My Promised Land: The Triumph and Tragedy of Israel (54 page)

As he describes the economics of contemporary Israel, Fischer prefers hard data to frothy superlatives. Sitting in a large red armchair that dwarfs his small frame, he utters the relevant figures in slow, measured, Anglo-Saxon Hebrew. In the years 2004 to 2008, Israel’s average annual growth rate was 5.2 percent. While the world was in crisis in 2010–11, Israel’s average annual growth rate was 4.7 percent. “That doesn’t make Israel a Chinese tiger,” he tells me, “but it is a performance far better than America’s or Europe’s.” It is indeed an extraordinary economic accomplishment.

Fischer tells me there are four reasons for this success: reducing government spending dramatically (from 51 percent of GDP in 2002 to 42 percent in 2011); reducing the national debt significantly (from 100 percent of GDP in 2002 to 75 percent in 2011); maintaining a conservative
and responsible financial system; and fostering the conditions required for Israeli high-tech to continue to flourish. “Israeli high-tech is truly phenomenal,” he says. “It is the locomotive of Israel’s growth. Because of the high-tech industry, we export as much as we import, and we attract considerable direct foreign investments. Israel has really become a start-up nation. Investment in research and development is higher than anywhere else—4.5 percent of GDP, compared with an OECD average of 2.2 percent. The ratio of start-ups to population is by far the highest in the world. The number of inventions Israelis come up with is astounding. No wonder Israel has more companies traded on the NASDAQ than Canada or Japan. No wonder that venture capital investments in Israel are larger than in Germany or France. Time after time I am amazed. There is innovation here, and there is daring, and there is exceptional ambition. Israelis are willing to take risks, and they believe nothing will stop them. So there is a unique entrepreneurial spirit in Israel. And this spirit makes the nation a powerhouse of technological ingenuity. One mustn’t get carried away. We are still a small country with a small marketplace facing incredible challenges. But the high-tech revolution combined with a prudent macroeconomic policy has made Israel a hub of prosperity.”

When I ask Fischer about the perils the country faces, he speaks cautiously. “We have four problems,” he says. “Our education system has deteriorated, and it endangers our ability to sustain technological excellence. The employment rate among ultra-Orthodox men is only 45 percent. Most Arab women do not work. Fewer than twenty business groups control much of the local market and thus restrict competition. Right now the high-tech miracle helps to conceal these four problems that are weighing down the wider economy. But in the long term, these problems endanger Israel’s ability to remain prosperous and successful.”

Dan Ben David is less cautious than Fischer. I drive up from Herzliya to the Jerusalem think tank he heads to hear the economics professor say explicitly what the governor of the central bank will only hint at. “Israel’s real economic miracle took place in the years 1955 to 1972,” Ben David tells me. “During those years, the Israeli GDP grew twice as fast as that of Western countries, while Israel remained one of the most egalitarian nations in the West. Although it absorbed millions of immigrants and fought three wars, it succeeded in raising the standard of
living of its citizens and the productivity rate of its workers. At the same time, it promoted educational excellence, social solidarity, and military might.

“But in 1973 it all went wrong. After the trauma of the Yom Kippur War, the defense budget was doubled, growth slowed, and inflation spiraled out of control. Even when inflation was vanquished in 1985, growth per capita was a third of what it had been twenty years earlier. Now the burden on the nation’s economy was not defense spending but welfare benefits, which rose fivefold between 1972 and 2002. Rather than investing in human capital and essential infrastructure, Israel is transferring enormous sums of money to the poor and the ultra-Orthodox. The main reason for this is that the expanding ultra-Orthodox and Arab minorities are not fully participating in Israel’s economic and social life. Whereas in its first twenty-five years Israel grew rapidly while maintaining excellence, cohesion, and social justice, in the last twenty-five years it did the exact opposite. In recent years, growth has been high, but excellence, social cohesion, and social justice have been dangerously eroded. The high-tech boom is the fruit of the long-term investment in human capital made by a previous generation. But the high-tech boom creates a shiny bubble of prosperity that conceals the fact that today we are not making a similar investment in the human capital of the future. Budgetary policy is flawed, public policy is failing, Israeli society is sick. If Israel does not change course soon, even the high-tech miracle will eventually fade away.”

Ben David grew up in the United States and earned his Ph.D. from the University of Chicago. He is one of the few top-notch academic economists left in a brain-drained country that had an abundance of them only twenty years ago. As he talks to me in the spacious offices of the Taube Center, there is real angst in his eyes. “Look at this,” he says, motioning me toward his desk. He talks me through a series of multicolored graphs and charts on his computer screen.

“What makes all this much worse are demographics,” he says. “As you can see in these charts, over the last thirty years Israel went through a demographic revolution. During these years, the percentage of school-aged children attending ultra-Orthodox schools has risen from 4 percent to nearly 20 percent. The percentage of school-aged children attending Arab schools has risen from 20 percent to 28 percent. So
today, 48 percent of all school-aged children are enrolled in either ultra-Orthodox or Arab schools. An additional 14 percent are modern Orthodox. Only 38 percent are secular. That means that by 2030, Israel’s shrinking secular Jewish majority will become a minority. Israel’s cultural identity will change, and so will its socioeconomic profile. Secular Israelis are the ones working, producing, and paying taxes. Once they are outnumbered, Israel will be a backward nation that will not be able to meet the challenges of the third millennium.”

“What you are showing me is a national disaster in the making,” I say. Ben David nods sadly. “If Israel had an effective Zionist government, it would fight this disastrous trend. It is not too late yet, but it might soon be too late. Meanwhile, successive dysfunctional Israeli governments are doing the very opposite: they reward the nonworking minorities and subsidize them and do not require them to take up modern and democratic education. As a result, nearly half of the population is not part of the national effort and does not shoulder responsibility for the nation’s future. The burden on the soldiers of the productive segment of the society is unbearable. Fewer and fewer Israelis work more and more to feed nonworking Israelis. Fewer and fewer Israelis run faster and faster to carry along the Israelis who don’t run at all. A flawed political system guarantees the special interests of the ultra-Orthodox, the settlers, and the megarich. But the productive middle class has been abandoned by the state. That’s why this exhausted middle class is growing bitter. It feels the nation has betrayed it. It sees the Israel it loves disintegrating.”

The Shmuli story is also a hopeful story. Itzik Shmuli was born in Tel Aviv in February 1980. His father was a Jaffa-born restaurant owner and his mother a Kurdistan-born nanny. The five Shmulis lived in a one-and-a-half-bedroom apartment in Ramat Gan. Although life was not easy, their home was warm. The twin boys and their young sister were showered with love.

Itzik Shmuli was a decent high school student, basketball player, and soldier. After completing military service, he worked alongside his father in their modest Tel Aviv restaurant. In 2004, he saw a television program about the homeless and hungry children in the streets of Buenos
Aires. At the age of twenty-four, Shmuli got on a plane and opened an orphanage in Buenos Aires. When he returned to Israel, he studied special education at a small provincial college and was elected leader of its local students. Three years later he was the president of Israel’s national student union.

On July 14, 2011, Shmuli is in New York. His friends call to tell him that something quite unusual is happening on Tel Aviv’s Rothschild Boulevard. A twenty-four-year-old video editor by the name of Daphne Leef has pitched a tent in the middle of this prestigious thoroughfare as an act of protest against soaring residential rents. Within a day, hundreds have joined her. Within two days, thousands have joined her. Shmuli gets on a plane and returns to Tel Aviv to join the Rothschild protest. A few days later, he is the protest movement’s responsible adult.

While many in the Leef circle lack experience and organizational skills, Shmuli has both. While many in the Leef circle are heavily influenced by Marxist and anarchist ideology, Shmuli is a sober social-democratic Zionist. He believes that in order not to lose public support, the revolt must not become sectarian or radical. He wants the movement to represent as many Israelis as possible. So he, too, pitches a tent on the boulevard. Two weeks later, Shmuli is the leader of a new Israeli generation demanding a new social order.

On July 23, 30,000 youths march in the streets of Tel Aviv, chanting a new-old slogan: “The people demand social justice.” On July 30, they are 130,000 strong, on August 6, they are 300,000 strong. On September 3, 450,000 people take to the streets—6 percent of Israel’s population. Shmuli is the keynote speaker at the rally held in Tel Aviv’s Nation Square. “We are the new Israelis,” he calls out to the 330,000 cheering demonstrators. “We love our country and we are willing to die for our country. Let us live in the country we love.”

In many respects the 2011 revolt is the most impressive of all Israeli revolts. Neither the settlement nor the peace nor the Oriental Shas movements was ever able to gather so many Israelis with such enthusiasm and broad-based support. Neither settlement nor peace nor Shas united the nation in such a civilized and constructive manner. The Israeli civic uprising of 2011 is far more peaceful than Cairo’s and far more effective than New York’s. The young people occupying Rothschild
Boulevard are generally more moderate, resourceful, and coolheaded than the ones who will occupy Wall Street later this year. Of all of the world’s social-networks-to-social-protest movements, the Israeli one is the most benign. Moderate and nonviolent, it succeeds in winning the support of 80 percent of Israelis. For one summer, it unites Israelis again by giving them a sense of hope. And yet, just as the defiant wave appears, it disappears. So as I walk with Shmuli along Rothschild Boulevard in the late hours of a late autumn night, there is nothing here. There are no tents, no demonstrators, no social change. The carnival is over. It’s as if it was all a sweet midsummer night’s dream.

Shmuli begs to differ. “I am a marathon man,” he says. “I run long distance. I know life has its rhythm, and I know revolutions don’t happen overnight. From the outset, I was aware that the summer of 2011 would only be the first leg. But I do believe we will have a second and a third leg. I don’t need daily demonstrations. I don’t expect ongoing protest. But I really think the summer of 2011 was a tipping point. It was much larger than housing prices or food prices or the debate over the rule of the rich. The summer of 2011 was about us being a people. For the first time in my lifetime, Israelis felt they are one people, not helpless individuals, not members of rival sects. And what the Israeli people said is that they want social justice. They want the state to be reformed so it can act as an agent of change. True, right now Rothschild is quiet. Everybody went back home. But the transformation we underwent will not be taken away from us. We do not see ourselves anymore as cynical hedonists. Now our life as Israelis has meaning. This new sense of meaning is the great achievement of 2011. We love Israel again and believe in Israel and we are determined to reform it.”

Shmuli fascinates me. He is slim, brown-eyed, of medium height. He has a good heart and a diffident smile. As he walks down the boulevard after midnight in jeans, T-shirt, and a backpack, young people walk up to him and high-five him and ask him not to quit. “Fight on,” they tell him. “Show them, give it to them.” The student leader is no intellectual and no ideologue; he is neither charismatic nor authoritative. But there is a promise in the sanity and decency that he projects. His non-macho style of leadership is inspiring. No doubt, he has a political future. He will be a member of Parliament and the young generation he represents will shape future Israeli politics. The conceptual
revolution of 2011 would change the Israeli state of mind and the Israeli political landscape, so perhaps Shmuli is right in arguing for hope. I so wish he is right. Our future depends on whether the revolt of 2011 is institutionalized in a benign and constructive manner.

After Shmuli leaves, I walk by myself along the boulevard. It is back to what it was before: a pickup promenade. Boys with dogs, girls with dogs, boys with girls with dogs. So I now assemble the different pieces of the puzzle in my head—all I have learned from Strauss, Richter, Fischer, Ben David, and Shmuli. What I come up with is the following: the Israeli Labor hegemony began its decline after the 1973 war and totally disintegrated in the late 1980s. The fall of the ancien régime liberated tremendous energy. New Israeli individualism turned new Israeli capitalism into a roaring success. The free market enabled Israeli talent and initiative to burst forth and create a booming modern economy. Successive cuts in public expenditures and military spending accelerated the process. So did privatization, deregulation, and monetary liberalization. But while the private sector flourished, the public sector faltered.

An uninspired national leadership and petty politics didn’t allow the state to act as a counterweight to the ills of the emerging free market. Antitrust law and enforcement were weak. Privatization was carried out in a slapdash and hurried fashion. No protective measures were taken for the middle class, the working class, and the welfare state. Public education and public health were in decline. There was no housing policy. Almost anything that was private boomed while almost anything that was public went bust. If in the 1950s Israel had too much state, in the 2000s it had no state to speak of. If half a century ago Israel hardly had capitalism, now it was all capitalism. In this setting, Michael Strauss turned a provincial dairy into an international empire, and Kobi Richter produced a billion-dollar enterprise from his unique insights. But in this setting, wealth was concentrated in the hands of a select few and social gaps expanded. Some of Israel’s magnates took over much of the nation’s resources and many of its assets. The underlying malaise that troubled Stanley Fischer and Dan Ben David spread and festered. The unjust regime that Itzik Shmuli stood up against took hold. The illusion that the market is a good enough substitute for the state left Israelis with
no state that can represent them and serve them and promote the common good. There was no government to restrain market forces or deal with the challenges of the ultra-Orthodox minority and Arab minority. There was no political body to rein in the settlers and the rapacious rich, to represent the Israeli majority and stand for the hardworking, constructive middle class.