Saturday 7 March 2009

Credit Crunch Israeli Style

The news seems to be dominated these days by the economic woes of the world. There is no doubt that the credit crunch is having a dramatic effect on the economies of most countries. Whilst Israel is equally suffering a significant economic downturn, there is some consolation that the banking sector in Israel is holding up much better than elsewhere. This is due to improvements that were made to the Israeli banking environment during a previous economic crisis. It is ironic that Israel's banks are now serving as something of a role model to fix the troubled banks around the globe.

Israel has experienced many years of substantial economic growth. When comparing the Israeli economy at the time of independence in 1948 to the current Israeli economy, there is hardly any resemblance. The way in which the country has succeeded in supporting the dual economic challenges of ongoing war and conflict and large numbers of immigrants, can be nothing short of a miracle. The fact that the economy can be regarded along with the economies of other countries that are much longer established and with lesser economic challenges, is a credit to the Israeli will to succeed and thanks to a good deal of assistance from Jews in the diaspora in the earlier years.

Despite this fact, Israel's economy remains precariously balanced. Although the successes are numerous and economic growth impressive by any measure, one cannot divorce the political and social environment in which Israel operates from its economy. This political environment creates many economic challenges and dilemmas which are proving difficult, if not impossible, to resolve.

The employment of Israeli Arabs is a large issue in Israeli society. With a population of approximately 5.8 million Jews and about 1.5 million Israeli Arabs, there are many considerations surrounding the employment of Arab workers in Jewish businesses. There are those who feel that they would prefer to employ Jews over Arabs in the interests of providing opportunities to Jews in the first place. This is a larger issue at the current time when many Jews who were employed in the hi-tech sector have been laid off due to the global economic downturn. Arabs, however, are generally cheaper to employ. Their costs of living are lower due to the fact that they live in areas where property is cheaper, and often house 3 or 4 families under one roof. This allows them to be prepared to accept lower remuneration. In addition to the natural inclination of Israeli employers to want to pay as little as they can get away with, many Israeli products are being sold in highly competitive markets abroad. Any price advantage that can be gained via lower production costs is welcome, and employing Arabs frequently provides this. In addition, Arabs are often prepared to accept the menial jobs that Jews are not prepared to undertake.

The real dilemma of employing Arabs arises with regard to self-employed Arabs. The Arabs have an entrepreneurial spirit which is similar to the one found in many Jews. As such, there are many self-employed Arab Israelis showing this spirit. They are particularly found in the construction industry as builders, electricians, tilers, plumbers and the like. As mentioned above, they are often able to work for lower prices than their Israeli counterparts. They are often good at their trade, and know how to work the system in the same way as their Israeli counterparts which often means that they do not pay taxes on their income. It is difficult for Jewish Israelis to sacrifice the advantage of paying less (and still getting a good job done) in the interests of hiring a Jewish equivalent for the job. In recent times, it has been proven that Arab Israelis have assisted their Palestinian brethren in the planning and execution of terror attacks on Jews. This has convinced some Jewish Israelis to decide to forego the services of the Arabs in protest at this fact.

The dilemma is even more pronounced when considering the Palestinians in the West Bank and Gaza. They number approximately 3.5 million in all, and have precious little employment opportunities of their own. To earn a living, they rely upon employment by Israel and international aid. Employment by Israel depends a great deal upon the political situation on any given day, and whether the checkpoints are open to allow them to cross into Israel and back to their homes at the end of the day. With regard to these people, the best course of action for Israeli Jews is not always obvious. Is it better to employ them at lower costs, and provide money to a cause unknown that may well be against the security interests of Israel, or is it better to allow an economic disaster zone to fester on our own doorstep? The saying, "The devil will find work for idle hands" comes to mind, and supports those that feel that it is better to keep the Palestinians in employment.

The Israeli economy has many inherent problems to solve. Much of the country's wealth is held in the hands of a very few, and shows no sign of better distribution anytime soon. Approximately 50% of the nation's children live under the breadline. The average citizen spends more than he can afford, with much of the country living on bank overdraft. There is still too much of a propensity to spend money on designer clothes, fancy cars, overseas trips and electronic gadgets when many are struggling to put food on the table. The tax burden for the average citizen is far too high due to the high level of defence spending, and is not helped by government corruption and inefficiency.

Despite the many notable economic achievements of the State of Israel in 60 short years, the economic state of most of its citizens is far from ideal. And this was the situation before the recent economic downturn. It is hard to see how the average Israeli can weather the current economic storm. And yet, people somehow seem to get by on a daily basis. From where things are at the moment, it is difficult to see how the twin problems of the Israeli economy and the Palestinian problem can be resolved. Maybe we will witness another miracle in a land that requires miracles to survive.

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