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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

Israeli soldiers take position near a burning tyre during clashes with Palestinian protesters at a demonstration marking Land Day at Qalandiya checkpoint, March 30, 2012. (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.

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    1. Bruce Gould

      For more on Dr. Swirski’s views, “Shlomo Swirski, Israel is Paying Heavily for the Occupation”, plus a podcast interviewing him:


      BDS advocates often argue that Israel has an economic interest in maintaining the occupation…Dr. Shlomo Swirski, the academic director of the Adva Center and one of the most prominent Israeli sociologists, argue that the BDS advocates are wrong. Indeed, some in Israel profit, but such profits are dwarfed by the damage wrought to the Israeli economy as a whole due to the contraction of economic activity. Moreover, the money diverted to settlements is taken out of the budgets of development towns, the education and health systems. Israelis are suffering everyday the cost of the occupation.

      Reply to Comment
    2. Mikesailor

      Why does it matter? The Zionists can’t abandon the occupation otherwise they are admitting the moral and economic bankruptcy which lies at the heart of their ideology. Either the occupation drains Israel, or BDS does, or merely history will help unravel the system. So many attempt to put lipstick on this pig and continually whine when it fails to remain.

      Reply to Comment
    3. Joel

      I guess I live in a different Israel. I work in a high-tech company in the north, and many of the engineers and technicians are what Shlomo would label as ‘Mizrahi’.

      By the way, the term ‘Mizrahi’ is almost unheard of here. If somebody wants to identify himself in terms of where his parents or grandparents came from, they will identify by the particular place. Tunisian, Moroccan, Romanian, Russian or mixed. ‘Mixed’ is getting to be very common.

      So it goes.

      Reply to Comment
      • itshak Gordine

        I quite agree with you. I am a Mizrahi. Two of my sons are working in Israel, one as engineer in high tech and the other as manager of an American company. Both earn very well and they give instructions to Ashkenazim employees. They have never suffered discrimination.Their companies make successful business with the world.

        Reply to Comment
        • Ben

          We just had a Swiss-educated Mizrahi (with the surname of Levy) tell us his sons do well (the same sons he envisions ascending the Temple Mount as Levy-ite priests one day when “the Arabs” surrender the Haram al-Sharif) so that proves we’ve solved our problems with race. There you have it. Ha-Levy I think you illustrate a classic dynamic wherein the lower ranking people on the social totem pole (Mizrahi) are most anxious to shove down the people still lower on the totem pole. Read Shir Hever. You are quite happy to give “the Arabs” a modicum of economic advancement as long as you in compensation get to continue to hoard the social capital awarded to Jews over non-Jews, and in practice get to practice complete social and political domination over them.

          Reply to Comment
    4. Ben

      Shir Hever, The Political Economy of Israel’s Occupation: Repression beyond Exploitation (London: Pluto Press, 2010). 226 pp. Paperback. ISBN: 9780745327945
      The Political Economy of Colonialism

      “Hever concludes that ‘(e)ven at the cost of a huge economic burden, certain groups in Israel are committed to preserving the sharply etched hierarchy that distinguishes between dominators and dominated, between citizens and subjects, between occupier and occupied. This hierarchy awards social capital to Jews over non-Jews, and is one explanation why the majority of the Israeli public supports the continuation of the occupation, even to the detriment of its standard of living’ (p. 187). …while Hever insists on the theoretical importance of explaining this problematic, he either sidesteps the political implications of his analysis, i.e. that the strength of Zionism amongst Jewish-Israelis will prevent peace and justice; or he has concluded that changing Jewish-Israeli opinion is unlikely and thus the international community (defined as governments, civil society and social movements) has to force Israel to change (p. 199).”

      Reply to Comment
      • Lewis from Afula

        You must stop reading the misleading nonsense written by the likes of Shir Hever, Gideon Levy or Amira Hass. These cultural Marxists live in a parallel universe of self-hate, historical revisionism and intellectual depravity.

        On a different note, Bibi’s poll numbers are going up !
        Lets hope the best for April 9th.

        Reply to Comment
    5. itshak Gordine

      The Israeli economy has never been so good: inflation and unemployment at its lowest, record exports. According to an American trade journal, because of its economy, its army, and its relations, Israel is the 8th world power. This is partly due to the current Israeli government led by Mr. Netanyahu.
      Israel’s Arab minorities have begun studies and integrated the market, which has improved their standard of living and lowered their birth rate.

      Reply to Comment