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The Media Line: Israel’s Tech Boom Masks Growing Economic Inequality, Experts Say

Israel’s Tech Boom Masks Growing Economic Inequality, Experts Say

Record-breaking hi-tech industry gains are not translating into wider economic benefits for majority of Israelis

By Maya Margit/The Media Line

Israel’s hi-tech boom is masking a worrisome economic split between those working in the sector and those working in other industries, experts warn.

Unlike other sectors, Israel’s hi-tech arena has not slowed down due to the pandemic. In fact, the COVID-19 crisis has led to some massive gains for tech firms in the start-up nation, with several raising record-breaking amounts from investors in recent months.

As a result, tens of thousands of tech workers have gone on to become millionaires, according to the Globes English news website. Moreover, Israel has for the first time broken into the top 20 global economies in gross domestic product per capita, coming in at roughly $43,000 for the past year, data from the International Monetary Fund show.

But these glowing trends only provide a partial picture of reality, according to economic experts.

Prof. Benjamin Bental is the principal researcher and Economics Policy Program chair at the Jerusalem-based Taub Center for Social Policy Studies in Israel.

“We sort of have an almost totally disjointed Israeli economy with two parts,” Bental told The Media Line. “The flow between these two parts exists but it’s very minor.”

“The booming hi-tech sector employs roughly 10% of the labor force and the rest are in a totally different economy where the average wage is half of the average wage in the hi-tech sector,” he said.

The average monthly salary in Israel across all sectors for the month of February 2021 was NIS 12,146, or $3,735, according to data from the Central Bureau of Statistics released last week. By contrast, the average monthly salary over the same period for those working in tech was NIS 28,837, or $8,869.

“If you talk about social issues like income inequality then this [divide] is certainly a huge problem,” Bental said, describing the gap as being like an “invisible wall.”

In a report released last year the Organization for Economic Cooperation and Development (OECD) noted that income inequalities in Israel are “among the highest in the OECD.”

Overall, Israel is doing well economically in comparison to other nations, but the country’s overwhelming reliance on its tech industry at the expense of other sectors is a cause for concern.

Overregulation and stifling bureaucratic measures are leading to serious stagnation in the development of other branches of the economy and disincentivizing investment in those sectors, Bental stated. As a prime example of this phenomenon, he pointed to Israel’s construction industry, which has long suffered from massive regulatory delays. This, in turn, has led to skyrocketing expenses and a reliance on cheap foreign labor.

“There are a lot of government-induced barriers and hurdles that are making life very difficult in many non-hi-tech sectors, which prevents a leap forward,” he asserted. “Ninety percent of the population is working in [these other sectors], whose productivity is very low compared to their peers in other countries.”

Others believe that Israel’s economy has, in fact, split into two, with one side continuing to grow at a healthy rate while the other side falls behind.

“The start-up nation is developing very healthily,” Michael Horesh, a business coach and mentor specializing in the Israeli start-up scene, told The Media Line. “The GDP will continue to grow and hi-tech is here to stay.

“The downside is that you end up with a split economy, where a few people have a lot but most don’t have,” he added.

Born in London, Horesh immigrated to Israel in 1982 after completing his university studies in economics and politics at the University of London. In 2006, he opened a private consultancy, where he helps entrepreneurs establish and develop their businesses.

“Israel has one of the biggest extremes between the haves and have-nots on a global basis,” Horesh said. “The ways these moneys are going around at the moment, it’s only exaggerating that extreme and that to me is a worry for the future makeup of society.”

Part of this inequality, Horesh said, stems from two significant and conservative communities that have yet to fully integrate into the workforce, namely the ultra-Orthodox and Arabs. In order to boost their participation in the Israeli economy, the government could offer them a variety of hands-on training programs that provide the necessary skills and technical know-how to succeed in the job market.

“We don’t have that very much for a number of reasons: lack of resources, lack of planning, too many governments chopping and changing,” Horesh said. “That, to me, is very sad.”

“Everyone now accepts that the hi-tech sector in the past 18 months prospered despite the government and not because of it,” he concluded.

 

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