You can’t fix Israel’s economy without ending the occupation

Israel’s massive income inequality can’t be solved without addressing one of the country’s biggest expenses: decades of military rule over millions of Palestinians.

By Dr. Shlomo Swirski

File photo of Israeli soldiers during clashes with Palestinian protesters at the Qalandiya checkpoint in between Jerusalem and Ramallah. (Uri Lenz/Flash90)
File photo of Israeli soldiers during clashes with Palestinian protesters at the Qalandiya checkpoint in between Jerusalem and Ramallah. (Uri Lenz/Flash90)

If election campaigns were about policy, there would be two main issues at the center of the present Israeli election campaign. The first is the ongoing conflict with the Palestinians. The second is the unbalanced development of Israel’s economy, accompanied by persistently high poverty and inequality. The second is largely absent from the debate. The Palestinian issue is not – but it is present as the elephant in the room.

Prime Minister Netanyahu does not offer Israelis a way out of the present Israeli-Palestinian impasse. Instead, he cradles his image as “Mr. Security,” the only leader who knows how to deal with the Palestinians, the one who keeps the West Bank pacified while preventing the establishment of a Palestinian state.

The elephant in the room is manifested in the newly formed largest opposition party, Blue and White, led by not one, not two, but three former chiefs of staff of the Israeli army. All three are careful not to indicate how they might break the impasse. They do not have to: they themselves, or rather their televised images, personify Israel’s long-standing Palestinian policy. Moreover, the prime minister is painting them as left-wingers, and Netanyahu excels at equating the left with a danger to Israel.

Thus, the three generals present themselves as “center” and toe the same line as the right: no Palestinian state, no partition of Jerusalem. Not only that, they insist that if they win and are tasked with forming a governing coalition, they would exclude parties representing Palestinian citizens of Israel — amounting to 13 out of 120 legislators in the last Knesset.

(Left to Right) Gabi Ashkenazi, Yair Lapid, Benny Gantz, and Moshe Ya’alon of the ‘Blue and White’ party speak with the press in the Golan Heights, March 4, 2019. (Basel Awidat/Flash90)
(Left to Right) Gabi Ashkenazi, Yair Lapid, Benny Gantz, and Moshe Ya’alon of the ‘Blue and White’ party speak with the press in the Golan Heights, March 4, 2019. (Basel Awidat/Flash90)

The other major issue absent from the election campaign is the imbalance of Israel’s economy. Here, too, that absence serves to cover a basic cross-party ideological proximity. There is the “Start-Up Nation” that developed a spaceship presently making its way to the moon, which hosts more than 300 foreign research and development centers, and has a flourishing export-oriented weapons industry. This is the same country that ranks high on OECD inequality measures and has one of the highest poverty rates in the West.

“Start-Up Nation,” however, is a misnomer. High-tech industries and services employ no more than 10 percent of the Israeli labor force, mostly highly-educated people, are concentrated in or around Tel Aviv, and pay salaries that place them in the upper income deciles.

The majority of Israelis are not part of this Start-Up Nation. Nor are they part of the political center, and thus are largely outside the electoral debate. Largely absent are Palestinian citizens of Israel, which make up about 20 percent of the population who were never party to Israel’s economic development projects. They mostly vote for ethnic Arab parties, which have been consistently excluded from governing positions.

Absent too are the ultra-Orthodox Jews, about 10 percent of the population, many of whom do not participate in the labor force, and who vote for ultra-Orthodox political parties. The same goes for many Mizrahi Jews, who reside in outlying areas where the economy is still based on traditional industries. For almost three generations, Mizrahi Jews have voted for the Likud party, in protest against the now almost-defunct Labor Party that reigned when they first arrived from Arab and Muslim countries and underwent proletarianization and peripherialization.

Development is imbalanced because investments go to the “Start-Up Nation” rather than to the peripheries, which are heavily Arab in the north and Mizrahi in the south. This is the result of Israel’s decision in the mid-1980s to implement neoliberal doctrines, after which it did not take up the challenge of developmental investments. Moreover, in the wake of the Second Palestinian Intifada, the government adopted — long before the global financial crisis of 2008 — fiscal austerity policies such as downsized budgets, low deficit, low debt, and low social expenditures. The move increased poverty almost overnight.

Which brings us back to the Palestinian issue. Israel’s self-imposed austerity policy was adopted partly due to the heavy cost of maintaining the occupation: the Second Intifada, for instance, brought with it Israel’s longest ever economic crisis. The frequent violent confrontations threaten Israel’s image as a financially stable economy — an image essential to maintenance of the “Start-Up Nation” moniker and more importantly, Israel’s international credit rating. It was to convey the image of fiscal stability in the face of political-military instability that Israel opted for fiscal austerity.

Addressing imbalanced development requires heavy government involvement. Heavy government involvement requires larger budgets. Larger budgets mean either a political settlement with the Palestinians, which will allow lower military budgets, or increased tax revenues, which can only come from the hen that lays the golden hi-tech eggs, i.e., the upper income deciles. Those are the ones who have benefited from Netanyahu’s low tax regime, and at the same time appear now to favor the new Blue and White party. For both Netanyahu and the three generals, raising taxes is left-wing.

Dr. Shlomo Swirski is a sociologist and the academic director of the Adva Center.