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Behind the Headlines: Poverty Levels in Israel Spur Debate over Future Policies

January 12, 2000
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Sometimes a rainstorm is more than just a rainstorm.

When torrential rains swept through Israel earlier this month, flooding out residents of poor neighborhoods in southern Tel Aviv and Jaffa, upscale districts just a short walk away were unaffected.

As disadvantaged families abandoned their homes for shelter, some observers could not help but draw a parallel between Mother Nature’s unusual discriminatory behavior and recent reports of rampant poverty in the Jewish state.

“How much longer can we close our eyes to the immense poverty around us,” wondered Iris Mizrahi, a social commentator in Yediot Achronot, Israel’s most popular daily.

“These rains may be a blessing for the farmers, but for the poor people they are a cursed rain, and for all of us, as a society, they are rains of embarrassment.”

Similarly, a tough poverty report released last month by Israel’s National Insurance Institute was embarrassing for many Israeli policymakers.

The report raised serious questions about whether Israel’s socioeconomic gaps are destined to grow wider as the country undergoes a painful transition from a labor-intensive economy to a knowledge-intensive one, while simultaneously implementing free-market policies to integrate Israel’s economy into the global marketplace.

The questions come as a public argument rages over this week’s expected appointment of David Klein, senior director at the Bank of Israel, as the central bank’s next governor.

Like Jacob Frenkel, the outgoing governor of the Bank of Israel, Klein is known to favor reduced government spending and tough interest rate policies to combat inflation and create a solid environment for the free market to generate economic growth. This is why he was nominated by Barak.

But critics — including several Cabinet ministers — say that Israel needs to implement an expansionary economic policy by lowering interest rates to break loose from a three-year slowdown and conquer unemployment.

The data in the National Insurance Institute report, which referred to 1998, showed that 16.6 percent of all Israeli families — more than 1 million people, including 440,000 children — lived below the poverty line.

About 34 percent of Israeli families would be below the poverty line had they not received any government support.

Topping the poverty list were Israeli Arabs and families with many children, indicating that large fervently Orthodox families are among the poorest in Israel.

The report provided ammunition for critics of Prime Minister Ehud Barak who say he has failed to deliver on his campaign promises to improve the economic lot of poorer people.

Even though the report referred to the period before his election, unemployment has since climbed to about 9 percent from 8.5 percent in 1998, so it is assumed that the poverty situation has not improved.

Despite the public ruckus, the report actually showed very little change in poverty data from the previous year.

The real issue, says Momi Dahan, senior adviser to the Finance Ministry’s director-general, is the widening gulf between rich and poor in Israel.

“If measured before the government intervenes and takes taxes or provides welfare payments, Israel is one of the most economically unequal societies in the world,” says Dahan, an expert on social affairs and economics.

“But in terms of net disposable income, after the government intervenes, the inequalities are not so terrible. What this means is that a significant slice of Israeli society is living off the government.”

It also explains why despite the poverty level, virtually nobody in Israel is starving.

Shlomo Swirski, a sociologist who heads the Adva Center, a social research think-tank, says education plays a big role in creating economic disparities.

“There is a widening gap between those who have academic education and those who do not,” he says. “In addition, one-third of Israelis who are working and bringing home wages are living below the poverty line.”

The differences can also be drawn along ethnic lines. A new report by the Adva Center points out huge disparities among Ashkenazi Jews, Sephardi Jews and Israeli Arabs. According to 1997 data, Ashkenazi salaried workers earned 1.6 times more than the average Sephardi workers and 1.9 times more than the average Israeli Arab workers.

In the 1990s, as Israel’s economy climbed to near Western European levels of income, not everyone reaped the benefits. The report shows that wealthier Israelis have benefited most, while the economic positions of the middle and lower classes have not dramatically changed.

The report argues that Israel’s policy of reducing government spending is problematic because those who earn lower incomes cannot afford to pay for services if the government withdraws its support, further exacerbating the gulf between the haves and the have-nots.

But laissez-faire economic policymakers and market players say that reducing government spending and relying more on the private sector for economic growth is exactly what Israel needs. Only these policies, they say, will help Israel integrate into the global economy, attract foreign investment and create jobs.

“It is obvious that we are moving towards a more Western and free-market economy, and we are getting there,” says Eli Nahum, head trader at Nessuah Zannex Securities, a Tel Aviv brokerage.

“Of course the price you almost always have to pay when an economy grows so fast is a widening gap between lower and higher socioeconomic groups,” he says, adding that the question is whether Israel is allocating enough for social welfare purposes.

The debate is playing itself out over the head of the Bank of Israel. It is also, in many ways, a product of the dramatic changes taking place in Israel as it shifts from a traditional socialist economy to a modern free market one that is driven by a dynamic high-tech sector.

But this shift is also partially responsible for the divide. Many traditional industries such as agriculture and textiles have been in decline. At the same time, technology industries have jobs to offer but many poorer Israelis do not have the skills to fill them.

The issue did not escape proponents of Israel’s high-tech industry as they descended upon the Knesset earlier this month to mark “Internet day” with a gala celebration of the World Wide Web.

As the rain washed out southern Tel Aviv residents, leading high-tech companies exhibited their wares in the Knesset foyer. But meanwhile, the Knesset Labor and Social Affairs Committee debated whether the Internet revolution would help close the gaps in Israeli society or just make things worse.

Sheizaf Rafaeli, head of the Center for the Study of the Information Society at the University of Haifa, told the committee that Israel must do more to make sure that the benefits of the Internet are available to everyone.

This includes reducing access costs to give all Israelis equal opportunity to access the Internet and providing more Hebrew-language content. He also urged the government to take a more active role in promoting the Internet as a technology that can be used to bridge gaps.

“There is something in this technology that can give great opportunities to various sectors,” said Rafaeli. “But there is reason to believe that what we will see is a widening of the gaps.”

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