Is Israel’s current path setting it on course for collapse? 

Israel will find itself diminished and no longer the secure regional hegemon if it maintains its current path, analysts and observers from within Israel and its diaspora have warned.

All signs, they say, from the ratcheting levels of political polarisation within the country, the loss of investor confidence at both home and abroad and the fundamentals of demographic change, make the collapse of the current iteration of the Israeli state almost inevitable in the coming decades.

“When we say that the Israeli state will stop existing, it’s more of a starting point,” political economist Shir Hever explained. “What we’re really talking about is whether it will continue as the same entity as it is now. For instance, the way apartheid South Africa was no longer the same entity after 1994, or that East Germany was the same entity after unification [in 1990].”

The argument is that Israel, as it stands now, is unsustainable. And it is not so much about the way Israel treats Palestinians, but about division within Israel. Many secular Israelis are leaving the country – including entrepreneurs who have made Israel’s tech industry one of the best in the world. At the same time, the religious Zionist and ultra-Orthodox segment of society is growing rapidly, even as it comparatively brings in less money to the economy.

The loss of Israelis leaving the country will therefore potentially take much of the revenue and investment needed to sustain the expansionist aims of a hard-right government, while subsidising a benefits-reliant community of ultra-Orthodox adherents.

One of the major push factors for secular Israelis is the country’s deep political polarisation, exacerbated by war, the attempted weakening of the judiciary, and the endless machinations of Prime Minister Benjamin Netanyahu.

Hever isn’t alone in his diagnosis. Perhaps most notable was the 2024 pronouncement from Eugene Kandel, the former head of Israel’s National Economic Council and an ally of Netanyahu, and Ron Tzur, the director of Israel’s Strategic Futures Institute, that Israel was unlikely to reach the centenary of its 1948 establishment if it continues on the same path.

The two based their conclusion on the divisions within Israeli society, outlining three groupings: a liberal Jewish secular group, a group that wants a religious Jewish state, and a group that advocates for a state with equal rights for Jews and Palestinians.

Kandel and Tzur see the main divide as being between the first two groups. “A war over the home, over everyone’s identity and values against everyone else, creates an existential threat to the country, because such a war cannot be stopped without a dramatic change in the feelings of all parties,” the two wrote.

For others, such as American political scientist Ian Lustick, that end has already been reached.

“[Israel] is no longer a ‘Jewish state’ in the sense that most Israeli Jews mean it, namely a state that privileges Jews over non-Jews but successfully fronts itself as a liberal democracy,” he told Al Jazeera. “Israel is now an apartheidist state which includes all the people living between the [Jordan] river and the [Mediterranean] sea.”

According to Hever, Israel cannot afford what he referred to as “the luxury of decline”. That is, to remain as it is, Israel must maintain its core workforce of educated middle-class innovators, such as those currently responsible for driving its technology sector, or maintaining its medical system.

Likewise, to fuel its continued expansion into Palestinian territory, Israel must maintain the industrial, infrastructure and technology to maintain its military strength, and a standard of living to prevent its people from leaving.

At present, none of those indicators are in good shape, analysts say.

Emigration

Israel’s leaders have long regarded population growth as a strategic priority. From the moment the state was formed following the expulsion of some 750,000 Palestinians in 1948, maintaining a clear demographic advantage over Palestinians was seen as vital to the Zionist project, as well as to the ability of the new state to field enough soldiers to secure its borders.

However, according to analysts, the period of political polarisation that preceded Israel’s genocidal war on Gaza has already resulted in the departure of many of the young graduate class that Israel needs to safeguard its future, even before Netanyahu’s government introduced reforms that would weaken the independence of the judiciary in early 2023.

At the time, Netanyahu’s plan to rob the country’s Supreme Court of much of its powers of government oversight divided Israel to a degree that its later genocide in Gaza failed to match. Protesting what they saw as the government’s power grab, more than 200,000 – roughly 2 percent of the country’s population – took to the streets in protest.

The outcome has been stark. While government laws blurring legal and physical residency make accurate numbers hard to gauge, the Israeli parliament’s own figures and those of think tanks show that increased emigration, particularly among secular Israelis, has significantly slowed the growth of Israel’s population. In all, driven by war and an increasingly polarised society, more than 150,000 people have left Israel in the past two years, and more than 200,000 since the current government took office in December 2022.

“The educated upper-class are also more able to leave,” Hever said. “They’re educated, so they can find jobs, and they speak English. They’re also more exposed to international, rather than Hebrew, media, so they have a better idea of what’s going on and how Israel is perceived. However, increasingly, we’re seeing families with children leave, suggesting this is a more fundamental shift.”

“[Israeli economist] Dan Ben-David estimates that Israel relies on around 300,000 members of a core elite to sustain it,” Hever added. “So if a significant number leave, it stops being a developed economy and becomes a developing economy … which it can’t really afford. It just doesn’t have the luxury of losing its economic power or its standard of living. For a colonial state to exist, it relies on occupying land – and that costs money.”

Economic burden

Investor confidence has also been damaged as a result of both the judicial reforms and war, undermining the economic growth that Israel relies upon to support its military spending, expansion and increasing numbers of ultra-Orthodox citizens who often rely on state benefits to support their religious studies.

In 2018, according to Kandel and Tzur, the average Israeli family paid about 20,000 shekels ($6,450)  to support Israel’s ultra-Orthodox community. However, according to demographers, the size of that community is expected to triple by 2065, pushing the burden on non-Orthodox Israeli households to the equivalent of 60,000 shekels ($19,370) a year.

Add to that an increase in defence spending if Israel continues on its current war posture, and analysts warn that the strain on Israel’s main tax-paying sector could become unsustainable, while investors are also moving money out of the country.

“Even before the judicial reforms, institutional investors were moving money out of the country, and had been doing so since the 2008 financial crisis,” Hever said. “Around 50 percent of internal investment is now abroad.”

“Foreign investment is also down. Israel’s typical target for investment was its tech sector, but that sector is primarily military: Elbit, for instance, which is now under pressure from BDS [the Boycott, Divest and Sanctions movement],” Hever added. “There’s also been a sharp reduction since the 2023 judicial overhaul, with investors unsure whether conflicts over, for example, copyright or tax will now be ruled upon by a nationalist or extremist government-appointed judge.”

What future?

At present, Israel remains relatively secure.

Though its renewal remains uncertain, the 10-year, $38bn arms deal signed by the United States in 2016 continues to underpin much of the country’s arms and tech industry. Its economy continues to grow, and some of its more optimistic forecasters are now looking forward to the first full year with no external shocks since the COVID pandemic of 2019.

However, few can avoid the fact that, while its economy may be growing, it is doing so at a reduced rate compared with other developed countries.

Likewise, with the US threatening war against regional nemesis Iran, political deadlock over the recruitment of the ultra-Orthodox at home, and the far-right apparently ascendant, predictions that the economy may get through 2026 unscathed may be wishful thinking.

Meanwhile, the long, slow exodus of the young and the talented continues and, with it, the prospect of a secure future withers.

Some observers, such as Chatham House’s Yossi Mekelberg, were philosophical over the future of the country, or if it might collapse, saying: “When dictatorships come to an end, they break into pieces. Democracies are chipped away bit by bit until they change beyond recognition.”

“If Netanyahu and the ultra-right and ultra-Orthodox stay in power, this is the direction,” he said, “with the more liberal minded and socially mobile leaving the country”.