The middle class is shrinking

On the last day of 2012 the Central Bureau of Statistics published its growth estimate for last year. According to the estimate GDP growth has fallen to just 3.3% compared with growth of 4.6% in 2011 and 5% in 2010. The slowdown in growth in the final quarter of 2012 was even more significant, and today Israel is undoubtedly in the midst of a slowdown.

On the same day, Adva Center - Information on Equality and Social Justice in Israel, which investigates the impact of economic policies on Israeli society, also issued its annual report. From the slew of data that it contains there was one statistic that was seized upon by the media. The middle class is continuing to shrink and currently less than 30% of the population is defined as middle class.

A thorough examination of the numbers from the short term point of view reaches the conclusion that no government or prime minister can claim that Israel is immune from what is happening abroad.

The slowdown in the Israeli economy is here and now and if the negative predictions are fulfilled it could also develop into a recession. To judge by what took place in the previous Israel recession between 2001 and 2004, it is the highest earners who know how to protect their income and increase their piece of the GDP pie. The process by which Israel's middle class is shrinking began back during that recession and there is no reason to think that it will be reversed in any further slowdown or recession.

There is also an additional point that there figures cannot show and that is the collapse of the economic model that grew in the Israeli economy in the 1990s. The economy was run according to the rules laid down by large and strong companies, highly leveraged, which spanned large parts of the market. These companies operated in a reality where organized labor was collapsing, public services were being privatized including privatization of the services and risks in the health and pensions sector and their transfer to individuals.

If it were possible to hold a referendum in Israel on the possibility of continuing this economic model, it would be reasonable to assume that a huge majority would oppose it. In other countries such a referendum is called a "general election." However, the Israeli authorities and domestic media assume, based on previous experience, that Israeli citizens are prepared to put up with anything, providing the government wages wars and conducts military operations, large and small.

To tell the truth, there are signs that the current elections do not really resemble anything we have known in the past. For example, recent weeks have not been marked by "social acquiescence." On the contrary, this has been a period with many labor disputes, demonstrations, and tensions. Even if the election results don't reflect a feeling of hardship and disgust with the failing economic model, there is still a need for a strategic choice about Israel's economic regime to preoccupy politicians and all of society.

One has to admit that there is a major chance that people will take a fatalistic - what will be will be - attitude. Immediately after the election results are announced talks will begin on forming a government, which will also deal with the 2013 State budget - an across the board cut here, a tax hike there. Add to the brew a spoonful of "structural reform," set up a committee of experts and public committee on the topics you want to bury and carry on as before.

Expect years of confrontations

However, from the point of view of many people in Israeli society, it will be difficult to carry on as if nothing has happened, especially if the real income of households will continue to be hit by the economic slowdown. And if the feeling grows that something is really not right in the way that the government relates to the peoples' aspirations, we can expect years of clashes around each of the components of Israel's economic regime and the hardship being caused.

These times don't bring many smiles or an abundance of optimism. It won't be easy to be a politician in Israel in the near future, especially when confronted by rank and file citizens with grim faces who claim to have been deceived. As always there will be those who talk about "full restaurants" and "busy shopping malls" but the bottom line will be the feeling that something must change, and quickly, and this notion will intensify. This is what is happening today in most European countries, and probably it will happen here too.

Published by Globes [online], Israel business news - www.globes-online.com - on January 2, 2013