New Study Warns of Economic Collapse Due to Reduced Public Spending and Falling Productivity

A new study by Professor Dan Ben-David of the Shoresh Institution warns of an Israeli economic "collapse spiral" driven by reduced public investment and declining labor productivity. Ben-David suggests this situation could lead to the emigration of those bearing the tax and military burdens, causing further deterioration, a trend he claims has already begun. The research highlights a decline in the public sector, citing a drop in senior university faculty from nearly 140 per 100,000 people to about 80, including subsidized colleges. It also points to a significant increase in road congestion, from approximately 700,000 annual vehicle-kilometers per road kilometer in 1970 to over 3,000, while comparable European countries have much lower figures. Furthermore, the number of hospital beds per 1,000 people has fallen from 3.2 in 1974 to about 1.8 in 2024.

Ben-David attributes this decline to a shift in government priorities. His research shows that civilian government spending, excluding defense, was higher than the OECD average in the 1970s but has since fallen below it, with few exceptions since 1985. He argues the issue is not a lack of resources but the diversion of public funds by national leaders from state priorities to sectoral and personal ones. Another concern is the drop in labor productivity. In 1972, Israel's productivity per work hour exceeded that of all G7 nations. By 2024, Israel is only ahead of Japan, with a significantly narrowed gap. Productivity, once 43% higher than Germany and France, is now 34% lower than Germany and 25% lower than France. It has also fallen from 35% higher than Italy to 20% lower.

The study also examines the education system and the Haredi (ultra-Orthodox) community. Ben-David notes that while high-tech workers, comprising 10% of the workforce, had 60% higher productivity than other employees in 2022, the top 20% of income earners pay 93% of income tax. Educational achievements are declining, with Israel's average PISA scores among the lowest in the OECD. The Haredi education system is seen as exacerbating the problem, with low academic achievement. In 2024, only about 15% of Haredi men aged 35-54 held academic degrees, compared to over 55% of the general male population. While nearly 70% of women aged 35-54 have degrees, the rate among Haredi women is below 53%. The employment rate for Haredi men has remained around 60% with no improvement. Graduates from Shas's educational network show lower employment rates, matriculation certificate eligibility, and gross salaries compared to similar individuals from the state education system.

Ben-David warns of socio-economic consequences from demographic changes, particularly the growth of the Haredi population and their educational system. He reiterates the risk of a "collapse spiral" where taxpayers and conscripts leave the country, increasing the damage. Recent data indicates this is already happening, with three times more Israelis with bachelor's degrees and five times more doctors leaving the country between 2009-2021 compared to the average, and an overall increase in departures versus returns. To address these challenges, Ben-David recommends a unified education system with some curriculum choice for schools, revised budgeting to incentivize work, and stronger checks and balances between government branches, along with a constitution to protect fundamental rights.