Falling Standard of Living

Ha’aretz reports (Oct. 20) that the standard of living of Israelis has been falling for 30 years. According to a study by Tel Aviv University’s Dr. Dan Ben-David, the drop in the standard of living cannot be relegated to a specific year or economic cycle, but is visible over three decades.

The local bureau of statistics expects that per capita GDP will drop in 2002 by 2.9% and Israel’s per capita GDP will be the same that it was in 1995. That year, the per capita GDP in the US was 61% higher than Israel’s; this year, it will be 73% higher.

Growth in Israel from 1953 to 1972 was 5.5% annually, one of the highest in the world. From 1973-2001, growth in Israel dropped to 1.4%. Had Israel continued growing at the pre-1973 rate, its GDP would now be that of the US in the 1990s. (As an aside - how many of Ha’aretz’s readers recognize these points which appeared first in Alvin Rabushka’s IASPS Scorecards on the Israeli Economy? Almost ten years ago, Professor Rabushka published comparative growth statistics for Israel and told us what might have been, had it not been for ------ but let us hold off for a moment more…)

The Tel Aviv U. study finds that many industrial nations suffered slowdowns in the early 1970s. Israel is differentiated by its having the lowest rate till 1990. While in the 1950s and 1960s Israel was closing the gap between itself and the countries known today as the G7, during the next three decades, the gap just grew and grew.

There may be a temptation to assign the worsening situation to the events of recent years. But no, the average GDP growth for 1991-2001 was identical to that of 1973-2001. Ben-David says one of the reasons for the low GDP is that worker productivity, which was 3.8% from 1960-1972, fell to 0.7% from 1973-2001. According to the news report, he says “a larger and larger portion of the society cannot, or is not willing to, successfully deal with the challenges of a modern, open, competitive society.” Per-hour productivity in the US is 21% higher than in Israel.

What it all comes down to, then, and this is of course missing from the news report and probably from the original study, though it certainly appeared in Rabushka’s IASPS analyses, is the reason Israelis stopped working and producing in 1973. What could possibly cause more and more people to leave the productive sector and join the public sector, or seminaries, or the ranks of the unemployed living off unemployment payments? Certainly, rising public sector wages as opposed to the private sector, also rising stipends for students, and rising unemployment benefits. And what allowed all these to rise?

Well, one would have to look at the statistics and see what changed for the Israeli economy in 1973 and continues to this day, that did not exist previously. And there is one word that answers this question: The year 1973 marked the advent of the huge influx of American aid to Israel. An entire nation went on welfare and stopped working hard to succeed.

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