Israel’s Slippery Slope

By Shlomo Maital  

  Israel’s economy is on a slippery slope, because – its democracy has stumbled.

Here is why.

   In their 2012 book Why Nations Fail *, leading economists Daron Acemoglu and James Robinson trace why some nations rise to riches and others fall to poverty.  Israel is/was among the former, with $55,000 GDP per capita, driven by hi-tech. 

   It is a very long book, over 500 pages – I’ll save you the time to read it.  The authors find: “Countries such as Great Britain and the United States became rich because their citizens overthrew the elites who controlled pover and created a society where political rights ere much more broadly distributed, where the government was accountable and responsive to citizens and where the great mass of people could take advantage of economic opportunities.” (p. 3)

    These words described Israel – unto Nov. 3, when a far-right government won a tiny majority in the Knesset, by 30,000 votes, only because a huge-ego Labor party leader refused to join with smaller parties – and did not achieve the 3.25% threshold required, wasting a huge number of left-center votes.  With a 64-56 majority in the Knesset, this coalition government is held hostage by a tiny homophobic group led by a convicted felon banned from army service, who now, hard to believe, is the Minister in charge of our national security.  The Justice Minister is bent on ‘reforms’ that will neutralize the checks and balances of the Supreme Court.  All this, so that Prime Minister Netanyahu can wangle a get-out-of-jail card, as he is on trial for corruption. 

     It happens that democracies stumble.  The US stumbled in 2016 with Trump.  So did Hungary.  They tend to recover. 

      But will Israel?

      “Fundamentally, it is a political transformation… that is required for a poor society to become rich”, note the authors.  And vice versa.  An undemocratic transformation can quickly lead to a country becoming poor. 

       Since Nov. 3,  the number of Israeli startups has fallen by half.  Capital has fled. The shekel has plummeted.  The government budget deficit soared. 

       Far-right ministers pooh-poohed this.  With the Knesset now in recess, cynical members of the ruling Likud party now talk about the need for consensus – after raising their hands in favor of a law that basically removed ‘reasonableness’ as a constitutional requirement for any government decision. 

       A majority of 30,000 votes, out of 4 million, can do what they want in the Knesset.  But they cannot force bright young people to volunteer for army service,  launch startups or pay huge taxes.  In today’s world, there are no borders for those with strong human capital skills. 

        Israel is on a slippery slope.  Massive demonstrations have taken place regularly for over half a year – and are likely to continue and swell for another half year, as the economy declines.  It is a shame, because Israel’s economy performed best of the OECD nations during and just after COVID. 

        I find two reasons for optimism.  One —  Israel’s young people have rediscovered the precious value of democracy —  like a beautiful Picasso painting on the wall, largely unseen until it is removed or stolen,  when we suddenly deeply miss it.  Two —  the fragile Netanyahu government will be unable to run the country when more than half its population oppose it vehemently.  It may take some time for them to learn this.

       Democracy is a slipper slope.  Money flees undemocratic nations, and no nation can build an economy without money.  Marching back up the slope after damaging democracy is harder and longer than sliding down it. 

        Israel is a young country, only 75.  I guess it has to learn the hard way.

* Robinson, J. A., & Acemoglu, D. (2012). Why nations fail: The origins of power, prosperity and poverty. London: Profile.