Israel’s Internal Challenges
All Israeli markets are basically distorted. Government owns 93% of land. A self -serving, often corrupt government Land Authority and multi-layered planning authorities do not release enough land to accommodate growing demand, so prices keep soaring. It takes ten years to get a building project through the maze of planning authorities. Monopolistic construction unions and building materials manufacturers also greatly inflate prices. Housing is, as a result, beyond the reach of most young couples. Israel’s real estate is in a permanent artificial bubble created by a bank duopoly that, through its control of an assessors’ guild, keeps real estate valuations highly inflated to shore up the value of real estate and mortgage loans that constitute a large chunk of the banks’ balance sheets.
Besides the government domination of the economy, and the huge intrusive bureaucracy it spawns, the lower productivity of Israeli workers is caused by private monopolies that do not have to compete or be efficient, and therefore do not invest in better plant technology or in improving management and work practices. This, plus major distortions in the allocation of credit to cronies by a monopolistic financial sector riddled with nepotism, directs most Israeli savings to highly leveraged and speculative investment in foreign real estate ventures (most ended disastrously). Here are the major reasons for the lack of domestic investment.
Labor markets also suffer from the extreme politicization of the workplace by highly corrupt monopoly labor unions. They prevent good management and interfere with work practices and discipline. A lot of work time is wasted on brutal union squabbles and internal union power struggles. They incite unnecessary strikes that cut productivity and damage the economy.
Poor high school and university education in Israel is a major threat to its future. Israel’s education is in a sorry state, as comparative international tests show, not because, as some claim, Israel is not spending enough per student. Government spending on education is second only to defense and parents have to shell out additional large sums on private tutors to repair some of the damage done by “public," namely government, education. Moreover, as has been well established, money alone is not a major factor in teaching quality. A major reason for the poor quality of Israeli elementary and high school education is the prevalence of poor teachers. Two powerful teachers' unions protect bad teachers from dismissal.
As the level of teaching, and therefore of student interest and discipline, declines, so does the status of teachers. Fewer talented people join the profession, so the quality of teaching keeps declining. A highly centralized and bureaucratized government educational system, controlled by an overstaffed army of bureaucrats and educational “experts," chokes innovation and initiative as it does in other countries, only worse. This is because of the high degree of centralization and government control of everything in Israel, especially education. The poor educational results of Israel’s governmental system are not surprising. What two thousand years of exile and oppression did not manage to do to make Jews poorly educated, a government educational system managed to do in only sixty years.
The universities, much more than in the US, are dominated by radical leftist faculties in the liberal arts and social sciences (not in the science faculties where Israel still excels). The tenure system has enabled a cabal of post modernist and Neo-Marxist professors -- many trained in America by leftist American professors through the Fulbright educational exchange program -- to totally dominate these departments by excluding anyone who does not hew their line. They brainwash their students’ minds by not allowing them access to any knowledge except that prescribed by their dogma. Israel’s best capital, its human capital, is being trashed by this mostly useless dogmatic university “education” that turns out students that can pontificate on Deride and Lacan and their anti-capitalist anti- Western dispensation, but lack even elementary knowledge and skills that can secure them useful employment in a modern economy.
In its first decade of the state, when Israel, with a poor population of 600,000, had to absorb hundreds of thousands destitute Holocaust survivors and over a million Jews that were deported penniless from Arab states, welfare assistance may have been necessary. But the continued dependence on government handouts, which never seem enough to advocates, even though transfer payments and welfare policies consume about 14% of the government budget, has caused more harm than good.
While perhaps helping the poor to keep ahead of the highly inflated prices of consumer goods , the welfare system has spawned armies of bureaucracies and a costly, wasteful and corrupting “welfare culture” with many advocates in academia, research institutes and the media. It is financed not only by citizens’ taxes but by huge contributions from American Jews through the UJA and other agencies. Since most of these funds are dispensed through government and The Jewish Agency -- highly politicized and immensely inefficient bodies -- they lack any accountability. Also, they are poorly managed and often result in wasteful and corrupt practices.
There may be more than a grain of truth to the charge that the well meaning aid given Israel by the UJA and by such welfare organizations as the Joint Distribution Committee has impacted negatively on Israel, in a similar way that foreign aid corrupted African or Latin American countries. Funds put at the disposal of the political classes and their associated elites allow them to totally dominate the economy and the culture and to exploit such charitable funds for nefarious political practices, damaging not only the efficiency of the economy but the respect for decency and honesty.