Danny Gutwein
Photo: Ophira Yohanan
Socioeconomic time bomb
Growing economic inequality is a strategic threat for the future of Israeli society
While the homeless protest tent in Jerusalem continues to be populated by victims of the privatization policy, we have seen a leap of dozens of percents in the price of luxury assets in upscale communities such as Kfar Shmaryahu, Herzliya Pituach, Ramat HaSharon, and northern Tel Aviv.
The contrast between those deprived of housing and those who have seen the value of their homes skyrocket constitutes the essence of the socioeconomic policy that has shaped Israel's face in the past year: Economic growth accompanied by growing social gaps.
Growing inequality during a time of economic growth is a cancerous process that causes Israel to be divided into two countries – periphery and center, splits the nation into two – rich and poor, and creates two societies – winners and losers.
The combination of economic growth accompanied by growing inequality is the source of the growing sense of alienation, neglect and humiliation in outlying areas and among the poor, and it becomes a time bomb and a strategic threat to Israeli society.
Legend has it that the source of the current cycle of growth in Israel, which started in 2003, is the policy introduced by Benjamin Netanyahu, which the Treasury continues to cling to. According to Netanyahu, the path to growth passes through the granting of tax benefits to the top echelons, cutting back allowances granted to the lower classes, minimizing social services, and promoting structural changes coupled with privatization. According to this doctrine, the fruit of economic growth will trickle down to all layers of society and decrease unemployment and poverty figures.
Clear correlation between equality, wealth
Yet Bank of Israel research undermines this approach: A study undertaken by the central bank showed that the sources for the ongoing growth cycle are mostly external variables unrelated to Israel's economic policy: Namely, the improvement in the security situation and the rise in global trade.
Therefore, the economic growth we have seen is mostly a result of influences that come from outside the Israeli economy, while the contribution of the Israeli economic policy is mostly in terms of the growth of inequality.
The connection between equality and growth was examined by a position paper published by the Van Leer Institute headlined "Does equality hamper growth?" The authors of the report note that the vast majority of empirical studies show a strong and clear correlation between equality in income distribution and the growth rates of countries.
Overall, and perhaps in contradiction to what we commonly think, it turns out that the chances of a country to become relatively wealthy grow considerably the more equal the income distribution within it is.
Therefore, growth in Israel is not only mostly a result of positive external influences - homemade inequality actually undermines growth. Another policy, which would have boosted the equality in income distribution, may have served to also boost growth rates.
This conclusion has particular importance at the outset of the New Year: The expected slowdown in global growth will likely also affect the Israeli economy. This situation will turn equality in income distribution into the main engine aimed at ensuring continued growth.
In order to utilize the growth potential inherent in equality, Israel must amend its socioeconomic policy and shift from a policy that enhances gaps to a policy that minimizes them through arrangements that boost distributive justice and reinforce it through a welfare state.
Therefore, in the coming year Israel will be facing a choice: Whether to continue widening the social gaps at the price of undermining economic equality, or boosting equality along with economic growth. The decision in this matter is the genuine strategic decision faced by the State of Israel.
