Israel's aggressive foreign policy is shaped by deep socioeconomic divisions within the country. The nation is effectively split into two distinct societies with contrasting economic profiles and political values. One segment is highly productive, with a per capita GDP of $80,000—the highest in the Middle East—boasting world-class universities and a thriving technology sector. This group broadly supports liberal democratic principles. The other segment more closely resembles Israel's neighbors, characterized by widespread unemployment, low-skilled jobs, and a per capita GDP of $35,000. This portion of the population tends to be more religiously traditional, less educated, and often indifferent or opposed to liberal values.
This division is largely between high-income, well-educated Israelis and those with lower education and income levels. The former group contributes the majority of the nation's tax revenue and wealth and typically opposes Prime Minister Benjamin Netanyahu and his right-wing nationalist government. The latter is composed of the Ultra-Orthodox—who have the country’s highest unemployment rate—and religious nationalists, both of whom hold significant influence in the current government.
This societal split is damaging Israel's social fabric, contributing to extreme political polarization and frequent government collapses, as evidenced by five elections in the past six years. Over time, it threatens the Jewish state's viability. The proportion of liberal, high-productivity citizens is shrinking, while the conservative, low-productivity demographic is growing. This trend will erode Israel's tax base and empower far-right and religious politicians, leading to a poorer, more repressed, and more aggressive Israel internationally—demonstrated by recent military actions against Iran and operations in Gaza, which many in the West view as genocidal.
The productivity gap is stark. The high-tech sector, representing about 10% of the workforce, generates nearly one-fifth of GDP due to its high productivity, global market integration, and strong research networks. It accounts for half of Israel's service exports and a quarter of government tax revenue. In contrast, only 54% of Ultra-Orthodox men are employed, typically in low-skilled jobs with average earnings half that of other Jewish males. Many Ultra-Orthodox families live below the poverty line, paying little to no taxes and relying on public welfare and overseas donations.
Israel's Arab minority, comprising 20% of the population, also faces systemic discrimination and lacks access to quality education and high-skilled employment. The Ultra-Orthodox population is growing rapidly due to high birth rates, projected to represent over one-fifth of the population by the mid-2040s and nearly one-third by the 2060s. This demographic shift will make it increasingly difficult to sustain a high per capita GDP, as a shrinking high-productivity group cannot indefinitely support a rapidly expanding low-productivity one.
The economic divide is mirrored in political polarization. High-productivity Israelis overwhelmingly support liberal democratic institutions, while low-productivity groups back parties that weaken judicial independence and media freedom. Ultra-Orthodox and ultra-nationalist religious parties have formed a natural alliance, advancing agendas that concentrate power and reallocate resources to their constituents. Prime Minister Netanyahu has skillfully maintained this coalition, pushing through controversial laws that erode democratic checks and balances, even after the Hamas attack on October 7, 2023.
A constitutional crisis looms as government ministers challenge judicial norms and propose legislation to politicize key legal advisors. If passed, such measures would remove critical safeguards against democratic backsliding. Academic research suggests that in societies where voting is based on group identity rather than policy, support for nationalist and religious parties remains strong even as economic conditions deteriorate.
Looking ahead, without significant change, Israel risks becoming poorer, less democratic, and more militaristic. Nationalist politicians may pursue aggressive external policies to rally public support. Netanyahu could leverage ongoing conflict with Iran to improve his coalition's election prospects or declare a state of emergency to delay voting. This mirrors a populist strategy of using war for political survival at the cost of regional stability.
Iran's trajectory since its 1979 revolution serves as a cautionary parallel. Once economically comparable to Israel, Iran's shift to a theocratic authoritarian state led to drastic decline, with per capita GDP now just one-tenth of Israel's. Its regime has persisted despite severe economic consequences, suggesting that similar paths are possible for Israel.
Hope remains in Israel's vibrant civil society, as seen in mass protests. Business leaders, particularly in tech, along with international Jewish communities and liberal foreign governments, could help avert further decline. However, the road ahead remains exceptionally challenging.