run short of hard currency reserves. Prime Minister Benjamin Netanyahu’s government has run a responsible fiscal policy, he has said. Such policies may serve Israel well in an unpredictable region where political earthquakes can easily trigger economic and financial upheavals.

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Jan. 31, 2012: The hottest ticket in town right now is the revival of Cabaret, the iconic musical set in 1931 Berlin about a star-crossed romance between Sally Bowles, a young nightclub singer at the Kit Kat Klub, and a naïve young American writer named Cliff Bradshaw. While the play was staged in Israel over 20 years ago, this is the first original Israeli production of the Broadway classic. Based on euphoric reviews and word-of-mouth in a country that hates the sound of silence, the run at Tel Aviv’s Cameri Theatre is sold out for the next three months.

Continue reading: A sense of foreboding

Judith Miller, Tablet Magazine’s theater critic, is an adjunct fellow at the Manhattan Institute.