Israel’s Downward Spiral

Israel is riding high after carrying out the most audacious campaign of military conquest of any nation since the 1940s. Following the Oct. 7, 2023, attacks, Israel has begun an open-ended occupation in Lebanon, seized Syrian territory twice the size of Gaza, wiped 50 Palestinian villages “off the map” in the West Bank, bombed Iran and Yemen, and weathered more than a year of resistance, global revulsion and protest, while carrying out a horrific genocide in Gaza that has no end in sight. 

From the beginning, Israel has enjoyed the full support of the Biden administration — militarily, financially, politically, diplomatically and morally. Israel’s extermination of children, families, aid workers, doctors, teachers and artists has earned it only a few occasional peeps of official protest from Washington, while regional powers such as Turkey and Saudi Arabia are trying to have it both ways. They have reduced economic and political ties with Israel to pacify domestic anger, while quietly aiding it because their governments are aligned with U.S. interests. 

But this moment doesn’t represent the triumph of Zionism so much as the beginning of the end. Israel has become an international pariah, led by an incompetent and corrupt government, and it is experiencing a debilitating brain drain. Its society is riven by multiple fractures, with deep political divisions and intractable conflicts, not just between Jews and Palestinians and Israeli Arabs, or those for or against Prime Minister Benjamin Netanyahu’s far-right government, but between secular Jews and a growing ultra-Orthodox population. 

Meanwhile, the gulf between Israel and the rest of the world has never been deeper. In January, a Tel Aviv University poll showed almost universal backing among Israeli Jews for its war on Palestinians with 95% either believing the military was using the right amount of force in Gaza or too little. Nearly 60% support killing all 2.3 million residents of Gaza through starvation. Outside of the West, opposition to Israeli savagery is nearly universal and has reinvigorated the 2005 call by Palestinian civil society for “boycott, divestments and sanctions against Israel until it complies with international law and universal principles of human rights,” as well as the Palestinian Campaign for the Academic and Cultural Boycott of Israel initiated the previous year. 

On top of this political and economic isolation, Israel’s embrace of endless war and Jewish supremacy is creating self-inflicted wounds. While the country depends on Washington for its power and impunity, no amount of weapons and dollars can prop up a regime festering with rot. Higher taxes, government expenses, inflation, reduced social services, shocking levels of poverty intensified by the war and mounting international pressure — all are exacerbating a brain drain that threatens to enervate the Israeli economy. 

Young, well-educated Israelis are fleeing abroad to escape a government power grab in the guise of a proposed judicial “reform” that critics argue would “codify the subjugation of women” and the LGBTQ community. The planned overhaul of the legal system, experts warn, would “pave the way for unbridled corruption, infringement of individual rights and harm to the public interest.” In 2023, prior to the start of the genocide, one study found Israeli emigration had leaped by 42% compared to previous years. The study author warned that losing tens of thousands of high-tech workers, physicians and senior academic faculty “could generate catastrophic consequences for the entire country.” Close to 1 million Jewish Israelis have dual citizenship, and a high portion of them are bilingual, meaning they can easily emigrate. 

Numbers for 2024 are murky, but emigration appears to have turned into a flood. In the first nine months of 2024, Canada approved 7,800 work permits for Israelis. That’s five times the rate for all of 2023. During the same period, more than 18,400 Israelis applied for German citizenship, which is more than three times the 5,700 Israelis who did so in 2022. The brain drain extends to Israeli Arabs as well. 

For many secular Israeli Jews, the war is “the last straw” that has exposed an onerous double burden: They pay taxes and serve in the military, while the far-right government, which relies on religious parties to stay in power, protects ultra-Orthodox men from the draft. Ending the war will only revive long-broiling secular-religious strife over suffocating religious laws and policies that provide “a vast system of government subsidies, stipends and other benefits” that allows half of Orthodox men to avoid work as full-time yeshiva students.

There are also external pressures. Many Israelis are asking why they would want to live in a pariah state, “a symbol of oppression, immorality and illiberalism,” as New York Times columnist Ezra Klein put it in an interview with Haaretz.

One little-reported phenomenon is how campus protests in solidarity with Gaza — which spread to more than 140 U.S. universities and 25 countries by May — supercharged the movement to boycott, divest from and impose sanctions on Israel. In their wake, the rector of Hebrew University in Jerusalem noted a “tsunami” of boycotts, saying, “I can’t count the number of academic relations that have been suspended or even broken off.” This led to a “barrage” of conference invitations withdrawn, papers pulled from review and funding halted, according to Bloomberg. Some 20 universities in Europe and Canada have cut ties with Israeli universities and academics since last spring.

Haaretz admits that the Boycott, Divestment, Sanctions movement is “working vigorously and effectively in the cultural realm,” which has made life more difficult for those working in international fields, particularly science and the arts. In October, hundreds of prominent authors signed a letter vowing not to “work with Israeli cultural institutions that are complicit or have remained silent observers of the overwhelming oppression of Palestinians.” Meanwhile, refusals to work with Israel’s film and TV industry are limiting its reach, and boycotts by musicians are deepening its isolation. 

The hardest blows to Israel are directly economic. Turkey, a major economic partner with Israel with $8 billion in bilateral trade, has reduced its business with and is under popular pressure to crack down on third-party shipments to Israel. Colombia, Israel’s top supplier of coal, has stopped exports of the fuel that accounts for 20% of Israel’s electricity supply. Nor is Israel’s military immune from international opprobrium. Belgium, Spain, Canada, the Netherlands, Italy, Germany and Britain have banned or restricted weapons sales. Israeli weapons makers have been nixed from or skipped military trade shows.

Under pressure “from activists and governments,” many financial firms, including sovereign wealth funds, pension funds and companies in France, Italy, Ireland, Norway, Denmark and the United Kingdom, have divested from Israel or companies connected to the war and occupation. 

In June, Israel was dealt an especially painful blow when Intel announced it was suspending work on a $25-billion chip plant that would have employed 12,000 people, although there is no evidence it was connected to the war. Intel Israel has also laid off hundreds of employees, and Samsung Next, which funded 70 Israeli companies and startups over a decade, shut down operations in Tel Aviv in 2024. Pret A Manager dropped plans to open 40 stores. Starbucks and McDonald’s admitted pro-Palestine boycotts have contributed to declining profits.

Israel’s tech industry accounts for 20% of gross domestic product and 53% of exports. It prides itself as the “startup nation,” but that’s more myth than reality. Over the past decade, Israeli startups have dwindled 45% to fewer than 800 in 2023, and only 5% of those raise more than $50 million. Israel’s high-tech sector, meanwhile, has slipped to 2018 levels, and venture capital fundraising has sunk by 70%. One entrepreneur said the loss of funding is “directly tied to the Gaza War.”

All of this points to Israel edging toward a vicious cycle. As its workforce shrinks in medicine, technology and academia, Israel’s tax base declines, its capacity for innovation and ability to attract talent diminishes, and staying becomes less and less desirable for those remaining. 

These problems are compounded by hits to other sectors. Tourism has been virtually wiped out, with an estimated $5.2-billion loss from pre-pandemic levels. Agriculture has seen a 30% drop in output that has pushed up the price of meat by 7% and produce by 9%. Local businesses are on track to record 50% more closures in 2024 than in a normal year. And a staggering 29% of Israelis now live in poverty, and one in four are food insecure.

Israel’s cost of insuring debt has tripled since the genocide began. Foreign direct investment plunged 29% in 2023 and probably fell further in 2024, and foreign investors have dumped nearly $13 billion in Israeli stocks and bonds. True to form, Wall Street banks are benefiting from Israel’s pain by notching higher profits from volatility in its bonds and currencies caused by the war. That is costing Israel money, as currency gyrations increase the cost of importing and exporting goods.

Meanwhile, international agencies such as Moody’s have lowered Israel’s credit to a few notches above junk bond rating, citing politics as an economic threat — namely the “high social tensions” resulting from changes to the judiciary and allowing the ultra-Orthodox to avoid military service.

Here, again, the divide between religious and secular Israelis poses perhaps the greatest long-term threat to Israel and the Zionist project. The Haredim have a far higher birth rate than secular Jews, and because community patriarchs keep them poorly educated to control them, it’s estimated that in a decade or so Israel’s high-tech economy will be unsustainable, as its skilled workforce will have evaporated.

A competent government might be able to help the country weather these crises. But Netanyahu’s ruling coalition is singularly focused on “looting” government coffers to reward religious fanatics and violent settlers.

The crisis has come to a head in the government’s proposed budget for 2025, which “includes some of the biggest spending cuts and tax increases Israelis have ever known, in order to finance the war.” The budget slashes spending on health, welfare and aid to the elderly, disabled and Holocaust survivors. At the same time Netanyahu, has been pushing a bill to “subsidize day care for children of full-time yeshiva students who dodge the draft.”

The far right that effectively controls Israel is banking on being able to soak secular Jews for taxes as they do all the fighting and keep the economy humming while trying to subject them to a prejudiced religious judicial system. Arabs and ultra-Orthodox make up 35% of Israel’s population, but less than 5% of tech workers.

Israel has wounded itself deeply through external brutality and internal bigotry. Add to that the small but regular cuts that the BDS movement is inflicting on it, and the state has become far more fragile, far more quickly, than many had imagined possible.