Project Head: Shmuel Rosner
Participants: Ghila Amati | Nadia Beider | Ariel Bendor | Eliran Carsenti | Shimrit Cohen-Barbi | Janan Danial | Dana Fahn-Luzon | Shlomo Fischer | Shuki Friedman | Avi Gil | Yehonatan Givati | Noa Israeli | Eli Kannai | Dov Maimon | Robert Neufeld | Tamir Pardo | Rivka Ravitz | Daniela Regev | Yael Ribner | Lipaz Rotkovsy | John Ruskay | Jonathan Saidel | Roy Schondorf | Amit Shoval | Noah Slepkov | Yedidia Stern | Shalom Salomon Wald | Haim Zicherman | Eldar Zilber
2022 was a good year for Israel’s economy. The country recovered from the Covid crisis, unemployment was low, wages rose, poverty and economic disparities contracted. In early 2023, however, a number of factors cast a shadow over the nation’s economy: global inflationary trends, rising interest rates, declining investment in the tech sector – and, in particular, Israel’s current sociopolitical crisis, which, though not an economic development in and of itself, is nevertheless having an evident impact on the economy.
Israel has entered an economically challenging period. The decline in high tech investment is especially important as the country’s economy is largely driven by this sector. At the same time, the crisis appears to be weakening the shekel and is dissuading foreign concerns from investing in Israeli companies. Additional shock waves may be felt if a decision is made to downgrade Israel’s credit rating. To these may be added a disturbing social trend: a discourse of emigration among highly productive individuals and groups, due to fear of the immediate results of legislation initiated by the government, or concerns regarding the sociodemographic path Israel seems to be walking.
The government, which enjoys a stable Knesset majority, passed a state budget with relative speed and ease compared to recent years (in some of which no state budget was passed at all). However, the budget has sparked critical claims by government ministry professionals that large allocations of resources have been made for the sake of maintaining coalition stability.
Diaspora Jews are observing the crisis in Israel from afar and are exposed to its impact, both in terms of whether to invest in Israel and whether to donate to Israel. This year, several foundations and wealthy individuals have stepped up their philanthropic involvement in an effort to influence Israeli affairs. However, the doubts being raised about Israel’s future are also reaching these circles, which could cause some of the parties in question to redirect their philanthropic efforts to other fronts.
Under these circumstances, and considering the critical importance of Israeli prosperity for the safety and well-being of the Jewish people, we have moved the Material Resources gauge in a negative direction, into the “troubled” area.
Resources must be channeled urgently to address chronic problems that will make it difficult for Israel’s continued economic prosperity.
Explanation: The opinion of most experts is that the last governmental budget, and many of those preceding it, have not truly addressed the problems arising from the growth, composition, and educational level of Israel’s population – and these problems will make it difficult for Israel to maintain economic prosperity in the long term (within the coming years, it is projected that Israel will become the most densely populated of all developed countries). Israel’s unemployment rate is lower than the average for the OECD, the EU, and the U.S. The director of the Budgets Division in the Ministry of Finance, Yogev Gradus, noted the challenge facing Israel: present labor productivity levels and labor market participation rates indicate that within just a few decades Israel’s average standard of living “will be similar to those of Eastern European countries: Latvia, Romania, and Hungary.” Whether Israel, which, of course, is not in Europe but rather in the Middle East, will be able to meet its other anticipated challenges (including the heavy economic burden of its security needs) is a question of that should be top of mind for the country’s decision-makers. Hence:
Israel must maintain a continuous, determined, and ambitious effort to expand the circle of educated and highly productive members of its workforce.
Explanation: Again, quoting the Budgets Division director: “The combination of high fertility and low labor productivity” has “fatal economic consequences.” For this reason, enhancing the skill level of sectors whose productivity is not currently commensurate with their population share is essential. If efforts to achieve this are realized, it would be “a main engine for securing a higher standard of living for us all,” according to Gradus. This effort necessitates reducing the funds channeled to purposes not conducive to growth, and comprehensively addressing the low level of the education system.
Israel should focus on investing in the retention of quality personnel
Explanation: Until Israel manages to enlarge its pool of highly productive workforce participants, its prosperity will depend on an exceedingly small group of people who bring to the labor market special skills in knowledge-intensive fields. This year, more than usual, some in this group engaged in a disturbing emigration discourse. It is, of course, possible that this discourse is merely background noise arising from the political crisis, and that it will subside once the crisis passes. However, data we present later in this report indicate that the possibility of a gradual exodus from Israel of entrepreneurs, academics, scientists, physicians, and engineers should not be taken lightly. Professions in these fields are in demand elsewhere, and an erosion of their numbers could have a real impact on the standard of living and on the quality of life of Israelis. Israel must make an urgent effort to forestall such a trend.
