The big theme at the 2016 annual meeting of the International Monetary Fund (IMF) in Washington was ‘inclusiveness’. The combination of Brexit, Donald Trump’s assault on the American presidency and the rise of extremist parties across the European Union has stimulated a great deal of self-reflection.
Globalisation and open markets are perceived as having benefited the elites. And at the bottom of the economic scale, there has been considerable progress in lifting the very poorest out of poverty.
It is the squeezed middle, the traditional working classes or blue-collar workers, who have been left behind. This group fired up the 52 percent of Britons who voted to leave the EU and gave succour even to Bernie Sanders and Trump (sexual peccadilloes notwithstanding) in the US elections of this year.
Israel, too, has its social cohesion problems. Much of the wealth is concentrated in a few hands. The top 10 percent in the society are responsible for 27 percent of national output and own 51 percent of the wealth.
The top one percent are responsible for 22.5 percent of income. Indeed, Israel and the United States are the two advanced nations with the greatest income disparities.
At the bottom end of Israeli society, poverty is endemic among the Charedi, the Bedouin in the Negev and Arab populations in northern Israel. It is one of the great ironies that Israel’s poorest town, Jisr Azarqua, sits cheek-by- jowl with its richest, Caesarea – where Prime Minister Benyamin Netanyahu has a home.
Among the key reasons why the Israeli government this year adopted a 25 percent budget increase for Arab communities is because it has been urged to tackle inequality by both the IMF and the Paris-based Organisation for Economic Co-operation and Development.
Its membership in both organisations is seen as vital as the country seeks to curb global boycott activity. Nevertheless, amid the geopolitical turmoil, the conflict and terror which is blowing apart states all around it, Israel remains a beacon of economic stability and prosperity.
The latest IMF World Economic Outlook report forecasts an Israeli growth rise from 2.5 percent in 2015 to 2.8 percent in 2016 and to three percent in 2017. Inflation will be negligible.
Israel’s current account, the combination of its trade in goods and services with the rest of the world, together with its foreign income on investments, will be in surplus in 2016 and next at 3.1 percent and 2.9 percent of gross domestic product respectively. That ought to keep the shekel strong and make it easier for Israel to borrow, if necessary, on global capital markets.
Israel’s stability and strength contrasts with that of other countries in its neighbourhood. A strengthening of the oil price is starting to assist some of the economies of the region. President Barack Obama’s nuclear deal with Iran, which saw some sanctions lifted, has seen production rise to two million barrels per day, close to the pre-sanction levels. Not very helpful given Iran’s funding of global terrorist groups such as Hezbollah currently fighting alongside President Bashar al-Assad’s forces in Syria.
But although the economies of oil-exporting states are gradually improving, along with the oil price, the region as a whole is economically devastated. ‘Geopolitical tensions, domestic armed strife, and terrorism are taking a heavy toll on several economies,’ the IMF observes.
It also notes that the Gulf countries have lost hundreds of billions of dollars in revenues and are having to adopt austerity policies as a result of low oil prices over the last two years. The weakness is unhelpful to regional stability in that it encourages extremist movements.
Slow growth and social exclusion are combining across the globe to produce deeply disturbing political outcomes.