The public sector’s low efficiency is often contrasted with that of its private counterpart, where economic survival of businesses depends highly on efficiency. The recent upswing of Israel’s economy, mainly in the sphere of high-tech, has a tendency to mask problematic developments in the lower reaches of private sector enterprise. Only part of private sector businesses is capable to ride along on the wave of Israel’s high-tech achievements and the concomitant spending of an increasingly visible leisure class. But like traditional industries, the domestic service sector, consisting of numerous small to medium sized firms is facing increasing stagnation, to a large degree occasioned by limits in purchasing power and capital savings within large sectors of the Israeli population.
Prominent economists are alluding to the dire consequences of a growing socio-economic polarization of Israel’s society. They are concluding that the benefits of economic growth are not being distributed evenly. Today, 20 percent of Israeli families are living below the poverty line, a percentage that rises to 35 percent for families with young children. The incidence of poverty increases with family size, below average education and single person households. Such factors are most prominent among Israel’s Palestinians and religious-orthodox communities, known as the ‘Haredim’.
Over 2.5 million Israeli adults are economically inactive, leaving another 2.6 million to work and provide public financial resources by paying taxes. This proportional equation, worrisome as it is, runs the risk of tipping to the other side on account of the much higher birth rate in Israeli-Palestinian and Jewish-Haredi communities.
In recent years Israel has begun cutting down on welfare payments to disadvantaged citizens while launching programs to stimulate unemployed workers in acquiring better professional skills. While recognizing the partial merits of such programs, Israeli economists are contending that far more is needed to avoid a further marginalization of Israel’s disadvantaged communities.