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Three strikes, you're out

March 12, 2007. Jerusalem Post: Haviv Rettig

The ongoing debate over the future of the country's education system seems to be picking up steam. Teachers are increasingly striking, students are protesting in creative ways, lecturers are threatening to shut down higher education and ministers and university presidents are making the rounds of Knesset committees trying to calm tempers. All parties to the debate are convinced - as Avraham Shochat and MK Michael Melchior told the Knesset Education Committee recently - of the "historic" significance of the task of repairing the higher education and troubled elementary and secondary school systems.

To find out what's at stake, why the nation's educators, students and politicians are taking to the ramparts, The Jerusalem Post asked Tel Aviv University economist Dan Ben-David whether the grandstanding was justified. And Ben-David, who worked on education policy for Ehud Barak's government and has researched and taught about the connection between education and economics for nearly a decade, is worried.

Economic well-being, he believes, is a fundamental pillar of survival, as important as the IDF or a healthy Jewish identity to the survival of the Zionist project. While many gush over Israel's economic achievements and hi-tech boom, Ben-David points to underlying socioeconomic processes and says the country's condition is extremely precarious. While its educational elite produces world-renowned hi-tech, the less-educated population has become one of the poorest in the West, allowing Israel to fall steadily behind in terms of productivity and overall economic health, and contributing to the widest income disparity in the developed world, wider than in many developing countries.

Ben-David spoke about the problems and prospects of economic survival, why it isn't (as many believe) just the haredim and Israeli Arabs who are dragging the country behind economically. What resulted was a conversation that should frighten anyone who is concerned about the future of the Jewish state.

What is everyone so worried about?

The problem of Israel's education system is bigger than Israel's education system. This has been a fundamental contributor to poverty, inequality and low growth the likes of which we haven't seen in our history. For the past 30 years, poverty has been steadily increasing. It's the same with income inequality. Israel has one of the highest levels of inequality in the world and it has been growing for the past 30 years.

Then there's low growth. The economy is growing, our living standards are rising, but at a lower rate than in Western countries. Until 1973, we were catching up with the leading Western countries. Since 1973, we've been falling further and further behind in relative terms. That alone is an existential problem.

If the economy is growing, but just a bit slower, where's the existential problem?

The segment of the population not receiving the tools and conditions necessary to live, thrive, function in a modern, competitive and open economy is growing at a faster rate than the section of the population that's financing them. They're not able to function properly, and they need help.

But, everything else being constant, the part that needs help is growing at a faster rate than the part that can help them out.

What, specifically, are we talking about?

Since 1970, there's been a very steady decline in male employment, from around 68 percent to roughly 55% today. In the US it also declined, but here's the difference: Since the 1980s, [male employment levels in America] have leveled off, while ours continue to drop.

Something bad is happening here. We have a problem that's continuing to deteriorate in comparison to other countries. That is unsustainable. It's not going to end up nicely in the long run.

What will happen?

Israel has an open economy. Not only can capital and people flow in, they can flow out. So when the burden - whether taxes or army service - is increased, not only will it be harder to attract future immigrants from countries that are pulling further and further away from us in terms of incomes, but we're going to have a problem keeping the people who have alternatives elsewhere, the ones we need for this country to function properly: university professors, hi-tech people, doctors, the people who have options.

The more onus you put on their back, the more difficult you make life here and the lower our rate of economic growth is compared to alternatives, more and more people will reach the conclusion over time that this place has no future. Everyone has their own threshold for what they're willing to live with.

Who isn't pulling their weight - the non-working among the haredim and the Arabs?

It's common to talk about them - 84% of working-age haredi men don't work. It's something unworldly. Then you look at the Arabs. Among Israeli Arab women, 85% do not work. Arab men at the primary working ages of 25-54 don't work at a rate that's 50% more than Jewish men.

The economy seems to be able to support these non-working sectors.

We can afford it because they're a relatively small proportion of Israeli society today. But half of all schoolchildren are either in the haredi schools or in the Arab schools. So you do the math for what will be here in a generation. Even if, as a society, we want to fund lifestyles of non-work, who's going to do it? Who's going to be able to?

Can we legislate our way out of this problem to get these people to work?

Laws that will change the way people work are difficult to pass in the Knesset today, because of these groups and others. When they become the majority, even if we want to change the laws - and it's obvious to them that we can't afford it - nobody's going to be able to change them.

Why? They won't find the political will when the alternative is disaster?

Because they would starve. Even if they agreed to it, they won't have the tools to make the switch from non-work to work. They don't have the education to function in a modern economy. They're not connected by normal roads or trains - we don't have the transportation infrastructure. We don't have a lot of the things that you can't build overnight.

There is a point of no return beyond which we're not going to be able to change things democratically.

What is that point? What is the ratio of working to non-working Israelis at which the system collapses?

I don't know, but we're very close at this point. See how difficult it is today to [pass necessary legislation].

You mentioned that "it's common" to talk about Arabs and haredim. Who else should we be talking about?

These are the two populations that stand out. But even if you net out the haredim and the Arabs, you still have a very high percentage of Jewish, non-haredi men who are not participating in the labor market, way beyond what's common in the West.

Among non-haredi Jewish men aged 25-54, 16% don't work, fully one-quarter more than in the OECD and in the US.

They don't work because they can
survive on welfare?

Welfare is part of the story here, but you're also not giving them the tools. You can't cut off welfare if you don't give them the necessary education and conditions to work. These things go together. You have to change the incentive structure from non-work to work, but you also have to give them the tools. This is where the education system comes in.

How much is the low employment costing us?

If we raised the employment level to Western levels, to the OECD average, then each year we would be producing NIS 15 billion more. That's more than half the Education Ministry's annual budget. If you raised our employment to American levels, you wouldn't recognize the country. You'd have NIS 50 billion more a year being produced.

This is without improving productivity, without doing anything except just more people working.

So better education would deliver
even more?

It would be a totally different country.
Compare us to America. Our population is about 2.3% of the American population; our output - our GDP - is 1.5% of America's. There are two main reasons for this. One, they work more; the employment rate is 21% higher. But not only that. An American in one hour produces 28% more than an Israeli. It's higher labor productivity. If we want to reduce poverty and increase our rate of growth, these are two things that go together.

One of the main factors that [affects] both is education. That's why the importance of education is far greater than what [Education Minister] Yuli Tamir and some others in education think. The future of the country is in their hands. They don't seem to grasp this.

What's the solution? What, specifically, can be done to fix the projection?

We have to introduce a new word into the Hebrew language, "comprehensive" plan. We can't just put out fires, but we have to start looking at things systemically.

The first part to the solution is changing the incentive structure from non-work to work.

For example, if society says it wants to help parents raise children, one way is child allowances, which means you get some [money] per child regardless of whether you work or not. But the preferred alternative is deducting a certain amount from your income tax for every dependent. So you get this [money], but only if you work.

Another example is a negative income tax. Take the American example. In the US, for each dollar you earn, you get an additional 40 cents up to a certain level. The more you make, the more the government will give you. So you have an incentive to work as much as you can. You also have an incentive to report every cent you make.

But are there enough jobs for these people once they have an incentive to work?

You're only going to create hunger if you concentrate just on incentives. You also have to give the tools. That's where education fits in. Adults who are interested in improving their education should be given the opportunity to do so, to complete high school and to continue to university. You need to create a modular adult education program with defined entry and exit points so people can go in and out and get skills they need for the job market.

Right now, we have adult education, but no way to tell if it's working or not. It's not structured or tied into anything else. We also purportedly have vocational training, or at least spend hundreds of millions of shekels on it, but nobody does any quality control on these things [to find out] what works and what doesn't. Are we training them to do what the economy needs? Where's the business sector in defining what the economy needs? We have to do this systemically, and tie it into placement.

Instead, we jumped right into placement, what we call the Wisconsin Plan, which just finds jobs. The whole incentive structure in this plan is skewed. The private companies that run this program have an incentive to cut the government's welfare payments, instead of an incentive that is dependent on how long people work and how much money they make. They should have an incentive to encourage people to get an education, not to go right to work at McDonald's. That doesn't help anybody except McDonald's.

That's just the beginning. For example, once you've got people with the tools and the desire to work, who's going to take care of the kids when school's out at noon? You have to create the supportive environment, which means longer school days, enrichment programs, after-school activities, subsidized by the government. It has to be relatively cheap so it's worthwhile for a working mother or father to go and work.

Then you have to connect all these places in the periphery to places where you have work, so you have to build transportation infrastructure. Israel is one of the most congested countries in the world. Congestion on its roads is three times the Western average. Three times! And we only have half the vehicles per capita.

Transportation infrastructure is really that important?

Look at it from the perspective of an individual.

Economic pressures are similar to natural flows. You have to understand economics in order to channel these unstoppable pressures in the direction you want, to utilize these pressures.

If I give world-class education in towns such as Beit She'an or Ofakim, and then connect these places by trains, then I let the economics do the rest.

For a young family with kids, where the most important thing is that my kids go to a good school and I have a job with a short commute, there's an economic advantage to living in these places. I can double my living space at half the cost without compromising on these issues.

Given the very high cost of real estate in the big cities, with nothing inhibiting people from moving, the economics also cause social integration. The periphery becomes a suburb and the real estate of far-flung places rises, while prices fall for real estate in the city. So inequality falls.

Once people move, businesses move. Not just retail, but factories. You don't have to use special incentives for failing factories, or put textiles in places where you know they have no future.

So giving people incentives, but not connecting them with high-speed trains to where there's work, is not going to get the job done.

How much will a railway system cost?

It will cost a lot of money. There's been underinvestment for decades. According to a Bank of Israel study a few years ago, to build a transportation system - rail and road - on a par with the OECD will cost NIS 65 billion.

That's staggering. Where will that kind of money come from?

It won't grow on trees. But that's why it's called national priorities.

But this country has an astonishingly high defense budget.

Public expenditure on civilian objectives, after you net out defense and interest payments - we borrow more than other countries because we don't raise it in taxes - is higher than the West by something like NIS 30 billion each year since 1973.

We spend more, but get less? Where does it go?

That's the big-picture question. You have to increase the transparency of the budget. But few here understand or give a damn about this issue.

There's a big complaint from legislators that they get this massive budget book put in front of them maybe 72 hours before they have to vote on it. They complain they don't have time to read it.

But I can tell you something. If you give it to them three years in advance, they won't know what's in it. I've been looking at the budget book for years, and I'm a professional economist, and I can't tell you where the money's going.

No one can tell you. I'll give you the most basic example. How much do we spend each year on the territories? No one can give you that amount.

Why not? We have budgets. We may not track all the cash, but we know how much goes in, don't we?

I worked [as an economic adviser] on Amram Mitzna's campaign against [Ariel] Sharon. If it's in anyone's interest to say how much we're spending on the territories, it was in Mitzna's. Since he wanted to come up with a number, he got together Labor supporters in the Finance Ministry to tell him. One was the minister, Avraham Shochat, some were former directors-general or budget department heads, people who ran the show for years, who sympathize with Mitzna. None of them could come up with a number that was similar [to anyone else's].

In the 1999 election, people said things about the economy that didn't seem right. Simple curiosity led me to look at Israel's numbers through professional eyes, for the first time in my life, rather than just suffice with the casual morning glances at the newspaper. What I saw changed my life. It went far beyond the current-event issue of the 1999 elections.

The big picture was scary. Our living standards are falling behind in relative terms. Poverty increased from a quarter of all families to a third. And this was before the intifada, before the bad stuff of the past few years.

As a parent I had two choices, to get the hell out of here and take an offer from abroad, or to find out the scope of what's happening, how bad it is and how to fix it. Since I owe my life to this country, I can't just abandon it. There is a point of no return. I don't think we've reached it, and I've devoted my life since then to changing it.

What do we need to change first?

To really substantially change our national priorities, you have to change our system of government. Things are run by total anarchy, no one is accountable to anyone. The budget is wasted in all kinds of directions that are basically political expediency. Whether I like Bibi [Netanyahu] or not, he's talented. So were [Ehud] Barak, Sharon and so is [Ehud] Olmert. They're all smart. But they have no ability to run the country the way the government is forced upon them.

Nobody works for the prime minister. He's elected to push forward an agenda, but he needs ministers who are working for him. Instead, he's got a bunch of ministers who see themselves as potential replacements. They have their own little fiefdoms. And in too many cases, they have no idea what's happening in their fiefdoms, what their ministry actually does, since it's a political position.

[Defense Minister] Amir Peretz is being blamed for not knowing anything about defense. But most of the ministers don't know anything about their ministries, and they don't care, because they're only there for a year-and-a-half.

In addition, you have to bring results immediately because you may be running for election in six months. So you can't implement long-term planning. And in the Knesset, nobody's accountable to those who elected them, but to party hacks.

What is the one thing you would change tomorrow in government?

Our first reform must be electoral. It's the No. 1 thing, something similar to the American presidential system. There are a lot of bugs in it, and we'd need things they don't have, such as a line-item veto. But generally that's the idea.

The litmus test for electoral reform includes two necessary conditions for Israel's survival that are impossible to implement in our current system of government.

The first is to enable government to implement a core education curriculum for all its citizens. It has to be a toolbox that will enable all of them to work and thrive in a modern economy. This has nothing to do with converting Muslims into Jews or haredim into secular. It has everything to do with giving the necessary tools.

The second necessary condition is compulsory military or civilian service for all. This country does not belong just to some of us. We all stand to lose our way of life if this country ceases to exist. But given that this country won't live without its military, I want to create an economic incentive for military service to be the choice by the large majority for their compulsory service.

There's no guarantee that a presidential system will do it. But any democratic system has a trade-off between offering complete representation for every idea, thought and way of life, to limiting that in exchange for functionality. If you have regional representation, the Palestinian cause becomes less of an issue [for Arab MKs] and local interests become stronger. It's the same with the haredim.

You insist that the problems you describe are reversible.

This is a country of people who care. We may evade reserve duty during the year, but in a war, over 100% come to the units asking to be called up. In a prolonged war, they come from abroad. This is an immense power. If people understand that our long-run socioeconomic direction is no less an existential threat than our neighbors, then it's possible to harness this energy and get this moving.

It's up to us. If we're passive, we lose the country. If we don't get our act together, or let people tell us reform is not realistic, losing the country we got after 2,000 years becomes a realistic option.

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