Unequal Wealth: Building Boom is One Consistent Factor

New construction near the central train station, Tel Aviv is filling every nook and cranny with new construction © D-A Vider

Israel's economy has been on an economic growth spurt for over fifteen years. The GDP statistics somehow are not reflecting the reality on the street. The first obvious sign of prosperity is steady building trend, especially in high rise apartments and office buildings. In the central region, there is actually less building than in locations at the edge of Gush Dan (Dan, the central region of Israel). The real estate inflation, especially the residential apartment costs, which were going up at 5% to 8% annually for over a decade. Many visitors to Tel Aviv are surprised by the change in the city in the last five years. Foreign drivers find themselves at a lost when trying to retrace old routes but confused by new construction. In the section of Tel Aviv near Azrielli towers (left white and gray buildings in the photograph) and the central train station, construction is now at a strong growth. A new light rail project with under and above ground tracks is also now in works. So why it seems as if Israel is on an economic growth spurt on the ground but the economists are reporting average of 4% the last 15 years? (see chart below)

source: tradingeconomics.com

There are a few theories in this area. The most controversial one is the "start-up colonialism". You will have to dig deep to find Israelis talking about "colonialism" in a country which prides itself on independence, democracy and amazing economic success. But the theory basically looks at Israel's technology start-up economy as an "economic colony" of foreign investors. While Israelis are great at innovation and product development, they are still most likely to seek foreign investors. When start-ups use foreign money, their profits at the exit (when they go public or sell out) also go to foreign investors. Some of the profits stay in Israel, but the majority of the profits goes to the foreign investors. This explains how very few entrepreneurs profit and the state receives a share from taxation. But as a whole the large profits go back out of Israel.

The other theory simply explains the uneven distribution due to fast growth. In any fast growing economy there are winners and losers. The winners in some cases are very few. The number is related to the overall business ownership. In Israel medium and large businesses is proportionately owned by a very small class at the top. The reasons for this are mostly historical and complex. Historically very few people were able to create wealth. Even fewer brought wealth with them from their country of origin. Add to this the socialist origin of Israel's economy starting with eastern European immigration in the 1880s all the way to the founding of the state in 1948. Most foreigners are surprised to learn of Israel's socialist roots. But that's another story to be told. 

source: tradingeconomics.com