OECD: High Israeli Growth Rate Isn’t Enough

YERUSHALAYIM (Reuters) -

Israel’s high-tech sector has made it among the best performing market economies for over a decade, but that success has not trickled down much, leaving markedly high poverty rates and income disparities, according to a new OECD survey.

Israel lobbied hard to join the Organization for Economic Cooperation and Development, gaining acceptance in 2010 and hoping investors would see it as a natural member of the club of affluent market nations rather than a higher-risk emerging economy.

In many respects it has done well – growth averaging nearly 4 percent a year has exceeded the average of the 34-member OECD since 2003. But in its most in-depth look at Israel to date, the OECD highlighted serious problems alongside the bright spots.

The banking system is one of the strongest and most profitable, household debt is low and the fiscal position is healthy, it said. But when it comes to converting that into deeper-rooted gains across the economy, Israel is lagging.

“There is homework to do if everyone in Israeli society is to benefit from this strong growth,” OECD Secretary General Angel Gurria said this week during a visit to deliver the survey results to Prime Minister Binyamin Netanyahu.

The 140-page report painted a gloomy picture of the economy as a whole, underscoring high poverty rates, income inequalities and weak productivity growth, with high levels of regulation.

Those in this group who do work tend to be poorly skilled and hold low-income jobs, the report pointed out, noting Israel’s poverty rate is the OECD’s highest after Mexico.

That partly stems from very low real wage growth, a house-price-to-wage ratio that is by far the highest in the OECD and food and other consumer costs that are above averages.

At the same time, Israel’s defense spending as a percentage of economic output is the highest among market economies at nearly six percent, while social and education spending, public investment and overall non-defense spending are near the bottom.

Yet Israelis’ quality of life is relatively high due to the country’s low unemployment rate and low risk of long-term joblessness, according to the survey.

The OECD presented Israeli leaders with a laundry list of recommendations aimed at narrowing the country’s inequalities.

They include boosting education funding for disadvantaged groups and requiring pension providers to offer low-cost pensions.