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Businessweek Archives

Israel's Fringe Welfare State

Economic Trends

Israel's Fringe Welfare State

A shaky future for the ultra-Orthodox

Rarely has such a small group exercised so much power in a democracy. Israel's ultra-Orthodox Jewish sects constitute only 5% of the nation's population. Yet such is the nature of Israeli politics that, by acting as a swing voting bloc, they have managed to secure a growing package of government subsidies and concessions.

The irony, contends economist Eli Berman of Boston University in a controversial new study, is that the very success of the ultra-Orthodox now threatens the group's survival. "Unless the government support system is modified," says Berman, "the community is headed for economic disaster."

According to Berman, ultra-Orthodox Judaism, like other fundamentalist religious movements, can be understood in part as a reaction to market forces that threatened its traditional, cohesive social structure. It sprang up in Eastern Europe some 150 years ago, he says, in response to the disrupting effects of economic emancipation on closely knit, highly supportive Jewish community life. In enforcing strict rules in matters of diet, dress, sex, and the sabbath, the group shielded its members from the corrupting temptations of modern culture and enabled them to signal their commitment to ultra-Orthodox goals.

With their ranks decimated by the Holocaust, the surviving ultra-Orthodox who migrated to Israel after the war have used their political clout to expand the privileges and subsidies accorded to them by Israel's Socialist founders. These now include reduced health-insurance premiums and property taxes, child allowances that rise with each additional child, and stipends and exemptions from military duty for men in full-time religious studies at a yeshiva.

As a result of such incentives, 60% of men 25 to 54 attend yeshiva rather than work, up from 41% in 1980, and 46% of those in their early 40s continue to study full-time even though they are no longer eligible for military service if they work. At the same time, the group's fertility rate has surged from 6 1/2 to 7 1/2 children per woman.

The upshot is that most families with fathers in religious study live in poverty, with government programs supplying at least 70% of their income. A mere 18% of income is earned, mostly by wives, and help comes from ultra-Orthodox communities abroad. Only the remarkably generous mutual aid practiced by the community ensures that no one lacks food, clothing, or emotional support.

The situation, argues Berman, is unsustainable. The group's population growth, which doubles its numbers every 17 years, may bankrupt Israel's welfare system in a generation. Meanwhile, opposition to its privileges rises.

The answer, says Berman, is to end draft deferments and stipends, replacing such aid with ample income-support programs for all people in poverty, combined with job-training. Ultra-Orthodox men in Europe and America, he notes, end full-time religious studies in their early 20s and find jobs to sustain their communities. With the right set of incentives, their brethren in Israel can do the same--before growing economic pressures bring their social support system to the brink of collapse.BY GENE KORETZReturn to top

Wall Street's Continental Lift

Europe is heavily into U.S. stocks

Don't underestimate the dependence of U.S. equity markets on European investors, advises economist Joseph P. Quinlan of Morgan Stanley Dean Witter. While most other foreigners cut back their purchases of U.S. stocks last year, he notes that Europeans poured some $72.3 billion into American stocks, after shelling out a hefty $62.7 billion in 1997--thus capitalizing on Wall Street's two-year near 70% bull run.

As for Americans, they missed the boat on Europe's 29% rally last year, unloading some $26 billion worth of European equities. Indeed, Europe was the only major region to experience a net outflow of U.S. money from its stock markets.

Quinlan notes that European purchases of $135 billion worth of U.S. stocks in 1997 and 1998 dwarfed the region's $11.8 billion investment over the prior nine years. All of which makes him wonder how healthy the Wall Street bull would look if economic woes caused Europeans to pull back this year.BY GENE KORETZReturn to top

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