Opinion: The OECD report on Israel ignores one major thing – the citizens of Israel

The OECD’s annual economic survey of Israel offers a narrow, technocratic worldview: a view of Israel as an abstract economy, detached from its human, social, and political context. According to the OECD, Israel is a system of macroeconomic indicators, productivity targets, regulatory incentives, and labor market participation rates – not a society made up of human beings.

In the OECD’s view, Israel is a country whose central policy goal is to grow efficiently – not one whose goal is to grow justly, equitably, inclusively. A country where the government’s success is measured by its ability to limit public spending, reduce regulation, and “let the market do its work” – not by its ability to ensure the wellbeing of all its residents, invest in people and communities, and reduce the massive gaps between the center and the periphery, between rich and poor, between different sectors.

The most striking expression of this approach is the OECD’s treatment of the enormous gap in Israel’s civilian public spending – that is, its investment in health, welfare, transportation, education, housing, and environmental services. This is not an esoteric economic metric; this is the ability of the state to provide essential services to its citizens.

Israel’s civilian public spending stands at about 31% of GDP, compared to an OECD average of 41.2%, a staggering gap of 10.2% of GDP. This is not a theoretical number: it translates into shortages in hospital beds, underpaid social workers, failing public transportation, overcrowded classrooms, and lack of access to affordable housing.

This gap was made tragically clear during the October 7 disaster, when the state failed to provide its citizens with a functioning and protective civilian response system. Instead of providing strong public services in health, housing, welfare, and trauma recovery, civil society organizations and volunteers had to step in and fill the void.

Despite this, the OECD recommends only a symbolic increase in public spending 1.8% of GDP over 15 years, with a minimal 0.2% increase in the coming year. That is a completely disproportionate response to a deep and urgent structural failure.

Moreover, the OECD continues to support a “lean state” approach – even after it has become clear that this model cannot provide the basic functions of a modern state, and even when the results are collapsing infrastructure and abandonment of vulnerable communities.

Even worse, the OECD recommends funding the small increase in public spending through regressive measures: canceling VAT exemptions on fruits and vegetables, taxing single-use plastic and sugary drinks. Not a word about wealth taxes, property or inheritance taxes, or a fairer structure for capital gains taxes.

The report also repeats its traditional mantra: cut state involvement, eliminate price controls, deregulate, lower import barriers, and boost competition – and that, supposedly, will lower the cost of living.

But this approach has been tried – for a decade – and has failed. Last year, the Bank of Israel itself concluded that removing import restrictions have not reduced the cost of living. What has been missing is proper regulation of concentrated and distorted markets – such as food, banking, and real estate.

The OECD’s report lacks a real value discussion about Israel’s economic model: What does it mean to grow together? How do we make growth inclusive and just? How can we ensure that the fruits of growth are distributed more equally, and that the very ability to grow isn’t undermined by growing polarization?

Israel is not just an economy. It is a society that aspires to be democratic, inclusive, and cohesive. A country where different communities – secular and religious, Jews and Arabs, rich and poor, center and periphery – live side by side and need to build a shared future.

An economic model that ignores this complexity, that measures success only by growth and not by justice, solidarity, and wellbeing, is not only flawed but dangerous.

At the Arlozorov Forum, we are working to outline a different path: responsible, gradual, and inclusive. One that connects economic growth with social resilience. One that sees public investment not as a burden but as a tool for building a better future for all of us.

Yoni Ben Bassat is the Director of Research at the Arlozorov Forum.

Originally published in Hebrew in Calcalist