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Israel's changing demographics (Credit: Dan Ben-David)

GDP per hour worked in 36 OECD countries (Credit: Dan Ben-David)

The health and future of the Israeli economy keep researcher Prof. Dan Ben-David awake at night.Israel, home to a flourishing entrepreneurial ecosystem, world-leading academic institutions and a disproportionately high number of Nobel Prize laureates, seems to be enjoying a golden era of national success.There have been some financial bumps along the way since its establishment, of course, including hyperinflation in the 1980s and the heavy financial toll of the Second Intifada, yet decision-makers have managed to steady the ship across the years.Ben-David, however, has been ringing alarm bells for two decades.“The long-range trajectories are unsustainable,” warns Ben-David, a lecturer at Tel Aviv University’s department of public policy, and president and founder of the Shoresh Institution for Socioeconomic Research.Ben-David, who specializes in long-term economic trends, says he has shown his research to every prime minister since Ehud Barak, as well as a long list of finance ministers, education ministers and senior policy-makers.“Israel has this golden period right now, doing well for several years, and everything it needs to do well is here – but the long-range trajectory has existential implications for a country located where we are,” he said.“Although it may seem etched in stone, it is all due to policy. I literally cannot sleep sometimes, because I know it is fixable. We have a history of getting it right at the last moment, and when we work together, we do things.”THE MAJOR problem, Ben-David explains, is that approximately half of Israel’s children – notably those belonging to the fastest-growing population groups – are receiving a “third world education.” When they grow up, he adds, “they’ll only be able to maintain a third world economy.”In 2015, 19% of Israeli children under the age of 14 were ultra-Orthodox Jews, a further 25% were Israeli-Arabs and 56% were non-ultra-Orthodox Jews and other groups. By 2065, estimates suggest that 49% of children under 14 will be ultra-Orthodox Jews, 15% will be Arab-Israelis and 35% will be from other population groups.“A third world economy cannot maintain a first world army. We live in the most dangerous region in the planet. If we don’t have the ability to defend ourselves, it’s an existential issue,” he said.In Israel’s early years, the country and its founding generation enjoyed terrific economic growth. GDP per capita soared from almost $5,500 in 1950 to nearly $18,000 in 1973. In the four decades following the Yom Kippur War, however, Israel maintained a significantly steadier path of growth, nearing $37,732 in GDP per capita by 2017.Yet compared to countries that enjoyed similarly rapid levels of growth in the years following World War II, Israel’s growth has now fallen behind.“What determines growth paths are national priorities,” said Ben-David. “Does the money go to building schools, physical infrastructure and human capital infrastructure, or not?”The share of Israeli adults with an academic degree is among the highest in the developed world. Among 35-54 year olds, almost one-third of Israelis have a degree. In fact, the country is surpassed only by Korea, Ireland and the United States. In terms of average years of schooling per person, Israel is behind only the United States and Switzerland.While the figures seem impressive, Ben-David cites the famous quote attributed to Abraham Lincoln: “And in the end, it’s not the years in your life that count. It’s the life in your years.” Here, it’s not the years of education, but the education in the years.Such high levels of education ought to be reflected in Israel’s economic growth. Data from recent PISA exams, however, demonstrate that average pupil achievement levels are among the lowest in the OECD. Among the ultra-Orthodox Jewish population, where few take the exams, and Arabic-speakers, performance is even lower. When compared with predominantly Muslim countries, Israeli-Arab performance falls narrowly behind Jordanian and Indonesian pupils.Rather than looking at GDP per capita alone, Ben-David says, it is more accurate to consider GDP per hour worked – also known as labor productivity.Since the mid-1970s, Israel’s labor productivity has been rising at a significantly slower pace than the average increase among G7 nations. The gap has grown more than threefold as Israel increasingly depends on a small part of its population to drive its economic growth.“This is unsustainable and has huge ramifications. This is a graph that ends in tears,” says Ben-David.There are two nations in Israel, he explains. There is the Start-Up Nation – including the universities and hi-tech – and then there is the other Israel, which “does not receive the tools and conditions to work in a modern economy.” The other Israel, dominated by the ultra-Orthodox Jewish and Arab populations, has been “dragging down an entire country for almost half a century.”It is clear that the engine of Israeli society is not firing on all cylinders. Increasingly concerning, Ben-David states, is that some of the highest-performing cylinders currently relied upon by Israel are moving to power the engines of other countries.“While there are some people who will live in Israel no matter what, for others there is a price. You are crossing the threshold of more individuals looking not to remain here, especially at the top end,” he said, referring to the phenomenon commonly known as brain drain.Referring to fewer than 130,000 individuals who play a key role in leading Israeli hi-tech, academia and healthcare, Ben-David says it will be “game over” if a critical mass opts to leave.Among those who studied at Israeli research universities between 1980 and 2010, some 9.5% of exact sciences and engineering graduates have lived abroad for, at the least, the past three years. Among social sciences and humanities graduates, the figure stands at 6.9% who have sought employment elsewhere.In medicine, the share of Israeli physicians now practicing abroad increased from less than 10% in 2006 to approximately 14% in 2016. In academia, the number of Israeli business professors with tenure in top US universities could fill four business schools in the Jewish state.OTHER CRITICAL issues that decision-makers must tackle, Ben-David warns, include road congestion and hospital overcrowding.Between 2012 and 2016, average hospital occupancy rates stood at 94.4%, higher than any other OECD state. As a consequence, the share of deaths from infectious and parasitic diseases have soared above the developed world average.According to a 2013 State Comptroller’s Report, between 4,000 and 6,000 Israelis die each year from such diseases. For comparison purposes, 250 to 350 people die annually on Israel’s roads.Ben-David’s research certainly paints a bleak picture, but his determination to raise awareness of troubling trends is driven by his passion to steer Israel back toward a sustainable and prosperous future. He emphasizes that it is, for now, not too late to get back on track.“While we have this history of getting our act together at the right moment, this is more insidious. There is no reset on children – once they’re adults, it’s too late,” said Ben-David, emphasizing the critical importance of educating today’s ultra-Orthodox Jewish and Arab children.“Many of the old paradigms that defined Israel are no longer relevant. What matters is education. If you’re educated, you’ll do well. We have too many people without the knowledge, whether Jews or Arabs.”A major reform of the education system is necessary, he says, in order to ensure core curriculum studies in all schools – including in the ultra-Orthodox community. Successful reforms in the case of high-school mathematics in recent years have proved that change is possible.Increased resources must also be dedicated to healthcare and transportation, and electoral reform leading to personal accountability for elected representatives is also required.While Ben-David recognizes the large number of challenges faced by Israeli society, he urges both the public and leading policy-makers to focus on the root issues and what he refers to as the “demographic point of no return.” If major reforms are currently difficult to pass in the Knesset, demographic trends will subsequently render such reforms impossible.“The idea is to bring together the Left and Right, secular and religious, Jews and Arabs,” said Ben-David. “We are continuously bickering and fighting about the placement of chairs on the Titanic, but it’s still the Titanic. We can still change course and avoid the iceberg.”