Saturday, June 14, 2008

Opportunity Cost

I have argued often that the Israeli economy, which has so much potential you could weep, is seriously under-performing because of the ongoing conflict with the Palestinians; that politicians like Bibi Netanyahu who tell us we can have both occupation and high-tech, or business writers who note, thrilled, that Israel's stock market was not affected by the recent Lebanon War, are missing the bigger picture.

Now there is no excuse. The Adva Institute has released a remarkable report, nicely summarized in this story in Middle East Online:

While generally seen as an economic powerhouse with a growing economy… Israel was actually lagging behind other countries. In the last decade, Israel's economy grew by 43 percent compared to the world average of 67 percent. The US and Western Europe's economies grew by 68 percent, the Gulf nations saw theirs expand by 174 percent, and China topped 193 percent.

Adva's report, written by Shlomo Swirski, one of Israel's most creative labor economists, considers among other things the opportunity costs for tourism (Turkey has ten times Israel's number of entries). Most seriously, Israel is facing a huge rise in the poverty rate, which has grown nearly 5% since 1995, and a steep decline in spending on education.

WHAT THE REPORT does not consider, alas, is that the poorest and least educated Israelis are also the most devoted to the occupationShas voters, ultraOrthodox, and so forth. A growing number of these people support tough talking leaders, not just Bibi, but Kadima's Transport Minister and former Chief-of-Staff Shaul Mofaz. They often dismiss their government's defense of peace negotiatons as the fancy talk of a soft eliteyou know, people like Olmert who, if they were not corrupt, would anyway be "out of touch."

Recently, while in talks with the Shas Knesset factiontrying to gain Shas's support for the leadership of Kadima's governing coalition over rival Tzipi LivniMofaz decided on something nicely daring. He declared that an attack on Iran was “unavoidable.” This statement—which the world press misunderstood to be the conclusion of a thoughtful general, and not the ploy of a reckless politician—rattled already skittish commodity traders and helped spike oil prices.

The threat did not increase Israel's security, but it did increase prices on the things poor people spend most of their money on. Growing inequalities will also increase resentment for globalist entrepreneurs who are the country's, and peace's, real hope.