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This Week
Distressed Economy
Poverty levels in Israel spur debate
over future policies.
AVI MACHLIS
Jewish Telegraphic Agency
Jerusalem
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Friday 10-8
A
tough poverty report
released last month by
Israel's National Insurance
Institute was embarrassing
for many Israeli policymakers.
The report raised serious questions
about whether Israel's socioeconomic
gaps are destined to grow wider as the
country undergoes a painful transition
from a labor-intensive economy to a
knowledge-intensive one, while simul-
taneously implementing free-market
policies to integrate Israel's economy
into the global marketplace.
The questions come as a publi'c
argument rages over this week's
expected appointment of David Klein,
senior director at the Bank of Israel, as
the central bank's next governor.
Like Jacob . Frenkel, the outgoing
governor of the Bank of Israel, Klein is
known to favor reduced government
spending and tough interest-rate poli-
cies to combat inflation and create a
solid environment for the free market
to generate economic growth. This is
why Prime Minister Ehud Barak nom-
inated him.
But critics — including several cab-
inet ministers — say that Israel needs
to implement an expansionary eco-
nomic policy by lowering interest rates
to break loose from a three-year slow-
down and conquer unemployment.
The data in the National Insurance
Institute report, which referred to
1998, showed that 16.6 percent of all
Israeli families — more than 1 million
people, including 440,000 children —
lived below the poverty line.
About 34 percent of Israeli families
would be below the poverty line had
they not received any government sup-
port.
Topping the poverty list were Israeli
Arabs and families with many chil-
dren, indicating that large, fervently
Orthodox families are among the
poorest in hrael.
The report provided ammunition
for Barak critics who say he has failed
to deliver on his campaign promises to
improve the economic lot of poorer
people.
Even though the report referred to
the period before his election, unem-
ployment has since climbed to about 9
percent from 8.5 percent in 1998, so
it is assumed that the poverty situation
has not improved.
Despite the public ruckus, the report
actually showed very little change in
poverty data from the previous year.
The real issue, says Momi Dahan,
seni& adviser to the Finance Ministry's
director-general, is the widening gulf
between rich and poor in Israel.
"If measured before the government
intervenes and takes taxes or provides
welfare payments, Israel is one of the
most economically unequal societies
in the world," says Dahan, an expert
on social affairs and economics.
"But in terms of net disposable
income, after the government inter-
venes, the inequalities are not so terri-
ble. What this means is that a signifi-
cant slice of Israeli society is living off
the government."
It also explains why despite the
poverty level, virtually nobody in
Israel is starving.
Shlomo Swirski, a sociologist who
heads the Adva Center, a social
research think-tank, says education
plays a big role in creating economic
disparities. "There is a widening gap
between those who have academic
education and those who do not," he
says.
The differences can also be drawn
along ethnic lines. A new report by
the Adva Center points out huge dis-
parities among Ashkenazi Jews,
Sephardi Jews and Israeli Arabs.
According to 1997 data, Ashkenazi
salaried workers earned 1.6 times
more than the average Sephardi work-
er drid 1.9 times more than the aver-
age Israeli Arab worker.
In the 1990s, as Israel's economy
climbed to near Western European
levels of income, not everyone reaped
the benefits. The report shows that
wealthier Israelis have benefited most,
while the economic positions of the
middle and lower classes have not dra-
matically changed.
The report argues that Israel's pol-
icy of reducing government spend-
ing is problematic because those
who earn lower incomes cannot
afford to pay for services if the gov-
ernment withdraws its support, fur-