As Benjamin Netanyahu concludes 12 years as Israel’s prime minister, what is the economic legacy he leaves behind?
Some might say that Netanyahu, a champion of free-market economics, has worked magic for Israel’s economy since he began his term in March 2009. Per-capita GDP grew 60% between then and 2020, from $27,500 to $43,689, and now places Israel among the top 20 nations in the world, while unemployment reached a record-low of 3.4% in the months before corona hit.
Israel’s hi-tech sector is legendary around the world for its innovation and growth, and billions of dollars are being pumped into the sector every month.
Consumer prices have declined in several categories, especially in the communications sector, and inflation, once a scourge disrupting economic activity, has become a non-factor.
Israel’s international credit ratings are excellent, the shekel is strong, and the country’s budget deficit swelled less than that of most countries during the pandemic.
During his term as Israel’s finance minister from 2003-2005, Netanyahu led much-needed privatization reforms, fought against monopolies, and increased competition while streamlining the tax system and steering more people to join the workforce. Netanyahu’s career has coincided with the country’s emergence from an emerging market to a global economic powerhouse, so for many, the question of Netanyahu’s performance in the economic sphere as prime minister is beyond question.
However, others see Netanyahu’s performance in far less rosy terms.
“Netanyahu’s legacy is one of missed opportunities,” said Prof. Dan Ben-David. president of the Shoresh Institution for Socioeconomic Research and an economist at Tel Aviv University. “Given how capable and extraordinarily gifted Netanyahu is, the past 12 years have been just one big missed opportunity for Israel.
“If you look at labor productivity in Israel today – the amount produced per hour – it’s below most of the developed world, and we’ve been falling behind further and further behind for the past four decades,” Ben-David said. “The gap between the G7 average and Israel has increased by more than threefold, and Netanyahu did nothing to turn this around.
“Israel’s education system is the worst in the developed world,” Ben-David continued. “Children’s knowledge in the core basic subjects – math, science and reading – is below those in every single developed country. And that’s without looking at haredi society, where many don’t even study the material or take exams. So it’s even worse than what the official data show.”
Other infrastructure problems continued to fester under Netanyahu, Ben-David said.
“The problems in the health system have been ignored for decades, and didn’t start with Netanyahu, but the number of hospital beds available per capita has been in free fall, and we have the highest hospital congestion rates in the entire OECD.
“Meanwhile, if you look at Israel’s transportation infrastructure, we have about three times the congestion on the road as small European countries, even though we have 40% fewer vehicles per capita. The problem isn’t too many vehicles, it’s that we haven’t invested as much in the roads and other alternatives as we needed to, even as congestion kept increasing.”
On the social equality front, Ben-David expresses strong disappointment.
“We have a hi-tech sector that is very productive, which is owed to Israel’s universities that were built by the first generation and which Netanyahu didn’t invest much in. But Israel’s hi-tech sector is only about 10% of the total workforce. 2.7% is in hi-tech manufacturing, which is responsible for 40% of Israel’s entire merchandise exports. So it’s a very small group that’s doing exceptionally well, which makes the entire average look fine, but the rest of Israel has been left behind.
“If you look at the tax burden, half of adults are so poor they pay no income tax, and 92% of the income tax burden is carried by just 20% of the population. You can see the problems in the data on poverty and income inequality. Even though hi-tech productivity is very good, GDP per hour worked in Israel is among the lowest in the OECD. So someone is taking credit for a lot of things he shouldn’t be.”
Ben-David noticed that Netanyahu had some successes in increasing competition for some consumer goods, “but it wasn’t enough to noticeably lower prices in most cases, and that is what counts.”
Ben-David emphasized that Netanyahu’s failures were not for a lack of talent.
“As finance minister, he was phenomenal, and saved the economy during the second Intifada,” said Ben-David. “And look at what he accomplished in securing the vaccine for the country. When it was to his political benefit, he did an amazing job, even after mismanaging the crisis terribly beforehand. Just imagine if he would have used his talent to save lives earlier.”
Meanwhile, Dr. Davey Disatnik, senior faculty member of the Coller School of Management at Tel Aviv University, had similar observations.
“Netanyahu has been prime minister for 12 years, so the changes that one would expect are more than a leader who is in for one term, but they don’t live up to that. Salary levels increased during Netanyahu’s tenure, but if you remove tech salaries, the picture is more problematic. GDP per capita has grown in relation to other OECD countries, but that is partially because those countries have older populations. Housing and consumer prices are still high, and Israel’s bureaucracy is still cumbersome. Integration of haredim and Arabs into the economy has been slow, as has infrastructure development. In short, there has been progress, but there is a lot more to do.”