On the surface, the OECD’s latest report on Israel’s economy is very encouraging. In an era when world leaders are concerned about another recession, the OECD observed that: –

Thanks to prudent monetary, financial and fiscal policies, growth has exceeded most other OECD countries’ rates for more than a decade. Employment is rising, inflation is low, the external surplus is comfortable, and the public finances are in relatively good shape.

Taking just one key indicator as an example, Israel has brought down its national debt as a percentage of its GNP to 66%, where as the OECD average is close to 120% and rising. It does not come much better than that!

The problem is that the report also indicated the ‘dark side’ of the economy. We are talking about the lack of “inclusive growth”, where the income differentials between the highest and lowest earners in the economy are extreme (compared to other countries) and growing. The top 10% earners bring in nearly ten times as much as those in the lowest 10% bracket. (25 years ago, the differential was a factor of seven).

The Hebrew financial newspaper “Calcalist” (The Economist) highlighted one specific anomaly. If you start in 2003, housing prices in the OECD having risen around 10%. In Israel, while they dipped slightly in the period up to 2008, they are now a massive 60% higher!

No way have incomes risen so quickly. In fact, poverty rates at around 21% are amongst the highest in the OECD.

It is easy to pick out excuses. There are burdensome geopolitical pressures. The country has to cope with two large, conservative social groups, ultra orthodox Jews and Arab, who present unique challenges. And yes, core structural changes – the reforms of the electricity market and the ports authorities to name just two – are way overdue. However, they cannot reasonably explain what more taxpayers are finding increasingly unacceptable.

Since the start of the current millennium, Israel’s start up economy has much to be proud of. And in that same period, it is becoming a society of haves and those struggling to keep up. Benjamin Netanyahu has been the Minister of Finance or Prime Minister for nearly ten years since 2003. In other words, he has had a key role in the success, while being responsible for creating the mess.

Look at how Netanyahu has reacted to the recent scandal surrounding the finances of his use of public funds for his home. Consider his position on the gas revenues, which does not engage the public spirit. And this current government has dumped more pressure on the middle classes by repealing reforms from a few years ago.

I do not think that the OECD is just warning about possible social fissures in the Holy Land. In its quiet and diplomatic way, these respected international economists are directly questioning if Netanyahu is still capable of driving the changes required. Many around me say no. Ouch!