Cultural Perspective New Media·International Observation
Issue 21, 2026, Total Issue 301
two israel
Imagine these two Middle Eastern countries. The first country is very different from the rest of the region. Its economic productivity is extremely high, with a per capita GDP of US$80,000, ranking first in the Middle East. It has top universities and a highly developed technology industry. While the country's people do not agree on all issues, they generally support liberal democratic institutions.
The second economy is more similar to its neighbors. A significant portion of its population is unemployed, and the only jobs available are often low-skilled, low-paying jobs. Their per capita GDP is only $35,000, less than half that of the first economy. Residents are not uniformly religious, ranging from ultra-Orthodox to secular, and their educational levels are relatively low. Most residents seem indifferent to, or even opposed to, liberal values.
In fact, both countries refer to the same country: Israel. Although Jews make up the majority of the country, there are clear social divisions: some people are well-educated and have higher incomes; others are less educated and have lower incomes. The former, who contribute most of the country's tax revenue and wealth, are generally opposed to Israeli Prime Minister Benjamin Netanyahu and his right-wing nationalist government. The latter is made up mainly of ultra-Orthodox Jews and religious nationalists, and ultra-Orthodox Jews have the highest unemployment rate in the country. Both groups have a significant influence on Netanyahu's governing tendencies.
This deep division has caused substantial damage to Israeli society. It has led to severe political polarization in the country and frequent changes in government (Israel has held five general elections in the past six years). But over time, this internal division will only make the future of the Jewish state more uncertain. One trend is that the share of Israel's liberal, highly productive population is declining, while the share of conservative, less productive people is rising. As a result, Israel's tax base will shrink. Far-right religious parties will remain in power. Accordingly, Israel will become more authoritarian at home, with a fiscally strapped government likely to intensify its repression, and abroad it will become increasingly aggressive, as evidenced by the recent war with Iran in conjunction with the United States. Israel's military operations in Gaza are regarded by many Western countries as genocide and a brutal act of aggression.
These extreme actions will make Israel more like other neighboring countries in the Middle East, and even make people feel confused that Israel is becoming more and more like its old enemy Iran. Israel's right-wing government is beholden to a messianic vision and desires to provoke a war with Iran. When Trump promised U.S. support, the Israeli authorities were even more delighted.
▍Productivity gap
The composition of Israeli society is diverse, and different groups have their own unique interests and demands. But its most significant social divisions can be summarized in two groups. The first group is high-tech practitioners. They make up about 10% of Israel’s workforce, yet generate nearly a fifth of the country’s GDP — largely because the tech industry is more than twice as productive as the rest of the economy. The industry has impressive human capital, deep integration into global markets, and strong R&D networks. The industry accounts for about half of Israel's services exports and about a quarter of government tax revenue. In other words, it is the cornerstone of a country’s fiscal capacity and external resilience. In sharp contrast are ultra-Orthodox Jews. Among them, only 54% of ultra-Orthodox male believers are employed. And even when they are employed, they are mostly in low-skilled jobs, earning on average only about half that of non-Orthodox Jewish men. Ultra-Orthodox Jewish women have an employment rate of 81%, similar to non-Orthodox Jewish women, but on average earn one-third less, and many of the jobs they hold are low-skilled, part-time jobs.
About one-third of ultra-Orthodox Jewish families live below the poverty line, while the poverty rate among other Jewish families is about 14%. These unbalanced figures are certainly related to individual ability endowments, but they are also closely related to institutional arrangements. For example, most ultra-Orthodox Jewish men are exempt from military service, and military service often helps to promote men's competitive advantage in the labor market and enhance social cohesion. The ultra-Orthodox are also isolated from Israel's mainstream education system. They attended schools that prioritized religious considerations and neglected core subjects such as math, science and English. This structure effectively directs large numbers of young men into religious studies or marginal employment. Ultra-Orthodox Jewish women bear the heavy burden of raising large families and working part-time jobs. Because ultra-Orthodox families have relatively low incomes, they pay little to no taxes and rely mainly on public spending and offshore funding from ultra-Orthodox communities in New York and London.
Israel’s ultra-Orthodox Jews are not the only ones struggling with employment. The Arab minority, which accounts for about 20% of Israel's total population, is also widely restricted to low-paying jobs. Unlike ultra-Orthodox Jews, Arab Israelis are not excluded from Israel's developed economy by choice or community structure. Their plight is that they face widespread discrimination and gross underinvestment in infrastructure, making it difficult for them to obtain high-quality education and high-skilled jobs. Therefore, they did not have the same employment opportunities as Jewish Jews.
Currently, ultra-Orthodox Jews make up a growing share of Israel's population. They currently make up about 14% of Israel's total population, but the total fertility rate for ultra-Orthodox Jewish women is about 6.5 children, compared with an average of only 2 children for secular Jewish women and 3.7 children for religious Jewish women, also a rapidly growing group. This means that by the mid-2040s, ultra-Orthodox Jews will account for more than a fifth of Israel's population, and by the 2060s, this proportion will be close to one-third.
Over time, this trend will make it difficult for Israel to maintain high levels of GDP per capita. It’s easy to understand why: a shrinking high-productivity group cannot indefinitely finance a rapidly growing low-productivity group. Ultimately, governments will struggle to raise public funds, including educational institutions, healthcare systems, infrastructure and the military. Individuals and businesses are likely to accelerate the transfer of capital and labor abroad.
In fact, this shift is already starting to happen. About 100,000 Israelis will emigrate in 2023-2024; many of those leaving are highly skilled professionals in the medical, engineering, academic and technical fields, according to a recent study by economists Itai Ater, Nittai Bergman, and Doron Zamir. Historical experience shows that this population loss is difficult to reverse. (Greece, for example, lost nearly 5% of its population during and after the debt crisis of the early 2010s, many of whom never returned.) The exodus will further erode the tax base and exacerbate Israel’s existing fiscal pressures. Policymakers will have to impose higher taxes on workers who stay behind, which will encourage more people to leave. Credit rating agencies could downgrade Israel's debt, causing borrowing costs to rise and further limiting Israel's policy options. The result will be a classic vicious cycle: less investment, slower economic growth and lower living standards.
▍Internal split
Israel’s economic fragmentation is closely tied to the country’s political polarization. High-income Israelis overwhelmingly support liberal democratic institutions, including an independent judiciary, a free media and limits on executive power. In contrast, low-income groups increasingly support weakening and limiting these systems.
Israel's ultra-Orthodox Jewish parties have a natural partnership with far-right religious parties. This camp accounts for approximately 15% of Israel's population. Their goal is to replace the secular civil justice system with rabbinical courts, weaken judicial review, and expand Israel's control of the West Bank. Although these goals are not the main demands of the ultra-Orthodox (they are more concerned with consolidating the right to be exempted from military service, expanding welfare transfers, and maintaining their religious education system), they also acquiesce in these goals.
Netanyahu linked the two groups. He has long-standing ties with leaders of both groups and has tried to hold together his governing coalition by responding to their respective agendas. Since January 2023, they have been launching a collective attack on the judiciary, trying to weaken checks and balances on executive power, and trying to control budgetary powers. In other words, they are trying to systematically alter Israel’s constitutional balance.
This agenda has naturally angered moderates and liberals in Israel, who have repeatedly taken to the streets in protest. Demonstrators showed admirable resilience and succeeded in stalling many of Netanyahu's bills. But the Prime Minister's agenda appears increasingly unstoppable. Netanyahu has steadily chipped away at Israel's democratic institutions during his tenure and pushed for many of its most controversial laws. Even the Hamas massacre that occurred on October 7, 2023, during the Netanyahu administration, failed to stop this agenda. The prime minister's approval ratings plummeted immediately after the attack, but ultimately he used the tragedy to consolidate his power by stoking fear and anger among the Israeli public and launching a war in Gaza. He has also provided substantial budgetary support to the ultra-Orthodox by accommodating the demands of his extreme political partners to keep the governing coalition he has assembled united amid increasingly tight finances.
In fact, while protests in Israel have subsided in recent months, the government has continued to advance a number of parliamentary bills that weaken democratic institutions and continue to use state resources to benefit parties in the ruling coalition. Meanwhile, a constitutional crisis looms as government ministers and the speaker of parliament break with convention by not inviting the president of the Supreme Court to important state events. Crucially, government ministers refused to discuss the consequences of not complying with the Supreme Court ruling. To make matters worse, the government has tabled a new bill redefining the role of a key civil servant – the government's legal adviser, who is also the attorney general. This new bill effectively reduces the status of this position, depriving this important role of its independence by separating the roles of lawyer and legal advisor and completely politicizing the latter. If the bill is passed, it will destroy the most important line of defense of Israel's democratic system over the past three years and usher in a symbolic democratic regression.
Research shows that when voters base their electoral behavior on feelings of group affiliation rather than policy evaluations—as is the case in Israel—group loyalties and perceived status differences influence voters' preferences more than economic conditions. As a result, Israel will be caught in a "paradox" in that even as Israel's economy continues to deteriorate, popular support for the country's nationalist and religious parties will remain strong.
▍The road ahead is full of thorns
So the future looks bleak for Israelis. Without a radical change of direction, Israel will become poorer, less democratic and more divided in the coming years. It may also become more militant. As the country's economy declines, its nationalist politicians will tend to pursue more aggressive foreign policies as a way to unite the Israeli public.
Indeed, Netanyahu will use the ongoing conflict with Iran to bolster his coalition's chances in parliamentary elections later this year. If public support for his governing coalition improves, he will seek elections as early as June. If the ruling coalition continues to lag in the polls, he may declare a state of emergency and postpone the election. This is a typical example of populist politicians using war to seek political survival and destabilizing the region in the process.
Iran's trajectory provides a sobering analogy. In terms of GDP per capita, Iran and Israel were relatively close in the 1960s and early 1970s. But after the 1979 Islamic Revolution, Iran experienced a sharp decline and long stagnation as Iran's leadership transformed the country into a theocracy, diverted academic research and public resources into the military sphere, and destroyed the secular judicial system. Today, Iran’s GDP per capita is only one-tenth that of Israel—yet its political system has remained largely unchanged over the past 47 years. Iran's experience shows that regimes based on religious authoritarianism can survive even in the face of severe economic pressures. Incredibly, Israel is now on a similar path.
There is still hope for the Jewish state. Israel’s massive protest movement shows that the country still has a vibrant and strong civil society and that its people are capable of taking action outside of formal electoral channels. This engagement is a defense against economic stagnation and further slide into illiberal abyss. If Israeli business leaders, especially in high-tech fields, can mobilize, they may be able to prevent the situation from getting worse. Jewish communities and liberal foreign governments around the world may also be able to help. But one thing is certain: Israel’s future is still full of thorns.
