A strong shekel means weak labor productivity

It’s now official. The Israeli shekel has broken all records. It is stronger than the dollar, the euro and the sterling combined, so we are on the map and will remain on it. Economists and commentators are celebrating this event, explaining repeatedly that it is a welcome development, and that the wild appreciation of the shekel proves the Israeli economy’s strength. Moreover, Israel’s credit rating continues to excel, so the state can borrow any amount with zero interest and thus finance its expenses. Of this success it may be said, “Another such success and we are lost.” This is evident in the huge gap between the strength of the shekel and the value of labor productivity in Israel, which is lower per work hour than in other OECD countries by 24%! In other words, the Israeli economy relies on high-tech, which accounts for half of Israel’s exports and attracts the flow of dollars, while all other industries and services suffer from deliberate neglect.

It is enough to travel 30 kilometers north, south or east of Tel Aviv to understand the gaps that have opened up in Israeli society. The country’s 300,000 high-tech workers, who make up 10% of all those employed, live the dolce vita along with a handful of tycoons, real estate entrepreneurs and stock market speculators. The other 2,700,000 workers in industry, services and the public sector belong to a group whose labor productivity is low, and whose level of earnings is likewise low. Thus, absurdly, as the shekel strengthens, Israeli society weakens, and the gap between the center and the periphery widens.

Far behind the high-tech people, who earn NIS 30,000 and even more per month, are hundreds of thousands of workers, mostly women, who live on minimum wage, with 50% of employees in Israel earning below the tax threshold. Although Israel is a start-up nation, it is also the country with the second highest income disparities among industrialized countries after the US. The word “balance” does not exist in its lexicon. Either you succeed or you are a “failure,” and all thanks to or because of you.  Finance Ministry economists are not only proud of the shekel’s strength, but pound into our heads that the shekel will continue to get stronger. In other words, the gaps that exist today between a minority of those who benefit from this blossoming and the majority suffering from it, will only widen. Economists tell us again and again how a weak dollar to the shekel benefits us, because flights abroad are cheaper, as are imports of consumer goods, while tax revenues from high-tech rise.

What they do not say is that Israeli exports are increasingly expensive, and the hundreds of thousands of workers employed in non-high-tech industries are paying the price as manufacturers roll the profit reductions back to their employees. To maintain their profitability, employers require workers to put in more hours that are not reflected in wage increases. The cheaper it becomes for Israelis to travel abroad, the more expensive Israel becomes for both Israelis and tourists. The coronavirus epidemic has hit the tourism industry, which employs 30,000 workers, along with some 200,000 workers dependent on tourism, from bus drivers to peddlers in the market, while high-tech has flourished. These workers remain invisible in the dazzling glare of high-tech.

One does not have to be a genius to trace the source of the huge gaps in Israeli society. Every child and parent knows the answer – education, education and again education. The results of international exams demonstrate that the quality of education in Israel is low, and Israel is characterized by frightening inequality between the academic achievements of different population groups. “These are disturbing findings because there is a direct – and causal – connection between the quality of education of the labor force and productivity,” stated a Bank of Israel document from 2019. The Bank states that “the educational component in early childhood frameworks should be strengthened, and the accessibility and funding of early childhood settings for households with weak economic backgrounds should be increased, as part of the student’s educational continuum.” So simple and clear, yet so frustrating if you look at the Israeli education system, which leaves behind hundreds of thousands of children, Jews and Arabs from the periphery. The terrible result, felt today as a social scourge, is violence in the streets and in schools. This is not how we build a healthy economy that works for the equal benefit of all.

The Israeli formula is not limited to preferring high-tech over other industries. Its economy remains captive to the Reagan doctrine, which espoused the principle that “government is not the solution to the problem, government is the problem.” In other words, any public expenditure on education, health and welfare is a waste, since in order to finance it taxes must be raised, and high taxes hurt investors’ motivation to invest. That is why Israel has become a paradise for foreign investors, who want to convert their dollar into shekels. With an inflated defense budget on the one hand, and a tight fist in everything related to education, health and welfare on the other, the Israeli economy grows while its society shrinks.

The Bennett-Lapid “government of change” is talking about a “social” budget, that is, big reforms, especially in imports at the expense of local production. But this will not alter the image familiar to all. Classrooms will continue to be crowded, teachers’ salaries will remain low, preschool assistants will continue to receive starvation wages without any professional training, the queues for specialist doctors will continue to lengthen, overcrowding in hospitals will only increase, the wait for a child psychologist, or a communication clinician, will last a year or more, the elderly in public nursing homes will wait patiently to die without respect, and public transport will shut down every weekend to preserve the Jewish character of the state, thus increasing traffic congestion.

Private education, private health, private geriatrics, private psychological treatment, private enrichment classes, and the flourishing towers in the heart of Tel Aviv, all create not just gaps between the rich and everyone else. They divide the people themselves between those who have everything, and those who see with wide eyes how they are left far behind. This social rift has become the habitat of the populism that Netanyahu and those around him represent today. The hatred toward the arrogant Ashkenazis and the governmental system that works for the rich, is a result of the inequality, that is, a result of contempt toward the idea of a state for all its citizens. This is also what happened in the US, when a populist, anarchist and racist figure like Donald Trump, a soulmate of Netanyahu, was chosen on the basis of his promise to “dry the swamp”, meaning the administration in Washington. As is well known, this ended in a violent attempt by marginalized white citizens to act against state institutions and the democratic election process under the slogan “Stop the Steal!” Just as Wall Street is responsible for undermining the American democratic regime, the strong shekel is undermining democracy in Israel.

This is why the Biden government is working hard to get rid of Reaganism, adopting the opposite formula, which holds that “the state is the solution.” Biden has set the motto “Build back better!” no longer relying on the formula that the richer the rich become, the more the poor will benefit. “Tax the rich” has become a common slogan vis-a-vis billionaires like Jeff Bezos, Elon Musk and Mark Zuckerberg, but not in Israel. The Israeli ” government of change” continues to adhere to Reagan’s old formula, with Right, Left and Islamists locking arms to prevent the return of Bibi.

They act stupidly and blindly, and as with the Palestinian question, they bury their heads in the sand and refuse to face reality. Racism, violence and xenophobia are a direct product of the social disease from which Israeli society suffers, and Bibi simply nurtured it in a populist way. The gaps between Jews and Arabs, between Ashkenazis and Mizrahis, between Israeli and Palestinian citizens, all create the sad reality in which we live: violence in Arab society, hatred and violence within Jewish society, and the continuing daily bloodshed in the West Bank and Gaza. The country’s priorities need to change from top to bottom, but as long as the government sticks to the same old path, this reality will continue to explode in our faces day after day.

About Yacov Ben Efrat