Why is Israel So Poor?

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File this one under the list of “infrequently-asked questions.” This is an issue I’ve discussed extensively over at TGGP’s blog. Basically, here is the puzzle: Jews are among the most wealthy groups in America, with a median income close to $100,000 a year.

Naively, you might expect Israel to be about as wealthy. Isreal is, after all, a country filled with Jews. Yet Israel is far poorer than a hypothetical “Jewish-America,” and is also poorer than America in general. Israel’s wealth is a little difficult to parcel out due to the presence of a large Arab minority. Yet even if you assign an income of non-Jews of 0, you arrive at an Israeli per capita GDP of $36,000. By comparison, both Ireland and America are in excess of $45,000 per capita. Corrections for Purchase Price Parity correct for some, but not all, of this difference.

This is part of a general phenomenon. As Tino has calculated, virtually all hyphenated-Americans do better in America than their home country.

With respect to European countries, this makes sense. As has been argued elsewhere, America/Europe income differences are due in no small part to different taxation policies. Lower marginal tax rates do have long-term effects on standards of living, even if they don’t “pay for themselves.”

Figuring out what’s going on in Israel is a bit trickier. This country looks more free-market than European standards. There are two crucial issues here:

1) Trade is very low. For its given level of wealth, Israel has a very small export sector. For instance, it has about an eighth as many exports as Belgium, a country with an economy less than twice as large. This should come as no surprise—the largest determinant of trade volume is geography, and Israel faces a far rougher neighborhood than Belgium. This forces Israel to produce more products domestically, rather than specialize.

2) Israel is a low trust society. I caught a lot of flack for this in the comments, but I stand by this statement. There is an enormous literature tracing the effects of trust and cooperation on firm size and GDP. In general, where social trust and cooperation is low — corruption is higher, and firms tend to be small-scale organizations built on kinship links. Managers must actively monitor their employees, rather than being able to scale up.

Somewhat surprisingly, Israel stands out as a country with high IQ but low levels of trust. Some 56% of Israelis report that you cannot trust others, which is a figure comparable to other low-trust societies like South Korea or Italy. Think of Israel as a Mezzogiorno with nuclear weapons.

One manifestation of this is that there are very few large Israeli firms. Teva, a generic drugs manufacturer, is a notable exception. By contrast, high-trust Switzerland is home to several national superstars like UBS, Novartis, TAG Hauser, etc. Israel’s economy is dominated by small-scale firms, many of which are founded by people who formed close bonds in the IDF. Even in America, there are host of large Jewish-founded firms, like Google.

Of course, a lack of large, productive multinationals may play a role in explaining Israel’s relatively poor economic performance. Firms with scale and branding are able to tap into the tail ends of a “smiley curve” economy by focusing on the value-added activities of branding, design, and distribution. Smaller firms operating in heavily competitive industries, by contrast, earn few economic rents.

It’s in this vein I want to revisit Helen Thomas’ comments that the Jews should return home. Set aside the Ashkenazi bias implicit in this question (where would Jews from or Iraq go?). A simple calculation would suggest that a mass relocation of Jews to other Western Democracies (particularly free market ones like America) would allow them to plug into a high-trust societies with more robust institutions.

More broadly, though we frequently assume that individuals are the same everywhere and growth should be possible for all — this just doesn’t look to be the case. The roots of post-Malthusian explosive growth are deeply rooted in a particular institutional form which was innovated in the Netherlands and exported to England in the Revolution of 1688. From there, it spread to a group of Anglophone settler nations and colonial dependencies like Singapore and Hong Kong (and by further American tutelage to countries like Taiwan, South Korea, and Japan). Alternative reforms were innovated in France after the French Revolution and spread by force throughout Europe.

We really have few examples of countries doing successfully economically without borrowing heavily from these models. For instance, Chile is the really successful part of South America, and they have also done the most to mirror First World institutions through the imposition of reforms led by the Chicago boys. China is a potential counter-example, yet the lesson here remains ambiguous as long as the country remains as poor as El Salvador. Again — look at the enormous success of Chinese transplants in more Anglo environments like Singapore, Taiwan, or Hong Kong. That is presumably indicative of Chinese potential GDP; and by that standard China is doing abysmally. Its institutions are to blame. (Interestingly, though China reports itself a high-trust society, it is also home to few large brands. Those  that come to mind — like Huawei — are frequently state-supported. By contrast, poorer India already has several well-known brands like Tata, Infosys, Wipro, etc.)

There’s not a lot we can do to fix this. Moving the Jewish or Palestinian population out of Israel en mass isn’t a feasible option. Yet transforming these into high-trust societies overnight isn’t an option either. Paul Romer has advocated establishing charter cities around the world which would set up top-notch institutional enclaves in poor areas, yet he has found few backers.

This also has implications for America’s nation-building efforts. Nation-building succeeded in countries like Japan to the extent that parliamentary norms were successfully transplanted, while Japan was able to free-ride on the American military buildup. American demand for Japanese goods provided additional impetus for industrial growth. By contrast, interventions in Iraq, Afghanistan, and Pakistan have entrenched local interests by throwing in large amounts of aid. Exports of minerals and oil also generates a resource curse, making a transition into democratic, industrialized states even less likely.

I’m less certain about this issue than I have been in the past. I’m certainly open to other suggestions in the comments.

52 Comments

  1. hm. could the fact that israel is a partially militarized society be part of the issue? from what i recall it seems that unless militarized societies steal stuff from societies they conquer (rome) or enslave those they conquer and collect rents (sparta) their level of economic productivity isn’t that high. spending too much time engaging in basically a zero sum activity.

  2. also, israel is one of the most multiethnic developed societies in the world.

  3. All of the above is fascinating to read (I’m Israeli but was born in America and lived there for more than 20 years).

    About the trust issue here, this is really a zero-sum society. People go through life with the attitude that you have to lose in order for me to win. This is applied to everything – like driving on the highways and negotiations in business – in a way that dramatically lowers the quality of life here. It makes dealing with Israel difficult for outsiders who are viewed as “frayers” (suckers or marks) because they aren’t cutthroat. I can’t imagine how much foreign investment we’ve lost because of this.

    The business mentality here is also remarkably unlike in western countries. In America, they say that the customer is “always right.” A typical Israeli approach to customer service is that the customer must be proven wrong. Attitudes like that cost everyone in the society a lot.

    Besides the above, it’s not having friendly neighbors and the relatively high cost of trading with other parts of the world; it’s having to direct resources to absorbing and resettling Jewish immigrants from many poor countries like Ethiopia; it’s being at war and diverting such a large portion of GDP to defense; and it’s the stifling socialism of the founders’ generation that still lingers.

  4. Razib, the degree of militarization does not need to be a burden in modern times.

    First, as mentioned, common military service experience creates powerful bonds among people from very diverse backgrounds, and presents a chance for males of lower economical status to obtain contacts in the higher classes.

    Second, Israel’s degree of militarization comes hand-in-hand with extensive R & D in weaponry, and export of high-tech weaponry is a significant subset of the total Israeli exports.

  5. BTW, can any Israeli tell us what are the differences in mean income in, say, Tel Aviv, Jerusalem, and Bnei Brak?

    From what I know, I would rather expect them to be high. But I am not sure whether Israeli statisticians collect this kind of data.

  6. Does the boycott of Israeli products in some places around the world contribute to Israel being poor?

    When ever a activity arises in relation to the treatment of Palestinians, there are always renewed calls for boycotting products that are from Israel or support their economy.

  7. “With respect to European countries, this makes sense. As I’ve argued elsewhere, America/Europe income differences are due in no small part to different taxation policies. Lower marginal tax rates do have long-term effects on standards of living.”

    But Scandinavian countries have some of the highest tax rates in Europe, yet they’re also the richest countries in Europe. They are small countries & arguably “outliers”, but still.

    Also, it’s not at all clear that Europe has a lower standard of living than the US despite lower per capita GDP, e.g. on measures like life expectancy & crime rates.

    w.r.t Israel, isn’t comparing wealth between Israel and other developed nations spurious because Israel started “from scratch” (mostly) so recently?

  8. The US-EU GDP per capita difference probably stems largely from the fact that Americans work significantly more hours than Europeans. This is discussed here: http://crookedtimber.org/2010/08/21/eu-us-convergence/. Moreover, it is claimed in the comments there that the US advantage is mostly due to the large number of super-rich people in America, suggesting that the median American is not better off than the median Western European:

    “The US has the largest gap between its top earners and everyone else. The Netherlands actually surpasses the US for GDP per-capita of the bottom 99%, and the difference between Germany and the US narrows considerably.”

  9. I see two major causes which aren’t mentioned in the post, though Razib gets one of them:

    Cost of the military – while some military R&D drives innovation, and bonds formed in the military can overcome some of the low-trust society problems, military spending is fundamentally not productive, no matter how necessary. For a society as militarized (and beseiged) as Israel, the question maybe should be “Why is Israel so rich, compared to other militarized societies?”

    The other is that while Israel is realtively free-market now, that’s fairly recent. As late as the 1980s, Israel was pretty socialist, until the current generation of Likud leaders added free-market policies to the way they differntiated themselves from Labor. The arrival of lots of Russian Jews probably helped drive this change.

  10. Razib,

    OTOH, Israel’s military spending seems to have a number of spillovers in terms of taking a commanding heights in military applications, as Marian suggests.

    Neuroskeptic,

    If you check out the Tino link, you’ll see that Swedish-Americans make more money than Swedes. The “richest countries in Europe” lag American standards of wealth — in aggregate, anyway — by a substantial amount. That’s not under dispute. Even the richest European countries would be among the poorest American states if they were a part of the US. If you want to broaden that to “overall quality of life,” sure that’s subjective.

    WRT Israel, note that the America/Israel difference actually appears to have widened in the last few years. Singapore also started out “from scratch” and is now rapidly approaching US income.

    JL,

    In terms of distribution; the bottom 10% are perhaps better off in Europe than the US. Everyone else in the distribution is better off in the US. See the Luxemburg Income Study for more. The median American is substantially better off than the median European.

    Of course, “longer working hours” are part of the mechanism by which America is better off. This is not some hard-wired cultural difference, but recently emerged in the last few decades due in large part to differences in marginal tax rates. Note that Europe actually doesn’t have more leisure time. They just spend more time on household production, as they don’t spend the same money on washing machines, etc.

  11. Several factors at play here:
    1. American jews are mostly Ashkenazi. (probably the biggest factor).
    2. Geographics – Israel is low on natural resources.
    3. the Israeli-Arab conflict denies trade with a good part of the neighboring countries while international reputation probably hurts trading opportunities with the rest of the world.
    3. infrastructure – Israel is a young country.

  12. I believe Israel’s relative wealth has shot up since massive reform and privatization 10-15 years ago. Give them time.

    As for inter-country comparisons of elite groups, the smaller the elite community as a proportion of the general population, the richer they are. Cf. Indians in colonial East Africa compared with their relatives back home. Chinese in the US compared with Chinese in China. Jews in countries with small Jewish communities (Venezuela, Colombia) compared with those in the U.S. Within the US, the mass Jewish community in New York has much larger lower-middle and working-class populations than the smaller Jewish communities around the country.

    In other words: how many doctors, lawyers, and real estate developers can a state or country possibly support?

  13. i don’t discount the ability of conscription to form bonds across class/ethnicity, etc. but, nothing so thorough and time-intensive as IDF service is needed for that (way past the point of zero marginal returns IMO). second, re: R & D, i’m skeptical that a small nation like israel couldn’t just free-ride off US military inventions which eventually move into the public domain. i don’t think israel’s comparative advantage is taxing their citizens more to throw money at capital intensive projects which may pay off.

  14. Barry,

    Israeli per capita income was 64% of America’s in 1995. It was 47% in 2005.

    What about majority Chinese Singapore? Or majority Indian Mauritius? It’s not just about a portion of your citizens doing better. Ireland is substantially wealthier than Israel!

    Razib,

    Israel’s military spending is 6.8%, which is high but very manageable. Their government spending overall is closer to Canadian/American norms than Continental European or Nordic spending.

    I agree that security concerns probably scare away a lot of business. I also agree that a large amount of ethnic diversity probably explains a large portion of the trust variable.

  15. Razib, the question is whether Israel could afford to live off US military inventions – strategically.

    First, quite a lot of Arab countries import US military hardware. I can understand Israeli motivation to have “something different”, if only for the reason that their potential adversaries won’t be acquainted with strong sides, weak sides and “bugs” of Israeli equipment. If they shared the same armament shipments with the potential enemy, some of the “surprise effect” would be gone.

    Second, the US military is large and usually counts with numerous reserves and huge strategic depths. Therefore, the hardware will be adjusted to these expectations. On the other hand, Israelis count every soldier and every mile, because the country is rather small; and they will need equipment optimized for work under these constraints. This, I believe, was the central reason for developing the Merkava line of tanks – they are optimized for crew survival, for example having a rear emergency exit, which is not found in other main battle tanks of the world. Also, Israeli hardware must be suitable for very quick repairs under fire – this is not that much of a concern for the Americans, who prefer towing of a disabled vehicle to an operating base, because they usually can replace it with a backup on the battlefield.

    So, given the fact that Israelis are motivated to develop hardware, I think they could do worse (economically).

  16. Perhaps the most simple explanation is that the jewish population in the US is more secular overall. In orthodox communities, people spend a significant portion of their time involved in religious rather than economic activity and tend to be less well off.

    Secular Israelis seem to be phenomenally productive, certainly in terms of technology.

  17. It’s the Haredim (who the government coddles) and the Arabs (who the government stifles). I’d be curious to see the per capita GDP of the Tel Aviv metropolitan area, which houses over half of Israel’s population and is practically void of these two groups of laggards.

  18. According to wiki, Tel Aviv has a GDP of $122b, an a population of 3.1m (ie, about half of the population) -> GDP/capita of 39k. Again, this lags both Ireland and America, and lags substantially behind American Jewish income.

    Look data up yourself, people!

  19. What is Israeli Ashkenazi GDP?

  20. The original Zionists didn’t intend for Israel to be a particularly rich country, they intended for it to be a normal country, with a lot of farmers, soldiers, and other low-paid people. They strove hard to change Jewish culture from being a middle-man minority culture to a less elite, less intellectual, and less capitalist one suitable for being a majority culture.

    To some extent, they succeeded.

  21. Here’s another attempt. Please delete this if the original comment is approved to avoid double-posting.

    First off, I’d like to say welcome to the blog! I’ve found you an interesting writer and think you make a good addition.

    Marginal taxes probably explain some of the U.S vs E.U difference, but I think there are a host of other differences that could contribute.

    “This country looks more free-market than European standards.”
    78 on the Fraser Index. That makes it freer than Montenegro, Russia, Serbia, Macedonia, Moldova, Croatia, Bosnia & Herzegovina and Ukraine.

    I agree with your broader point about trust, but is South Korea a good example? I thought they were doing pretty well. In the Atlantic article you link to, Korea’s economy is said to be more like Japan’s than China/Taiwan (which I believe Fukuyama contrasted in his book).

    Speaking of Helen Thomas, Lebanese also probably do better outside their homeland. Thomas Sowell discussed them as a “middleman minority” in Are Jews Generic? I believe Carlos Slim is of Lebanese descent.

    Many Israelis actually do seek a better life in America, a “reverse aliyah“. Apparently that rather than the actual threat of nuclear attack is the bigger fear regarding Iran nowadays.

    Someone should tell Chris Coyne & William Easterly about that Acemoglu et al paper.

    “Moving the Jewish or Palestinian population out of Israel en mass isn’t a feasible option”
    There aren’t all that many Palestinians, and there are plenty of Arab countries for them to go to (I believe Jordan is majority Palestinian already). Greece & Turkey were able to exchange populations before, and large numbers of ost-deutsche were transferred to Germany with the end of the second world war. The Palestinian issue is unusual in that people have maintained camps to preserve the narrative that over all these generations they are still temporary refugees. But even after removing the Palestinians, I think Israel still wouldn’t be doing that great economically.

    The claims that military spending isn’t a drag because of indirect benefits cause the sound of broken windows to ring throughout my head. Directly spending the money on research for X is a much better bet than spending on P and hoping to get X or Y by accident.

    Barry Youngerman, I don’t have any data or anecdotes to compare communities in Venezuela/Columbia.

    Yehoshua, how does the government stifle Israeli-Arabs? The one complaint I’ve heard is that they don’t have mandatory service that a lot of opportunities are supposedly based on bonds formed at that time.

    Sailer makes an important point. The appeal is supposed to be non-monetary. If it had been up to me they certainly would have chosen a more opportune location than a desert* referenced in some book of fables, but unfortunately I hadn’t yet been born and wasn’t available to set them right.

  22. Israel has been doing very well throughout the world-wide economic crisis of the past two years. My theory is that there are many factors holding Israel back that will continue to be relevant and have some effect (e.g. the political/military situation), but the critical factor is Israel’s history of socialism. Israel has been moving away from socialism since 1985, and the process seems to have passed critical mass in 2003. I think that Israel’s current economic success is due to non-cyclical factors; that is, if the world economy were better right now, it would be even greater.

  23. Actually, I would like to state things more strongly: No discussion of the Israel economy is complete without looking at the situation of the last few years. It’s truly remarkable.

  24. 1. American jews are mostly Ashkenazi. (probably the biggest factor).
    2. Geographics – Israel is low on natural resources.
    3. the Israeli-Arab conflict denies trade with a good part of the neighboring countries while international reputation probably hurts trading opportunities with the rest of the world.
    4. infrastructure – Israel is a young country.

    Adding a few:
    5. Disproportionate focus on military spending (for obvious reasons).
    6. Founded as a socialist country, modified by market reforms from the late 70-ies onwards.

    I´m sure that there are more factors out there.

  25. Israel is a rich country on par with Europe. For a country at war for 60 years, where 8% of the GDP now (and up to 25% in the pst) goes to the army, where 10% of the population is ultra-orthodox Jews who do not work, 20% are Arabs whose women do not work and have low education, whit your neighbors trying to kill you and going out of decades of semi-socialism – yes this is a huge achievement.

    Per capita gdp ppp should be higher than France and Germany by 2015-2020. Not bad, no ?

  26. One of the differences between higher performing Ireland relative to lower performing Israel, is that Ireland has a significantly higher IQ than Israel – don’t discount that ;)

  27. TGGP,

    Thanks for the welcome. I agree the country looks a little worse on some of the traditional free-market measures, which I should have probably looked up. I was focused on government spending/GDP, which is fairly low, even taking the military spending into account.

    Perhaps S Korea isn’t a great example. Yet it remains far poorer than Israel or Japan. The Lebanese and Armenians are very badly served by their current institutions.

    I agree on the “broken windows” point. Military spending is probably a drain. However, I think it is relatively less of a drain than other gov expenditures. So Israel both has a small government, and one that leads to strong economic spillovers. The Kibbutzes are a pretty small portion of the economy. It has enormous human capital; ie the most game theorists per capita. It is pretty badly underperforming its fundamentals.

    David,

    Currency devaluation allows small countries to do well in a crisis; that’s not in dispute. But check out my stats above. Israel is falling behind in per capita terms.

    Benjamin,
    If individual Israelis could be better off by a factor of ~x3 by moving to America, despite having few of the structural problems holding back Europe, I don’t think that speaks very highly of their management. America has also been at war for 60 years.

    pconroy,
    Right, that High-IQ Ireland :) I see 94 for Israel and 93 for Ireland in IQ and the Wealth of Nations.

    To those focused on the Ashkenazi distinction:
    If you subtract out all non-Askhenazi Jews and Arabs from Israel’s population and divide by GDP, (ie, a gross overestimate, as it assigns all of the rest an estimate of 0 for their income) you get a per capita of $53k/year. This is finally higher than America, yet still probably lags the US Askhenazi average by a factor of 2. That’s huge!

    Finally, Israel has a pretty low gini (<.40). That argues against a "high performing core" weighted down by other folks.

  28. Some people here talk about how american jews are all ashkenazim unlike in israel, and that it makes a big difference; well a lot of jews in america are not ashkenazim and are still very wealthy (syrian, iranian, etc..), ever heard of Haim Saban, no ?
    That is also true in other countries like france (where i live) where 3/4 of the jews are from north africa, there are a lot of wealthy sephardim here.
    Also Ashkenazim represent more than half of israeli jews according to wikipedia (3M out of 5.7), so that doesn’t really explain the gap.

    Anyways, as mentioned in other comments until the middle of the 1990′s israel was a socialist country, it’s probably the most important of all the reasons and you missed it. It’s funny how you prefer fancy social studies explanations to a simple lesson in history.

  29. Thorfinn,

    How does “currency devaluation allow small countries to do well in a crisis”? Israel’s currency floats, so it can’t be simply devaluated. Yes, the Bank of Israel can intervene (and it does), but every kind if action causes an opposite reaction. “Printing” money results in inflation (there is very little), borrowing money results in debt (there is some of this). In any case, the fundamental reason the Bank is intervening to keep the shekel level (with incomplete success) is because the Israeli economy is strong, which would otherwise cause the shekel to appreciate. In other words, I think you have it backwards.

    I agree with mmok and others that the theory you need to disprove is Israel’s history of socialism. Socialism is a real economy-killer.

    All other factors are tertiary. But they are nevertheless interesting. One thing that few people realize (even in Israel) is the worst aspect of Israel’s island-like economy: there are a large number of important industries without real competition, simply because they don’t have many players. For example, the top two dairies make the vast majority of Israel’s milk products. The top dairy (Tnuva) has more than a 50% market share, I think. This is much more important than your point above about international trade facilitating specialization.

    As for the trust issue, I don’t see it. Here four neighboring countries with very similar GNP/capita:

    22 – Sweden
    34 – Britain
    45 – Germany
    55 – France

    Do you see those numbers reflected in their economies?

    How about these:

    19 – China
    52 – South Korea
    53 – Japan

    ?!?!?!

    I have a feeling that there are linguistic issues with these numbers. For example, there are several words in Hebrew which could be used to translate “trustworthy” and I think they would give different results.

  30. David,

    Thanks for your remarks. As I mentioned in the post, I’m sure there are many explanations for this somewhat counter-intuitive result.

    If you look at the Shekel since mid 2008, it started strongly depreciating relative to other currencies such as the Euro and the Dollar. Lower exchange rates boost exports, and also provide a monetary stimulus to the economy. If you follow Milton Friedman, as I do, you know the stimulus benefits of monetary expansion. Also see: leaving the Gold Standard, or Italy, or Chinese depreciation. In any case, the movements in a country’s economy over a few years are less informative than the overall standard of wealth accumulated over decades.

    I take your points about trade being beneficial for several reasons. But you can’t explain Israel’s economy by blaming socialism. For one, Israel’s relative position dropped between 1995-2005.

    For another — Becoming socialist is not an exogenous variable . Being part of an ethnically diverse, low-trust society encourages people to look to big government as a solution; for instance, see Alesina’s work on this. Merely shunting and blaming sub-par institutions begs the question — why is Israel governed so poorly?

    Finally, I’m not sure how to weigh Israel’s “socialism” which has, by all accounts, diminished radically in the past decades. Gov spending/GDP is very low by OECD norms. The protected agricultural sector constitutes a very small portion of the economy. Many countries had high tax rates and government ownership in previous years — France still fits this model. Yet many of these same countries are better off than Israel now.

  31. Thorfinn,

    Go back one or two more years and you will see the incredible appreciation of the shekel. My point is that there was no monetary expansion.

    Between 1995-2005 Israel’s relative position dropped? Well, there was the crisis of 2000-2003, that combined the bursting of the dot-com bubble and the traumatic end of the Oslo era. That was the proximate cause of the reforms of 2003, which increased economic freedom in Israel immensely. For example, before 2003 there was essentially no finance in Israel: Israel was the world’s top per-capita destination for venture capital and it all came from outside the country! Israel’s economy has been free in some very significant ways only since 2003 – not that much time.

    I don’t think Israel is governed so poorly – now. As to why it was in the past, I could go on for a long time but I won’t. There are a lot of historical reasons. It could have been worse, though. A lot of Israel’s founders were communists. It was in fashion in those days – even in America.

    “Being part of an ethnically diverse, low-trust society encourages people to look to big government as a solution”! Well, that is exactly the opposite of what I’ve heard in the past on this very blog!

  32. Just looking at Ashkenazim doesn’t control for demographic factors. What’s the GDP when you’re looking at Ashkenazim who aren’t orthodox and aren’t relatively new Russian immigrants? Compare that to the US Ashkenazim and the difference might not be caused by ethnic or religious factors.

    My general impression is that wealth differences within first world countries are due to cultural patterns rather than economic systems. The difference between democratic socialism and American-style mixed capitalism is dwarfed by the effects of cultural/demographics differences.

  33. I had also heard that diversity makes people less inclined towards socialism. It may incline them toward cronyism & spoils though.

  34. Take back references to diversity and socialism — I misremembered Glaeser/Alesina’s research.

    In fact, even the opposite of what I claimed may be true! Relative homogeneity during the founding of the Israeli state may have led to socialism, which broke down over time as immigrants of different Jewish extraction trickled in.

  35. ben g,

    You would prefer to look at Israeli-born Ashkenazi salaried employees, right? No haredim here?

    They made 1.6x Israeli-born Mizrahi in 1997. If you grant me that Israeli-born Mizrahi made the average income (almost certainly not — they probably made more), you get an Israeli Askhenazi income which is still less than American standards of living; let alone American Ashkenazi Jewish standards of living.

    Also look at Tino’s link in my post. Every hyphenated American group makes more in America than they do in their homeland.

  36. Thorfinn, do you think that 1948 Israel could be described as relatively homogeneous?

    “Ashkenazim” is an extremely broad tent, much broader than “Icelanders” or “Russians”.

    The mixture of people was, in my opinion, extremely diverse – they came from all corners of Europe (which, at that time, was considerably less culturally homogeneous than it is now) and the Middle East.

    One reason why early Israel adopted socialist ways of thinking could perhaps be the siege conditions around. In such situation, it may be more advantageous to have central planning and command for the ever-looming war of survival, and sacrifice some personal freedom, including economical.

    Only in the late 1970s and early 1980s it became clear that most of Israeli neighbours silently gave up on the previous dream of total conquest.

  37. Marian,

    Very plausible. Would be similar to, say, Turchin’s models of state formation that are catalyzed by nomadic invasions.

    What’s interesting is that this model did break down. In the US, by contrast, ever major conflict has led to a permanent ratcheting up of government activity. Even if Israeli society was already somewhat diverse; increased diversity (ie, introduction of large-scale Sephardic and African/USSR migrations) may have helped break down social conventions supporting a socialist state.

  38. Looking at some data on per capita income, it looks like Israel is showing growth rates since 1965 similar to those of most other countries filled with europeans while non-communist, other than Ireland and Russia (Ireland is growing faster, Russia slower and much more irregularly.)

    So if the average IQ of Israel is similar to that of european countries, there’s no real surprise.

  39. Thorfinn,

    Many Haredim are salaried employees. Would you mind linking to the Ashkenazi GDP data?

  40. ben g,

    Here’s data on Ashkenazi income:

    http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Israel-POVERTY-AND-WEALTH.html

    Another interesting tidbit from the link (as of 1997); Israelis spend 23% of income on food, while US spends 13% (Jordan = 32%). You can complain about haredim all you want, but note that America (and other countries) too have varied demographics.

    Anthony,

    Well, economists typically expect conditional convergence to be the rule. Poor economies should catch up to the rich ones. To varying degrees, Ireland and other Anglo countries have done so. Singapore is also close, while other Continental European countries lag a bit.

    After all, knowledge can travel the world, etc. Israel has every right to be a country with a per capita income equal or greater than America — let’s say their Askhenazi secular income is equal to that in America ($100k/year), while the more religious/Sephardic elements are closer to US white/Hispanic/etc. equivalents. The question is why Israel lags not only America, but other developed countries.

  41. Thorfinn said:


    Right, that High-IQ Ireland I see 94 for Israel and 93 for Ireland in IQ and the Wealth of Nations.

    Thorfinn, I’m afraid the joke is on you!

    Lynn’s Magnum Opus has been discredited time and time again, first for sloppy and incorrect reporting of scores, and secondly for seemingly arbitrary additions and subtractions to/from scores.

    I was referring to PISA IQ – which is based on large population samples, and removes any obvious massaging of data – the results are as follows:

    1 Hongkong 104
    2 Finland 103
    3 Korea (South) 103
    4 Netherlands 102
    5 Switzerland 102
    6 Japan 102
    7 Canada 101
    8 Belgium 100
    9 New Zealand 100
    10 Australia 100
    11 UnitedKingdom 99
    12 Denmark 99
    13 Sweden 98
    14 Austria 98
    15 Czech Republic 98
    16 France 98
    17 Iceland 98
    18 Ireland 98
    19 Germany 97
    20 Norway 96
    21 Slovakia 96
    22 Hungary 95
    23 Poland 94
    24 Spain 94
    25 United States 94
    26 Latvia 93
    27 Luxembourg 93
    28 Russia 93
    29 Italy 91
    30 Portugal 91
    31 Greece 89
    32 Israel 88
    33 Uruguay 86
    34 Bulgaria 85
    35 Thailand 85
    36 Turkey 85
    37 Chile 81
    38 Mexico 81
    39 Argentina 79
    40 Indonesia 78
    41 Tunisia 76
    42 Brazil 75

    So while Ireland IQ is not stellar it is significantly higher than Israels at 98 versus 88, with the US at 94 ;)

  42. pconroy,

    Thanks for your insightful comment. While I was aware of the problems with Lynn, I did not think they would be that severe in this case.

    Your post suggests an alternate theory: that Israel is performing in the Greece/Portugal range instead of Ireland/UK exactly as one would expect. It is perhaps best thought of as a Southern Mediterranean country with a high-performing element, rather than a high-performing economy with a few problems.

  43. There’s a basic mistaken assumption here: Jews in Israel = Jews in America. Mizrachim are more numerous among Israeli Jewry, and are less intelligent than Ashkenazis. And, the Ashkenazis in Israel might not be as intelligent as those in America, due to selection effects, and the high birth rates of haredim.

    Israel gets a lot of praise, but when you go there, it’s not all that impressive. You pay more for shittier things, and it feels like everyone is trying to swindle you. The strength of unions, which every American comments on, must have some effect as well.

  44. Interesting table. I am rather skeptical against Chile having mean IQ of 81. The population is mostly (surely over 90%) descended from the Irish, Germans, Italians and Spanish, which have significantly higher IQ. Why should their average IQ drop by 20 points just by moving to Chile?

    The country is also quite developed and orderly, subjectively taken – very much unlike Mexico.

  45. Thorfinn,
    I agree that:
    Israel is perhaps best thought of as a Southern Mediterranean country with a high-performing element, rather than a high-performing economy with a few problems.

    The same author has this study of National IQ Means Transformed from PISA Scores, which has an interesting table on page 86 (page 17 in the PDF), columns as follows:

    1 Country
    2 Mean of Rind IQ and PISA IQ
    3 Smart Fraction %
    4 Gene Frequency M1
    5 0.93 X Theoretical GDP (1998) Per Cap $
    6 0.57 X Real GDP (2007) Per Cap $

    To which I have added a further column:
    7 Performance Over/Under %

    Giving the following results:
    [IMG]http://i35.tinypic.com/mauws2.jpg[/IMG]

    [IMG]http://i35.tinypic.com/mauws2.jpg[/IMG]

  46. Here are those images again:

    1. Smart Fraction By IQ

    2. Smart Fraction By Performance

    So looking at #2 above, Israel is performing rather well, relative to its IQ?!

  47. pconroy,

    Very interesting remarks. I wish all commenters responded with high quality data!

    I’m a little surprised to see the data for Mexico. From this: http://www.voxeu.org/index.php?q=node/5422 it looks like the Mexico/US ratio of smart fractions is 1:22, whereas your link suggests 1:4. Obviously, the cut-off matters, and the ratio gets higher at higher thresholds.

    I worry about your data. Some of the highest smart fractions “underperform”. Many of the low smart fraction countries seem to “overperform” their GDP.

  48. Regarding trust among Jews, I can only opine that it is not at all surprising for someone to suggest that Israel is low trust. I am the product of a mixed Jewish/Christian upbringing and there are significant issues of trust along the Jewish side of my family. I think most Jews will brush off any suggestions that Jews have peculiarities but they would be mistaken for surely something is at play. During the last family get-together, my Jewish aunts openly discussed how much they thought could screw their brother in charges for the family beach house. When asked by my wife why they wouldn’t just give Andrew their portion of the home for a reasonable price, they replied “Honey, because we are Jewish.” Surely, just a single incident but hardly the first I have witnessed.

    I have also worked with some of the most powerful Hasids in the USA and they too often discussed screwing someone over. Very strange indeed because they assumed it was just how business was done. Of course, they couldn’t be more wrong. Most successful enterprises rely upon actions that are less than charitable, but to build a large edifice in a low margin endeavor like manufacturing you cannot succeed if you people, to include your employees, think they might be screwed over. Everyday with the Hasids was an adventure and every day I saw the duplicity and/or indifference. Indifference is not limited to transactions, it is also includes how you run your internal processes and the process stability you value.

    Maybe my experiences have abnormal, but I don’t see any evidence to support such a notion. From my family to the Hasids, every Jew was smart to brilliant, but that is not enough to create powerhouse manufacturing and R&D firms that will endure. Trading, finance and retail (barter) are all different animals compared to building a firm like 3M.

  49. I can bring another anecdote to support Jeff.
    My brother used to be a manager in the leather business in a Jewish area in Paris mostly involved in confection.
    He said he was dumbfounded by the inordinate amount of time and resources the Jews spent in trying to screw each other and over peanuts.

  50. Israel isn’t poor. Its per-capita GDP is on par with those of Taiwan, New Zealand, and South Korea, none of which is considered a poor country in the global scheme of things.

  51. The extreme orthodox have high birth rates and low market participation and thus really bring down the israeli average.

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