Speaking at the Israel Democracy Institute’s Eli Hurvitz Conference on Economy and Society in Jerusalem last week, Histadrut Chairman Arnon Bar-David had a sharp message about what’s needed for the Israeli economy to grow.
“The most important growth engine for the economy right now is the end of the current government’s tenure, or a change in its direction,” Bar-David said. “You can’t manage an economy in constant uncertainty.”
The uncertainty caused by the coronavirus pandemic was outside of the government’s control, he acknowledged, “but a judicial overhaul, a never-ending war, and hostages who haven’t returned—that’s a matter of policy. The state of Israel needs a restart, now.”
Bar-David said he had warned even before the October 7 attacks that many government ministries were not functioning. “Luckily, there are good people here—productive, good industry, and high tech. Good workers. But there’s a sense that everyone is on their own, and it’s very difficult,” he said.
Driving growth requires developing Israel’s periphery and integrating the ultra-Orthodox community into the workforce, Bar-David said. “We need them in the labor market alongside us so we can continue to develop and build this country—otherwise we’ll sink. We need the ultra-Orthodox sector to enlist together with our children who are fighting Israel’s wars, now,” he said. “And it’s not happening because of political reasons. We need to put politics aside. We can’t keep operating like this.”
Kfir Battat, deputy budget director at the Finance Ministry, similarly addressed the need to bring the ultra-Orthodox public into both the workforce and the military. “It’s reasonable to assume we’ve reached the limit of increasing labor force participation among the general population. So the potential for improvement lies mainly with Arab women and ultra-Orthodox men,” he said. “Among Arab women, we’re seeing a positive trend, but not among ultra-Orthodox men, even though this is the fastest-growing population. The main reason for their lack of participation in the workforce is government policy—and this is the most significant socioeconomic challenge Israel will face in the coming years. It’s a train heading straight for a wall.”
He added that drafting ultra-Orthodox men would also help the economy, since the business sector takes a hit when reservists are forced away from their jobs for months each year.
Adi Brender, head of research at the Bank of Israel, called for greater investment in Israeli infrastructure, noting that Israel’s GDP per capita is around 25% below the average in developed countries despite Israelis working 20% more hours than the average in developed countries.
Research in recent years by the Bank of Israel shows one of the key factors behind this gap is that public infrastructure investment in Israel is significantly lower than in other developed nations. “Everyone understands that if the roads are worse and it takes longer to get to work, productivity drops,” he said.
He also emphasized that productivity gaps are due to low skills among Israel’s workforce, particularly in reading literacy, math, and adaptive problem solving. Those scores are lowest in the Ultra-Orthodox and Arab sectors, but they’re a problem across the whole population, he said.
Dubi Amitai, chair of the Israel Business Sector Presidium, called for increased investment in industry. “The Israeli economy is like a cargo ship in the middle of the sea, with more and more burden being piled onto it. If this continues, there’s a real danger that it will simply sink,” he said. “We can’t rely solely on high tech for productivity and growth. We need a more inclusive approach to a competitive and innovative business sector. Investment in research and development is down 20%, and we are no longer world leaders compared to the OECD.”
Amitai also called for a significant reduction in regulation, which he said burdens the business sector—especially small and medium enterprises.
