August 17, 2011
Israel’s breakthrough opportunity
The cottage cheese revolution
Over the past five weeks, Israelis have erected thousands of tents in 78 sites across Israel. Hundreds of thousands of citizens of all political, racial, economic and geographic backgrounds have taken to the streets, enjoying more than 80 percent public support. The nonviolent cry for social justice and a broad mix of demands not only have forced the government to revisit its economic and social outlook but also to consider technical fixes, such as early childhood education reforms, that have been frozen for years.
Make no mistake: Israeli society is at a crossroads. Violence, stagnation, deadlock and standoff, on the one hand, or a new societal and social contract toward inclusive growth, on the other. While the present crisis has been inevitable, it is also necessary in order to allow for the transformation toward realizing a vision of turning Israel into one of the 15 leading nations in terms of quality of life (see sidebar). In the apparent chaos of the current moment lay Israel’s transformative breakthrough opportunity.
This explosion was long coming: The middle class has been weakened and impoverished, gaps have been widening, and poverty has been expanding due to a triple whammy: stagnating available income, the rising cost of basic products and services, and shrinking public services. We had to pay for much more with the same or less. There are many symbols to this turmoil. One of them is a simple container of cottage cheese, an Israeli staple the price of which has risen above and beyond the surge in its production cost, enraging average consumers to mobilize a mass boycott.
The working assumption of the past 25 years — that growth will trickle down and improve the quality of life of all citizens — did not materialize. As professor Ricardo Hausmann of Harvard’s Kennedy School of Government warned, Israel’s economic boom has, in fact, become a “social program for the rich.” As in other countries, Israel’s growth has not been inclusive, and therefore, has been explosive. We should be deeply grateful that this eruption has been nonviolent, to date.
The silent victims of these dynamics are the next generation. Lower-quality public services and poorer homes compromise the education, health and financial security of Israel’s children and, therefore, affect their ability to participate and compete in future labor markets. The long-term implications of this perpetual hopeless poverty may not only be erosion of Israel’s human capital, but also a breakdown of solidarity with the state and an unwillingness to answer its call to duty. Readers who need a visual understanding of this risk should follow the events in London.
This reality is the outcome of the combined effects of globalization and a set of compounding structural and policy failures in Israel:
• Israel has been suffering from continued weakness in the capacity of the government to govern and deal with complex societal issues.
• It is the only developed country with a high population growth — 1.8 percent — that stems primarily from the weaker echelons of society.
• Government policy drove housing prices up while keeping salaries down. Its tax policies increased the burden on the middle class while exempting the weak and benefiting the wealthy.
• A few corporate and business people, the so-called “tycoons,” have been able to gain monopolistic positions in key markets of basic products and services, such as communications or food (such as, for example, cottage cheese).
• The labor unions have decreased productivity and market flexibility at the expense of nonunionized workers.
• Israel’s growth engine, the high-tech sector, failed to expand and increase jobs and overall productivity.
Hence, Israel needs a fundamental correction in its economic and social approach — a new vision and a period of structural reforms that will be driven by and reflect a change in our language, discourse, values, institutions, patterns of conduct and incentives. We must articulate a new social contract that will rebalance high growth with inclusiveness and government duty with civic responsibility. Technical fixes of efficiency, tax reforms or in government spending may satisfy protesters but pass the buck to future governments and generation.
Hence, the focus of these reforms must be three-fold: First, we must increase real wages by driving productivity primarily within the struggling stratum of society. While our long-term national per-capita growth objective should be 3.5 percent, our lower-middle class must grow at 5 percent. This can be achieved by increasing competition, improving management and technology primarily within small and medium-size businesses, the public and nonprofit sectors and in the traditional industry, focusing on the Arabs, Charedim and periphery. Second, we must put in check the cost of basic services and products, such as housing, food, education, parenting, pension or transportation, by ensuring competition or regulation. Third, we must improve public services and strengthen the key public institutions that serve as the frontier platforms not only for breaking the cycle of poverty but also for improving the quality of life of all citizens.
The long-term key to improving the quality of life of Israelis is a vision of our society as a network of prosperous, resilient and inclusive communities shaped by strong and engaged local civic leadership. In fact, this vision would represent a full-circle return to the traditional model of Diaspora Jewry and to the original vision of Zionism, albeit in a uniquely modern Israeli manner. It is our communities that determine the space where children are raised and improve the quality of life of adults. The 2-millennia-old Jewish DNA of community building that has driven 150 years of the Zionist legacy, which has included the kibbutzim, moshavim and dozens of other forms of settlements, is the foundation of Israel’s new societal infrastructure. Thousands of buildings of community centers, schools or early childhood centers are available to serve as platforms, not only for developing the financial, human and social capital of all Israelis through education, vocational training, preventative medicine or financial education, but also their spiritual engagement with identity and heritage. This opportunity and invisible energy are driving thousands of young Israelis to form communities of social responsibility and to signal the direction for the rest.
The whole Jewish world has a central role to play in this vision. Direct connections between Diaspora and Israeli communities can provide a critical platform, not just for sharing best practices of community life, but also for enriching Jewish life. Put simply, if the Diaspora formerly saw its role as a financial donor and political supporter to the state-building project in Israel, it can now partner in a mutually enriching community-building enterprise.
The ISRAEL 15 Vision, which calls for Israel to become one of the 15 leading nations in quality of life, requires both inclusiveness and growth. This is the international experience and a logical conclusion. Doubling the pace of growth means doubling the pace of change, which doubles pressures on individuals and households to adapt and learn. Hence, turning our communities into bottom-up engines of growth, inclusiveness and resilience that share broad common characteristics but accommodate local culture, needs, traditions and values is the only way to achieve this goal.
Israel has a rare opportunity to turn the present unrest into a constructive, cross-sector, pragmatic dialogue on the long-term future of Israeli society. The present cacophony of the protests should turn into a coherent dialogue on the challenge of inclusive growth and leapfrogging the quality of life of Israelis within 15 years.
Today’s Tel Aviv feels like a cross between a summer festival and a beit midrash. Jubilation is mixed with grave concerns. Israel is at a crossroads that can lead to a historic breakthrough. We will have turned a corner in the summer of 2011 if vision and leadership are available and the voices of pragmatism prevail. All of us must work to make it happen.
Gidi Grinstein is founder and president of the Reut Institute, Israel’s premier strategy and impact group, which has created a draft proposal for a new social contract for Israel.