Israel: Politically incorrect development success story

Few weeks ago, I visited Israel, after a seven-year hiatus. As usual, I travelled along the Mediterranean coast and to Jerusalem and met with family and business friends. I must admit I was surprised. I anticipated a country slowly and painfully recovering from the intifada. Instead I found an economic dynamo. Israel appears to be doing well. My friends are again vibrant and optimistic. And visual impression is striking : starting with a brand new airport, then driving on new roads and highways (not that traffic has improved much) and stopping at huge shopping malls. Everywhere new buildings, modern offices and an ever increasing variety of residential dwellings. The property and construction is also in apparent in Israeli Arab villages and towns. I am talking about places such as Ben Hanana, Megadim or Nazareth, situated within pre-1967 borders and whose inhabitants are Israeli citizens. Picturesque terrace houses are being replaced by sprawling multistory villas. Village mosques are lavishly renovated. We are worlds away from the prevailing picture of shantytown squalor.

My Israeli friends told me that Israeli Arabs are doing quite well, with growing cadre of professionals, doctors and engineers. Although politically they are predominantly left-wing, with five or six parties to choose from, they are not very keen on being assimilated with Palestinians and dread falling under their jurisdiction. There are practically no volunteers among Israeli Arabs to work in areas under PA jurisdiction and even less to live there permanently. Interestingly, in the post-July 1967 territories, 80% of Palestinians affected by the construction of the security barrier in West Bank choose to live on the Israeli rather than on the Palestinian side of the barrier.

As impressions can be misleading, I decided to check data and statistics on the Israeli economy in general and about Israeli Arabs in particular. Factual checks and data perusal not only confirm my impression and make it a clear that Israel is an astonishing development success, on a par with Ireland, Taiwan or Singapore.
At present, Israel is growing at some 4% per annum and its per capita income is raising at an annual rate of over 2% per year.
But that is only a beginning of the story. Israeli GDP/per capita is way above that of its neighbours: Based a Purchasing Power methodology and World Bank data for 2002, it is more than five times that of Egypt and Syria and more than four and half times that of Lebanon and Jordan. In the region, the only countries with a comparable standard of living are Cyprus (whose GDP per capita is about five percent lower), Bahrain, Quatar and Arab Emirates in the Gulf (the last two are the only countries in the region with higher GDP/per capita than Israel). Interestingly, the best-known oil producers, Iran, Libya, Saudi Arabia all lag far behind Israel in GDP/per capital stakes. By the way of comparison, Israel’s standard of living is higher than that of all new members as well as that of Greece and Portugal.

Israel performance is impressive not only in purely economic terms. According to the 2004 Human Development Report produced by the UN Development Program, Israel is part of the group of the 55 countries (out of the total of 177) which achieved a high level of human development. It is ranked 22nd, ahead of Greece, Portugal, Singapore and Korea. Only other countries from the region in the same group are Cyprus, Bahrein, Quatar and Arab emirates.
Israel neigbhours, as well as Palestinian population, are all part of the medium Human Development group, with Lebanon ranked 80th; Jordan, 90th; Palestine territories, 102nd Syria, 106th and Egypt, 120th.
This all looks good for Israelis. But what about Israeli Arabs? Data from Israel’s Central Bureau of Statistics provide a great deal of info. They paint a mixed picture of a glass half-empty and half-empty. The glass looks half-empty: Israeli Arabs are worse off than their Jewish counterparts on practically every relevant parameter: their infant mortality is higher, their life expectancy shorter. Their average wage is about 70% of Israeli Jews.
However, before screaming about discrimination and racism, one should consider the positive aspects – the glass half full. In particular, while below the Israel average, the average income of Israeli Arabs is considerably, very considerably, higher than that of Egyptians, Jordanians, Syrians or Lebanese. More significantly, it is incommensurably above that of Palestinians. Similarly, while the infant mortality and life expectancy of Israeli Arab lag that of Israeli Jews, they are way ahead of people in Arab countries, particularly as regards infant mortality.
As for the wage differential, these could be explained by two factors: a higher educational level of Israeli labor force (60% of which have more than secondary education compared to 26 % of Israeli Arabs) and a heavy concentration of Arab labor force in low-paying construction jobs (a quarter of all Arab male jobs). This interest in construction may explain that the dwelling ownership is higher among Arabs (87%) than among Jews (67%).

All things considered, Israeli appear to be doing a highly creditable job of integrating Arabs into their economy. On the face of it, they are doing better than the French and can probably give the British a run for their money. It is highly significant that while Israeli Arabs are in their great majority opposed to the Israeli policies, to date not a single suicide bomber has been an Israeli Arab.

It is probably too much to ask of their neighbours to take a close look at Israeli economic policies with the view to see what lessons they could apply to their own economies (and I am sure there are plenty).

On the other hand, western media and development institutions, presumably less inhibited by ideological bias and vested interest, should shed their political correctness and devote more attention to the Israeli model. This is after all as good example of ‘knowledge economy’ as one is going to find, built on high-quality mass education and close integration of research and development.

It was somewhat ironic that I was in Israel during the G-8 summit, which extensively debated the Africa case. Some time ago, many African countries had close economic relationships with Israel, which focused particularly on agriculture. Then, under political and financial pressure from Arab countries, ties were severed in exchange for promises of huge inflows of aid. As one looks at the results, this looks like a clear case of fool’s bargain.