A Former General Has Her Focus Set on Israel’s Skewed Economy

(Bloomberg) —

A little over a year after she became Israel’s economy minister, Orna Barbivay’s ambition collides with political reality.

Unruly coalition governments have given many of their predecessors little time to leave their mark. But with two months to go before the elections – Israel’s fifth round since 2019 – the demands of the job are clear to her. Israel must abandon the protectionism of its founders and close the gap between its turbocharged tech industry and the rest of its economy.

For Barbivay, 60, politics is the second profession in which she has broken through the barriers of Israel’s male domain. She was the first woman to attain the rank of major general in the army and is now the first to become Secretary of Commerce.

Whether or not the political cards are in her favor after November’s election, the job means presiding over an inequality-torn economy while flowing vast amounts of wealth into her vaunted tech sector. The gap between the tech and non-tech sectors is so great that Barbivay says she’s dealing with “two economies.”

“For years in the military, I saw the challenge through the eyes of security, and today I see how much of the economy is a bridge to other gaps,” she said in an interview. “My job is to close the gap.”

The ministerial post, overseeing trade, industry and labour, is the second-highest economic role in government and crowns a career for Barbivay that spanned more than three decades in the military.

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While an unprecedented diplomatic thaw with the Arab nations has kept them in the spotlight for signing trade deals with former enemies, the focus is on their homeland, with Israel’s high cost of living topping the list of voters’ concerns at a time of inflation has been the fastest since 2008.

During her tenure as Economy Minister, she has helped ease import regulations, lower customs costs and cut bureaucracy to increase competition and ultimately lower prices. These efforts drew interest from international chains, including grocer Carrefour SA.

As part of a government currently led by Yair Lapid of the Yesh Atid party, it also eliminated separate Israeli standards for foreign products, a major change in the protectionist rules introduced with and contributing to the state’s founding in 1948 had to make goods more expensive.

“As I analyzed the economy, I saw that there were built-in barriers,” Barbivay said. “We were a young nation and because they wanted to protect the domestic industry, they made many regulations.”

Born in the mixed Arab-Jewish town of Ramla to an Iraqi mother and Romanian father, Barbivay grew up poor in Afula, a northern city that was once home to three large transit camps for newcomers. It has since seen waves of immigrants from Ethiopia and former Soviet republics. As economics minister, she calls it an “existential necessity” to better prepare the less affluent sections of the population – including Arab women and orthodox Jewish men – for the labor market and to bring jobs and investments to where they live.

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“Looking at the two economies, I see the business minister’s job as boosting productivity and starting the engine of growth,” she said. “We have to set goals. We have to get to the periphery.”

In the Army, Barbivay headed the Directorate of Personnel and was the first female member of the military’s central decision-making staff. After entering politics in 2019, she joined Lapid’s centrist party and became economy minister in June 2021, one of a record number of women in Israel’s newest cabinet.

Barbivay, who understands Arabic, has been one of the public faces of his work in the Arab world, transforming Israel’s standing in the region both diplomatically and financially. Milestone deals with cemented relationships with governments such as Bahrain and Morocco. In May, she traveled to Dubai to sign a free trade agreement with the United Arab Emirates, less than two years after a political breakthrough between the two countries.

Relations with Turkey, once a staunch ally in the region, have also been restored. Regional heavyweight Saudi Arabia has yet to show any interest in forging formal ties, but Barbivay says she’s confident President Joe Biden’s recent visit to the kingdom will help open that door. “All in good time,” she said. “I hope it turns into diplomatic relations.”

Different tracks

At home, the economy remains a reflection of the vast disparities. Poverty is widespread among Arab citizens and ultra-Orthodox Jews, making Israel one of the high-income and unequal countries.

The gap is similar to that in the US, according to the Paris-based Global Inequality Lab, a group founded by French economist Thomas Piketty. The results showed that the bottom half of Israel’s population earns 13% of total national income, while the top 10% earn 49%.

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Inequality in Israel has remained high over the past three decades, although it has been falling since 2012. But now the part of the economy that employs the bulk of the workforce is increasingly lagging behind the tech sector in terms of wages and productivity.

Incentivizing tech companies to move to the periphery will empower less developed areas and reduce violence, and the companies that invest in diversity will “see their business benefit,” Barbivay said. “I invest in you that you move to the periphery, then you benefit, I benefit, the state benefits.”

‘Political instability’

But Israel’s policies may prove to be a challenge it cannot meet.

She is number two on Lapid’s list – second only to former Prime Minister Benjamin Netanyahu’s Likud – and could be demoted next November.

Yesh Atid is behind Likud in the polls and behind Netanyahu in the possible coalition formation. There is also the possibility of a unity government of the largest parties leaving it where it is.

“If the political instability continues, it will harm everyone — civilians, Israel’s international standing, the government’s ability to carry out any programs,” Barbivay said. “But when there is stability in government, the sky is the limit.”

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