The Charedi sector constitutes a central socioeconomic challenge to Israel's prosperity. The Top 15 Vision will require Israel to rise to this challenge. This is not a technical but a structural problem of existential significance that will only be addressed when the electoral system will be changed to strengthen the ability of the GOI to properly govern.

(For a discussion on the differences between technical and adaptive problems, see Ron Heifetz, Leadership without Easy Answers p35. I have written about some of the distinctions in a previous post).

Merav Arlozorov, a journalist for The Marker, correctly described the problem in a series of recently published articles. In my opinion, her work is a classic example of well-researched investigative journalism dealing with genuine issues of Israel's socioeconomic agenda. The National Economic Council at the Bureau of the PM (NEC) also identifies the Charedi sector as a central challenge to the Israel's socioeconomic development (See 'The Socio Economic Agenda of Israel 2008-2010' pages 55-61 (In Hebrew) or the English summary).

The Charedi sector is relatively and absolutely poor. In spite of the fact that it makes up 4% of the households in Israel and 5% of our total population, the Charedi sector makes up approximately 12% of all poor families; 58% of Charedi families are poor.

This Charedi burden on the national economy is heavy and getting heavier as its contribution to economic growth is significantly lower relative to the rest of the population.

First, its level of participation in the labor force is significantly lower due to the study of Torah and the late entry into the labor force. Second, its productivity is lower due to lack of academic education, weaker professional and technical skills and conservative management structures. Third, the Charedi sector benefits from vast welfare support due to its family size, low income and special allowances for the study of Torah. Finally, as the relative size of the Charedi sector increases so does the burden on the working public, primarily the middle class.

The carrying capacity of the middle class, the backbone of Israeli society and economy, is not unlimited. Israel is already a state in which taxes are as high as Scandinavia yet public services as poor as the US. The gap between the tax burden on the working public on the one hand, and the quantity and quality of public services, on the other, is increasing, particularly in comparison to the developed world. This may ultimately drive people and businesses to revisit critical choices such as their permanent place of residence.

Beyond a certain tipping point, the trend of brain drain and outflow of investment may lead to a collapse of the national socioeconomic system.

Anyone who thinks such a situation is impossible should look at the processes happening in states such as Germany and France. There the root of the problem is the shrinking size of the labor force due to shorter workweeks, a continuous decline in the number of people joining the labor force and the rise in the number of pensioners as people live longer and retire earlier. Hence, a smaller number of workers carry an increasingly large tax burden.

In such an environment, brain drain is inevitable. And as more families choose to emigrate, the burden on tax payers increases, leading to a heavier tax burden on those who stay behind. In turn these people are pushed to leave as well.

There are areas in Germany where the population has decreased by more than 10% in recent years. This is the kind of demographic decline historically associated with wars or epidemics, yet in this case it is due to the unsustainable economic structure.

If it happened there it can happen here too. This is a vicious circle that eventually may cripple the entire socioeconomic system. This is why the Charedi sector is a threat to Israel's prosperity that must be addressed.

Gidi Grinstein is founder and president of the Reut Institute. The views expressed in this blog are his own and do not necessarily reflect the views of the Reut Institute.

For additional information regarding BloGidi see his original post: A Link in the Chain.