For decades, the quality of life of most Israelis had improved – until October 7th.
- Israel at war with Hamas: Return to a more militarized society
- Less conflict, more focus on business: Defense spending fell for years until October 7th
- Voluntarily went to war: Hamas attack leads to wave of patriotism in Israel
- This article is available for the first time in German – the magazine first published it on January 30, 2024 Foreign policy.
No one can say with absolute certainty what the long-term impact of the Gaza war and its spin-off conflicts in the West Bank and on the border with Lebanon will be for Israel. But already today the war can be considered to mark the end of a 20-year era of peace (by Israeli standards) and prosperity (by anyone's standards) and the return to the more militarized state and society that is Israel in the first half century of its existence.
For outsiders whose image of Israel is primarily influenced by the regular conflicts with the Hamasthe Hezbollah and Iran, the idea that the country could be militarized seems unlikely. Over the past two decades, the country has fought no fewer than five wars and is engaged in an extensive shadow war with Iran. The defense budget's share of GDP is one of the highest in the world. About 69 percent of young men and 56 percent of young women (excluding the ultra-Orthodox and Israeli Arabs, who are exempt) are drafted into the military each year. The streets and shopping centers are full of uniformed soldiers, and large numbers of civilians carry automatic weapons.
Israel's defense spending fell
But before October 7, Israelis had essentially moved beyond the idea that they were in a constant state of war that their parents and grandparents had taken for granted. The wars that Israel fought were short. They caused little or no damage to the economy and infrastructure, and the number of casualties was low, due in large part to this Iron Dome missile defense system was thanks. The Palestinian issue remained unresolved, but it became increasingly irrelevant. There were no major moves to restart negotiations; Instead, there was talk of “downsizing the conflict” by improving the lives of Palestinians under Israeli rule without giving them a state.
None of this was entirely illusory. The Abraham Accords of 2020 normalized Israel's relations with the United Arab Emirates and other Arab countries. Before October 7, Saudi Arabia appeared to be moving toward a similar agreement. Israel has been included in regional economic initiatives such as the I2U2 grou
p of India, Israel, the United Arab Emirates and the United States, the Eastern Mediterranean Gas Forum, which includes Cyprus, Egypt, France, Greece, Israel, Italy, Jordan and Palestine , and the India-Middle East-Europe Economic Corridor, unveiled just weeks before October 7. Talk in Israel and the Gulf about a new Middle East focused less on conflict and more on economic development did not seem unlikely.
This all had a direct impact on the Israeli military. Defense spending fell steadily from 15.6 percent of GDP in 1991, on the eve of the Oslo Accords, to 4.5 percent in 2022 – still high by global standards. Defense became not only less of a drain on Israelis' wallets, but also on their time: the total number of days reservists spent in the military fell from 10 million in 1985 to 4 million in 2000 and only 2 million in 2018, according to the Jerusalem Institute for Strategy and Security. The percentage of non-ultra-Orthodox young people exempted from conscription has increased. Support for conscription – a central article of Israel's social contract – fell below 50 percent in 2021, according to a survey by the Israel Democracy Institute, marking a significant shift in Israeli attitudes. The Israel Defense Forces (IDF) is increasingly relying on technology and air power rather than tanks and infantry to provide deterrence.
Israel grew as a “start-up nation”
The reduced military burden and the growing feeling that Israel was safe and would easily recover from regular wars gave the economy a huge boost. One reason the defense burden fell so much was that the economy was growing much faster than military spending. The 30 years before October 7th were the Years of the “start-up nation”. Israel adopted the Silicon Valley start-up model with remarkable vigor, creating a global high-tech juggernaut. The sector created large numbers of well-paying jobs, attracted billions of dollars in foreign investment and generated an unprecedented trade surplus. Prosperity spread throughout Israeli society and allowed the government to reduce taxes to levels slightly below the average for OECD countries.
Israel in the coming years, if not longer, will look very different. To cover the costs of the Gaza war, defense spending is expected to increase by almost 80 percent this year (if American aid is included), or about 70 billion shekels. That figure remains controversial, but even the usually frugal Finance Ministry accepts that spending must increase by at least 20 billion shekels a year. To finance this, the government has decided to cut other spending and increase this year's budget deficit to 6.6% of GDP. So if military spending remains at high levels in the next few years, Israel will eventually have to reverse the long-term trend of tax reduction.
The dramatic increase in military spending appears inevitable even if the conflict with Hamas eases or shifts to lower-intensity warfare in the coming weeks. The October 7 Hamas attack taught the IDF that technology has its limits (Hamas was able to easily overcome defenses on the Gaza border) and that nothing can replace ground forces. Compulsory military service is to be extended from the current two years and eight months to a full three years, and reservists will be called up much more frequently. Many of the reservists sent home from the Gaza Strip in recent weeks have been told they will soon be called up again.
Ammunition from the USA is essential for Israel
The war itself taught Israeli policymakers another important lesson: that future conflicts risk becoming protracted and entailing tremendous consumption of ammunition. Without the US airlift, Israel would not have been able to have the ammunition for the Gaza offensive because it does not have the necessary production capacity. Israel will now have to forego some of its focus on defense electronics and cyberwarfare in order to produce more bombs and other low-tech munitions and spend more money on larger weapons stockpiles. Prime Minister Benjamin Netanyahu has announced that the Cabinet will be asked to approve a decision to significantly expand Israel's military industry.
These changes will inevitably impact the economy. Higher taxes will of course slow down the development and growth of companies and ultimately economic growth. Israel has enjoyed an unusually high credit rating for many years thanks to its solid public finances, but a less secure national security environment will increase the hurdle for international investors to invest money in Israel. At the beginning of War between Israel and Hamas S&P, Moody's and Fitch downgraded Israel's outlook to negative.
A tighter security environment is having a profound impact on Israel's start-up sector, which draws half or more of its capital from abroad and relies heavily on a predominantly young and male workforce that will now do more military service. Engineers and entrepreneurs can easily migrate abroad if they find conditions in Israel increasingly unfavorable. Security concerns could even affect Israeli companies' famed resilience – the ability to cope with terror and missile attacks and fulfill customer orders. This resilience was based, at least in part, on the prevailing confidence that Israel is well defended and is slowly but surely moving toward a more peaceful era and regional acceptance. Now more and more Israelis see their country moving in the opposite direction.
Hamas attack leads to wave of patriotism in Israel
The last time Israel suffered such a catastrophic shock to its military confidence was the 1973 Arab-Israeli War. This led to a dramatic increase in defense spending and a decade often referred to by historians as Israel's economic “lost years.” becomes. The shock of 2023 was not nearly as big, and the impact will be smaller. The economy is many times larger; Unlike 1973, the global economy does not appear to be headed for a recession that would complicate Israel's recovery efforts; and Israel can rely on its energy and defense industries. The defense industry will grow due to increasing demand both domestically and globally (the latter in the wake of the Ukraine war), while Israel's natural gas industry is anticipating buoyant demand from Egypt and Europe. A new round of exploration licenses awarded shortly after the start of the Gaza war could lead to an expansion of production.
Still, a return to the old, more militarized Israel will not be easy. The war led to a surge of patriotism and a greater willingness among young people not only to serve in the military but also to volunteer for combat. But this new zeitgeist may not last. Netanyahu remains a deeply polarizing figure, and the country remains deeply divided over issues that were already contentious before October 7, such as the government's controversial judicial reform. Some members of the younger generation, raised in an era of increasing material comfort, will certainly bristle at the prospect of higher taxes and more obligations to the state. The smartest and most successful among them will have the opportunity to emigrate. This means that a brain drain could be another setback suffered by Israel as a result of the war.
To the author
David E. Rosenberg is a business editor and columnist for the English edition of Haaretz and author of the book Israel's Technology Economy.
We are currently testing machine translations. This article was automatically translated from English into German.
This article was first published in English on January 30, 2024 in the magazine “ForeignPolicy.com“ was published – as part of a cooperation, it is now also available in translation to readers of the IPPEN.MEDIA portals.
#prosperity #Israel #war #means #country
