A key issue that gets lost in the debate on the pros and cons of annexing the West Bank is that Israel’s very future is unsustainable even if the country remains on its current default trajectory. Annexation would simply hasten that future.

The public discussion in Israel and abroad focuses on an outdated demographic paradigm based on simple head counts of Jews and Arabs rather than on a much more crucial fact: Already today too few Israelis have the knowledge and skills to work in a modern, competitive, global economy.

This is the issue that will determine whether the Israel of our grandchildren will even exist – Jewish, democratic or otherwise. What is transpiring today in Israel is analogous to an endless argument over rearranging the deck chairs on the Titanic instead of focusing on the iceberg ahead and the urgent need for the ship to change course before it’s too late.

Ostensibly, Israel has one of the most educated populations on the planet. Among prime working-age adults, the average number of school years is one of the highest in the developed world, while the share of academic-degree holders is near the world’s pinnacle. Unfortunately, this is a shallow perspective that’s both antiquated and misleading.

In a society inundated with facts, distinguishing between chaff-and-wheat issues can be challenging – and not all is as it may seem. The all-too-common focus on the quantity of education tends to mask the vitally important issue of quality. A data-driven tour of Israel’s current population characteristics can be an eye-opener.

Year after year, for decades on end, the knowledge level of Israeli children in core subjects (math, science and reading) has been at the bottom of the developed world (see figure). The average achievement of Arab-Israeli children (that is, Israeli citizens, not Palestinians) is below that of many third-world countries.

Open gallery view Figure 1. Credit: Haaretz Infographics

So many Haredi – ultra-Orthodox – children do not study the core curriculum beyond eighth grade that most don’t even take the international exams – which means Israel’s actual situation is substantially worse than what even the current data show.

Look not at the demographics of the adults but at those of the children, for they are our future. Today, Arab-Israeli and Haredi children account for almost half of Israel’s first-graders (see figure). Add to them a very large number of Jewish non-Haredi children in the country’s geographic and social peripheries receiving an extremely poor education and you may begin to understand the magnitude of what’s coming down the pike when all these children grow up.

Open gallery view Figure 2. Credit: Haaretz Infographics

Even without the Haredim, Israel has the largest educational inequality – by far – in the developed world (see figure). Had the Haredim taken the exams, this education gap would be even higher than what the current data indicate. This has tremendous economic consequences for the future. The children receiving the poorest education in Israel aren’t only a huge share of the total number of children, they also tend to belong to the larger families – and hence to the fastest-growing parts of the population.

Open gallery view Figure 3. Credit: Haaretz Infographics

The other Israel

This is a picture of two Israels in one. It includes the Startup Nation with its cutting-edge universities, phenomenal high-tech and path-breaking achievements in medicine. It also includes a Second Israel, one that’s not receiving the tools to work in a modern economy.

This latter part of Israel is extraordinarily large, and its relative share in the total is getting larger by the year. Consequently, it’s no coincidence that despite being the Startup Nation, the country’s overall labor productivity is among the lowest in the OECD (see figure).

Open gallery view Figure 4. Credit: Haaretz Infographics

The fact that we’re leaving so many people behind is not just reflected in high rates of poverty and income inequality. It dampens our overall economic growth. The nation’s collective ability to assimilate, utilize and develop new technologies (not just in high-tech) is diminished when the national engine is running on fewer and fewer cylinders that could otherwise have been available to it.

Many more people could have found a place in this economy had they been provided the necessary conditions. Instead of providing an economic boost to themselves and the nation as a whole, they become a weight that has been steadily growing over time. Not only does this result in low national productivity, it’s a growing weight that has been steadily dragging Israel further and further behind the G7 countries for the past four decades (see figure).

Open gallery view Figure 5. Credit: Haaretz Infographics

The implications are ominous and foretell an unsustainable future. Israel’s tax revenues are more heavily dependent on indirect taxes (such as VAT and sales taxes), which are considered regressive; that is, they place a heavier relative burden on the poor than on the rich. Therefore, future tax increases needed to fund a growing population lacking the basic skills and education will have to come from direct taxes – and herein lies the other problem.

Even before tomorrow arrives, half of Israel’s current population is so poor that it doesn’t even reach the bottom rung of the income-tax ladder. It doesn’t pay any income tax at all. In fact, 90 percent of all Israel’s income-tax revenues come from just 20 percent of the population (see figure). These are mainly the skilled and educated, many of whom could find jobs abroad if Israel increased their burden beyond limits they were willing to bear.

Open gallery view Figure 6. Credit: Haaretz Infographics

The economically untenable one-state option

It’s important to emphasize that these existential threats exist even without the addition of several million unskilled and poorly educated Palestinians in a one-state solution. Aside from the obvious security concerns that such a population mix would entail, this scenario would prevent the establishment of an independent Palestinian state. Israel would then be forced to choose between two options – neither economically viable.

The first option would be to grant full citizenship, including the right to vote with all its attendant implications. It also entails the provision of complete access to Israel’s health, welfare and education services to everyone living between the Mediterranean Sea and the Jordan River. But who will then be able to fund the magnitude of such services that the enlarged – and poor – population of Israel would require?

The other option is not to grant citizenship. While too many Israelis are oblivious, or willfully ignorant, of the very problematic moral and ethical implications of denying basic rights to a whole people, other countries that Israel is so dependent on for trade won’t be so sanguine. This would create a problem that a great number of Israelis have yet to fully comprehend.

Like other small countries, Israel doesn’t have the capacity to produce all its own needs, nor is its domestic market large enough to cover the costs of producing those needs. Current threats of sanctions on the settlements will inevitably turn into a full-fledged ostracism of the entire country – which will signal the end of developed-world living standards for Israel.

More than likely, this would include an embargo severely impeding Israel’s ability to retain the qualitative military advantage that ensures its survival. In a world in which anti-Semitism is becoming increasingly rampant, who in his right mind wants to lob that eventual slam dunk on the heads of us all?

Looking ahead

The bottom line is that we have been asking the wrong questions for quite a while. The basic paradigms have changed while most people were sleeping.

Specifically, it’s not just the demographic paradigm that has shifted. The national security paradigm – which is what ultimately determines all Israeli elections – has changed as well. National security isn’t just how many planes and tanks we have. If half the children in Israel are receiving a third-world education today, they will only be able to maintain a third-world economy tomorrow.

But a third-world economy won’t be able to support the first-world army that Israel will need to literally remain alive in the world’s most dangerous region. This is national security redefined – and it exists even before one Palestinian receives Israeli citizenship. Second Israel’s share of the country’s current population is already approaching untenable proportions.

The eventual peace agreement will need to include minor land swaps around the pre-1967 border. Nevertheless, it should be clear that the issue of settlements deep inside the West Bank has nothing to do with defending Israel. The opposite is the case.

The settlements’ geographic vulnerabilities require the army to spread its limited resources even further. In light of the missiles showered on Israel after it unilaterally withdrew from Lebanon and Gaza, there should be no military withdrawal from the West Bank as long as there is no peace. However, the time has come to move the civilians out of there and back into Israel. This is entirely from the perspective of what is good for Israel. If it also benefits the prospects of peace, so much the better.

Israel’s future isn't etched in stone. It's still in our hands – Israeli hands – if we get our act together, change our national priorities and the catastrophic socioeconomic trajectory that we’re currently on. Until then, our current default is that iceberg straight ahead. The one-state solution is simply akin to putting jet engines on our Titanic and sending it toward the iceberg.

Prof. Dan Ben-David is an economist at Tel Aviv University’s Department of Public Policy and heads the Shoresh Institution for Socioeconomic Research. All opinions expressed above are the author’s.