A report on the socioeconomic situation in Israel published on Sunday has underlined the two faces of the country's economy. The successful high-tech industry and some other sectors remain attractive to investors but underlying issues, including persistent high poverty levels and inequality may, if not addressed, negatively affect economic growth, which stood at a healthy 4 percent in 2016.
"We had good growth in Israel the last year but we think that was an outlier and we don't necessarily think that will continue in the near future unless steps are taken," cautioned Avi Weiss, director of Jerusalem's Taub Center for Social Policy Studies and editor of its 'A Picture of the Nation' report.
Some of the report's findings chime with what others have been saying about the Israeli socioeconomic situation. Notably, Paul Donovan, UBS Wealth Management chief economist, was earlier this month reported by Reuters to have said that the country risks stoking anti-establishment resentment if other sectors of the economy continue to lag behind the high-tech sector, also in terms of wages, thus contributing to a growing gap between rich and poor.
The Taub Center report yields some surprising conclusions. While GDP growth has been very robust for an advanced economy, GDP growth per capita shows a different picture. Israel has remained consistently in the bottom half of advanced economies in recent years when it comes to GDP per capita and is in danger of being overtaken by better performing countries.
Productivity too, often held up as a shining example of Israel's economic performance, has seen relative low growth in recent years. As with most metrics, that's not true for the high-tech industry. But, says Weiss: "There's only eight percent of the working population that works in the high-tech industry. That mean 92 percent don't. And those 92 percent have on average low labor productivity."
Weiss, a former chief economist at Israel's antitrust authority, recommends government support for innovation in traditional industries by offering tax breaks to investors and targeting training programs at those sectors.
He stressed that he's not painting a gloomy picture. In fact, the government has been doing more in the field of education and poverty reduction over the last few years. There's much room for improvement that's attainable, such as in raising educational levels among Israel's large Arab and ultra-orthodox populations that still lag behind.