By Pinchas Landau | 20/08/2009
The first thing an Israeli does after getting off a plane is turn on his cellular phone. “Welcome to the United States,” the phone announces, adding, “have fun and go shopping.” But that's over. Even though the hollow slogans are still bandied about in the air, it is clear to many, if not most here that that time is gone. People increasingly realize that a country, an economy and certainly an entire culture cannot flourish over time if all they stand on are these two principles: having fun and spending money. They are starting to grasp that the way the US and many Western countries have been conducting themselves does not lead anywhere – or eorse, that it is what has led to the current crisis – and that to get through and over the crisis means abandoning the previous path for something else, something that has yet to be clearly defined but which is most certainly entirely different.
FIRST, WE must realize that the situation in the global financial markets is not just another crisis of the kind that has plagued the markets and various economies every few years in the past decades. This is not “another crisis”; it is the crisis. A fair number of analysts prognosticated and cautioned against it, but like the proverbial Cassandra, they reiterated their doomsday warnings until they became a laughingstock in the eyes of the professional community. Those who listened to them lost money in the strict terms of the great stock market boom – in other words, they didn't earn huge amounts, as every sensible person was expected to do at that time. And those who paid heed to the warnings and avoided getting into debt to buy stocks, houses, consumer products or experiences (such as exotic vacations) were considered overly conservative, or even worse, fools.
Universal wisdom has it that the great stock market boom is all about finance and economics. But that is utter nonsense, as a number of courageous economists are willing now to admit. The scholarly explanations provided by economic experts and financial wizards to justify occurrences that run counter to every basic rule of economics and finance – explanations that stretched all theories as the stock market and
economic madness gained momentum – were no more than professional fig leaves to provide a seal of approval for one of the most disastrous Pandora's boxes in human economic history.
Only this type of observation makes it possible to contend with the transformative event that started out as the “subprime crisis,” and evolved into what we now know as “the global financial crisis.” But lest we forget: In July 2007, when awareness of subprime loans and the problems they cause for the financial system burst onto the public scene, it was clear to anyone closely following the financial world that this would inevitably erupt into a major crisis covering numerous areas. And now too, with the development of the second stage of the as-yet-incompletely-named crisis, it should be noted that those who try to minimize the extent and enormity of the crimes that gave rise to this crisis are continuing to pull the wool over the public's eyes, deceiving both it and themselves.
What we have here is a clear chain of cause and effect: The first stage was the financial crisis, wreaking havoc on global financial systems that had taken an entire generation to cultivate. This crisis is still far from over, and has already fused into other processes, intensifying them, together forming the vicious cycle that in turn triggered the second stage of the crisis. This economic crisis is gradually spreading throughout the entire world – and the estimates as to how deep it will go and how long it will last grow worse from one week to the next. But the economic crisis is not where it will end.
We still have the inescapable third stage awaiting us. In this process, there is not and cannot be any surprises or reason for misunderstanding. Just as when a serious financial crisis – which is reflected in terms of a general systemic loss of trust – spreads to the real economic system of production, sales and employment, thus a far-reaching economic crisis triggers shockwaves throughout the political and geopolitical system, raising tensions within and between states, even toppling regimes and sparking riots and revolutions.
The first stage went into high gear in the second half of 2007; the second stage gained momentum in the second half of 2008; it is only reasonable to expect the third stage to explode in full force during 2009.
WHAT DOES THIS MEAN FOR THE JEWS?
The answer to this question is simple: Right in the middle!
Let's present the basic facts: Between the end of the last great recession in the US, Britain, Canada, Australia and a number of additional major countries with sizable Jewish communities, up to the end of the big boom in those countries in 2007 – i.e. a period of about 15 years – the Jews of the world amassed wealth both in absolute and relative terms to an extent that is apparently unprecedented in the entire long history of the Jews.
In these countries, the Jews were immensely successful and grew wealthier than any other single population group. The deeper reasons for this phenomenon may be the subject of future research. What I want to probe here are some facts related to the process itself: Unlike the boom in the late 1990s (the dot.com boom), the real global boom in the period under discussion, i.e. from 1992 to 2007, focused on the oldest, best known and most low-tech area of commercial activity imaginable – real estate. And the fact is that for reasons that are apparently quite complex, in the period following World War II, Jews became particularly prominent in real estate, perhaps more so than in any other business sector. Real estate is a field that does not require
any formal education and is consequently both open and attractive to Jews lacking in education, especially among the ultra-Orthodox – but also among Holocaust survivors and other refugees, such as Jews who fled Iran in the wake of the Shah's fall.
Real estate is based on high leverage, which means a high level of debt relative to the businessperson's equity. Entrepreneurship is a necessary characteristic, but in order to realize it, one needs financing. More financing means more profits, and more leverage at any level of financing creates even higher profits.
In addition to real estate, Jews were conspicuous in a second major area during this period too – one that in the long term, over the entire period from 1975 to 2007, turned out to be the leader in the American economy, and indeed the global economy – finance. The presence of Jews in key positions in this field should come as no surprise in view of their record and that of the financial industry over the past five hundred years.
Now, let's tie the main threads together: In the US and the rest of the world, a culture developed that viewed entrepreneurs as the most significant and highly regarded player in the marketplace. Legal, supervisory and especially social and psychological conditions came into play that promoted financial entrepreneurship and stimulated the development of various financial instruments, systems and areas of activity, causing the financial sector to become the lead driver of growth in the American economy and throughout the world.
Side effects that in the past were viewed as negative – such as the accumulation of vast personal wealth while at the same time creating huge salary gaps within corporations between senior executives and their employees, as well as within societies (whether on the level of the local community or of an entire country), between the haves and the have-nots of society – were now considered acceptable, even desirable.
In order to silence the few voices of criticism still heard, economic theories that justified and even glorified the new corporate/societal structure and its overall contribution to wealth and public welfare were advanced. Additionally, new approaches and patterns of behavior developed, at the center of which was the need – nay, the duty – on the part of those who possessed this new private wealth to become involved in what became known as “activity for the community.” This involvement took many shapes, but at its center was the demand that this “activity” receive maximum media coverage and full public recognition as a supervisory and sometimes legal, but certainly social expectation.
The Jews, especially among the modern- and ultra-Orthodox, warmly embraced the new culture. While it is true that Jews often participate, and even play an instrumental role in the social and ideological innovations of the times, the enthusiastic participation of the observant communities is surprising in this context. And the tacit approval provided by these communities' spiritual leadership may also be viewed as surprising, and – if I may say so – disturbing, too.
But the fact is that many observant Jews, (and perhaps especially they – but there are not and apparently never will be reliable figures), joined the dominant trend, growing quite wealthy, even excessively such. It's not that one heard crude statements such as the famous “Greed is good,” uttered by Michael Douglas as the unscrupulous moneyman Gordon Gekko in the 1987 movie “Wall Street,” but hardly anyone could be heard to say that it was not good. Everyone willingly joined the culture of greed.
This had important and far-reaching implications in a variety of areas. Here are a few of them: An entire generation of young, clever and energetic Jews turned to the financial sector – “Wall Street,” as it is known. Apparently, a large proportion of those who worked in the hi-tech industry did so in the financial rather than the scientific-technological part of the industry. Others studied law and accounting, but they too directed their energies to the financial sector where they provided crucial support services.
The result was that the popular Jewish joke of a generation or two ago about the Jewish mother who expected her son to become a doctor was now an anachronism. A new generation arose, and among its children were very few doctors, or even dentists. The ambition of every self-respecting young person was to become an investment banker in one of Wall Street's large financial institutions.
AFTER THE FLOOD
The world to which those young people once flocked is no longer.
We'll get back to those young people, but first let's look at the economic situation. Of the banking and investment industry nothing remains. Even more serious than the decline of the financial sector was the obliteration of the general wealth that occurred this year (and in real estate, since the early stage of the crisis in 2007). As usually happens in the transition from boom to bust, the pace of the extinction of wealth is far more rapid than its accumulation, and the vast wealth amassed over ten or twenty years was mostly gone within a year or two.
This does not mean to imply that there are no longer any rich, even very rich Jews. Of course there are. But there is nary a wealthy Jew that has not been dealt a major blow. Those who were leveraged – including numerous real estate tycoons, both Israelis and Jews from all over the world – have been, are being, or will be totally obliterated. Huge corporations have collapsed, a fate awaiting many others. The financial-business catastrophe is huge, which is why it is clear that things will never be the same.
This is understood far better in the US than in Israel. The extent of the social upheaval is being grasped far faster in America, if only because political circumstances there finally allow a frank discussion of the situation; moreover, the presidential election was itself part of the upheaval.
But what do we mean when we say “nothing will be the same,” and why is it so difficult to assimilate this fact? An examination of a number of areas where the change has already taken effect or will soon do so will help illustrate just how far-reaching the transition that the Jewish faces will be.
END OF AN ULTRA-ORTHODOX ERA
If for the Jewish world in general this is a major crisis, for the ultra-Orthodox world it is an existential state of emergency.
Most of the secular public, which gleans the little it knows about ultra-Orthodoxy from the media – which themselves know nothing and insist on not understanding anything in this regard – has the impression that the ultra-Orthodox live in a state of constantly deepening poverty. In fact, Israeli ultra-Orthodoxy has just seen the culmination of the greatest and longest period of economic prosperity in its history.
Every year (at least in the years 2005-2007), hundreds of millions of dollars were pumped into it from all corners of the world in the form of contributions, investments and payments for products and services. The vast majority of this money came directly or indirectly from the profits of the huge global real estate boom.
Now the boom is over: The wealth has been extinguished and the flow of money has been shut down. However, not only does the ultra-Orthodox world's need in external help persist (after the “Netanyahu decrees” of 2003-4 abruptly ended the confidence that the Zionist government would support ultra-Orthodox society indefinitely), but it has in the meanwhile produced an ultra-Orthodox middle class that has become accustomed to a higher standard of living and will find it difficult to revert to their previous lives. Regarding ultra-Orthodox society as a whole, which continues to be characterized by a wealth inequality on par with a South American country or a North American corporation, the collapse of the support system from abroad is nothing less than a genuine catastrophe.
How will they respond to this catastrophe once they have internalized it? At the first stage, they will certainly raise their demands from the government of Israel. As a result, ultra-Orthodox parties made every effort to join the coalition, which may well have excluded them had Kadima joined it. But unrelated to the political constellation – Israel no longer has the resources to fund Israeli ultra-Orthodoxy. There does not appear to be any solution that can preserve this unique social structure – a structure that has developed mainly since the Likud's rise to power back in 1977. There is simply not enough money, which is why this social structure is doomed to break down. In Wall Street terms, Israeli ultra-Orthodoxy's business model has collapsed and there is no way to save it.
Beyond the very serious implications on the human level, it is difficult to know what the results of this collapse will be. In any case, there can be no doubt that had ultra-Orthodoxy responded a little more enthusiastically to the attempts in recent years to encourage its working-age males to join the general work force, the blow would be less painful. But that opportunity was mostly missed.
Will the ultra-Orthodox leadership, which is closely tied to those centers of ultra-Orthodox wealth abroad that have dried up, be capable of providing their flock with answers? Will an alternative leadership take over? Will the economic crisis have any impact on the community's ideology-theology? At present, all we can do is ask the difficult questions. The answers will become evident over the next five years, although it would not be farfetched to assume that ultra-Orthodox society in 2015 will appear and behave quite differently from that of 2007.
THE UNBEARABLE COST OF JEWISH EDUCATION
A different type of crisis will strike at another community, one that has been characterized until now by its growing wealth. Among thousands, perhaps tens of thousands of young Orthodox and Conservative Jews
in the US, the economic crisis has exacerbated a crisis that had emerged in the American Jewish day school system.
The crux of this crisis is that it has become impossible to meet the costs of private Jewish education. A family with four children aged 6 to 22 is required to pay tuition for schooling at different levels – elementary, high school and academic – and is finding it increasingly difficult to come up with the annual $60,000 - $80,000 that all this requires.
The first response of many young couples was to have fewer children, and as an interim solution, that worked. However, in an age when it is next to impossible to earn a family income of more than $200,000 – whether from real estate, investment banking, the diamond trade or any other useful profession – financing private Jewish education is becoming a mission impossible.
This is not an exclusively Jewish problem. It exists among all those who choose to send their children to private schools in the US. Part of the solution is of course to move over to public schools and improve their level. But among Jews – as usual – even a problem shared by many others becomes more serious and far more difficult to resolve.
How will younger American-Jews respond to a situation in which their path to wealth and normative Jewish-social behavior no longer exists? The next school year will be the most difficult experienced by the Jewish community in many decades – and in fact for all the parents of the current generation. They not only have never personally experienced anything quite like the current situation, but they never dreamed of it occurring, even in their worst nightmares.
ISRAEL: A RAY OF LIGHT
As we know, every crisis also creates opportunities for some people, corporations or countries. Who in the Jewish world faces the greatest opportunity?
The answer to this question is relatively simple, except for the fact that a general blindness is hiding it from the majority of the Israeli public. It is when one goes abroad that the answer suddenly emerges as obvious and logical – yet another example of a case in which distance provides clarity.
The economic history of the Zionist project, at least since the Balfour Declaration, is simple and clear. The Israeli economy almost always worked in an anti-cyclical fashion to the economics of developing countries. In other words, whenever a depression threatened the West, a boom presented itself in the Land of Israel.
The reason is quite simple: Recessions overseas have traditionally created trends that in their turn inspired Jewish emigration to Zion: unemployment, loss of status, and an increase in open, violent anti-Semitism. This process, which can be easily traced back to the 1920s, resurged most recently in the early 1990s – meaning that the majority of the Israeli public is familiar with it, and not only from reading about it in the history books.
Still, no one is preparing for the wave of immigration awaiting us.
On the contrary, the Israeli establishment is convinced that the Jewish state has exhausted all possible reservoirs for a large wave of immigration, and that consequently, it must do what it can to reach a peace agreement with anyone willing to talk with Israel and accept its continued existence in the Middle East. That is exactly what people were saying in the late 1980s. Those who don't remember or don't believe are invited to peruse the newspaper archives from those days. True, at that time it really was more difficult to believe that the gates of the Soviet Union would open and hundreds of thousands of Jews would throng to Israel, carrying a suitcase or two in hand and all the technological advances of a superpower in their collective minds.
This time around we don't need prophets or any special insight to see what is approaching. Europe will produce most of the next wave's immigrants, as it did last decade. The continent's condition is very problematic not only economically and financially but also demographically and socially. True, tensions between veteran Europeans and mostly Muslim immigrants have tempered in recent years. But it was the economic boom that mitigated that tension, which rather than die out, continues to simmer under the surface. If and when that tension once again erupts on the Amsterdam-Antwerp-Paris circuit, or in other volatile areas, such as southern France and southern Spain, riots are likely to be extremely fierce. The Jews will find themselves caught between the European-Christian rock and the Islamic-immigrant hard place.
Some believe that economic and social tensions will ultimately break up the European bloc, perhaps even reverse the processes that the European Union has set in motion over the decades. It should be noted that for the meanwhile, the EU has provided an umbrella of relative stability for its members – so much so that some maintain that Denmark and Sweden, and perhaps even Britain will soon be joining the euro currency, now of all times. Nevertheless, financial and monetary considerations such as these may be dwarfed by the social shockwaves that may be triggered by a prolonged recession and high unemployment, especially among younger people, both Muslim and Christian.
Eastern Europe, however, doesn't need foreign immigrants to ignite a fire.
Ukraine has already collapsed economically, and Romania and Bulgaria are following suit, notwithstanding their EU membership. Russia, which is supposedly rebuilding itself, has enjoyed an economic boom based entirely on natural resources, and now faces an increasingly serious economic danger from plunging oil prices. Jews – and that includes the half-Jews, the quasi-Jews, those who pretend to be Jews and others – who still live in these countries will have to take sober decisions regarding their futures. And in the worst-case scenario, circumstances will force them to make hastier decisions regarding the timing, manner and destinations of their departures.
The Jews of France already appreciate the nature of the dormant threat facing them and many are already preparing to leave. They are buying homes in Israel, sending their children to schools here and preparing both materially and psychologically for the move. When the crunch comes, many will move to Israel, as will many members of other Jewish communities in Western Europe.
It will be enough if Europe's Jews immigrate to Israel to once again push Israel's economy onto the path of growth in wake of the sharp recession now universally forecast for 2009. The typical path taken by Israel's economy at times of global economic crisis – it tends to flourish when others are sinking – can be expected to repeat itself big time.
But this time, for the first time in their history, the Jews of North America may turn out to be a major component in an immigration wave. Those thousands and tens of thousands of disappointed young people who have been badly treated by the system and who can no longer be confident that America will provide them with the cozy future they were brought up to expect, may join their fellow Jews from France and Russia and head for Israel.
Here they will find that the reservoir of empty apartments is empty, the physical infrastructure is inadequate to support them and that no preparations have been made in advance of the most predictable phenomenon that exists in the economic-social reality of the people residing in Zion. But it won't be the end of the world. They will learn how to improvise, because we will teach them. In all, it will be dramatic. The next chapter in the process of the Jews' return to Zion may turn out to be quite fascinating. But most importantly, immigration to Israel will be far preferable to any alternative destination that will be available fort the Jewish people in the coming years.
Pinchas Landau is an economic consultant and commentator
