In a previous post, I discussed the challenge the Charedi sector poses to Israel's prosperity. Yet how should we understand this challenge?

On the one hand, it signifies significant untapped economic potential. The Charedi sector represents 5% of the population that lacks education and basic skills needed for the modern marketplace. Their ultimate integration into an advanced economy may be the engine that drives high economic growth, both due to their high numbers and their potential contribution to productivity.

On the other hand, to date, the Charedi sector has constituted a heavy economic burden. Its relative contribution to the gross national product (GNP) is significantly lower than the national average; a culture of tax evasion is prevelant; in addition, their productivity is low due to menial labor and the postponement of basic required skills for integration into modern society.

At the same time, this sector benefits from vast welfare support in relation to its size. And as its size relative to the rest of the population is increasing, its economic conduct is causing a growing burden on the prospects of growth of the Israeli economy. In other words, there is an increasing number of Israelis not exhausting their economic potential, avoiding taxes and needing government hand outs.

Moreover, Charedi children are not receiving basic required skills for integration in the modern workplace. Furthermore, prevalent black market and tax evasion practices in the community create a barrier for Charedi businesses to benefit from advanced vehicles of growth such as raising capital or using sophisticated management tools.

As I wrote previously, extrapulating these trends raises the concern for growing burden on the middle class that may lead to a massive brain drain similar to one Germany and France have gone through.

The National Economic Council (NEC) lists four reasons for Charedi poverty:

First, the Charedi refusal to perform the mandatory military service in order to dedicate their time to the study of Torah leads many to postpone their joining of the labor force and their acquisition of higher professional or academic education.

Second, most Charedim graduate high school and Yeshiva without the basic language skills or mathematical and science knowledge required for productively joining a modern labor force. Thus, their ability to acquire technical or professional skills is fundamentally restricted. Moreover, even after joining the labor force, many only work part time dedicating the rest of their time to the study of Torah.

Third, there are an absence of work places that are respectful of their specific religious needs such as Kashrut or strict separation between men and women.

Finally, Charedi families are large with an average of more than five children. Consequently, many of them are also poor.

It is natural for the NEC to frame the abovementioned reasons in the way it did. They are viewed as socioeconomic causes of a socioeconomic problem. But in my opinion, the underlying reason is different.

One might think that all of these problems are 'technical' and have a technical solution. However, these problems need 'adaptive' work.

In other words, to deal with this challenge, its not enough just to integrate Charedim into the work place, provide them with business skills and create relevant work places.

To address this challenge, Israel needs to transform its priorities and values. The non-orthodox community will have to accept economic and business practices that are respectful of the Charedi way of life. The Charedi community will have to join the labor market earlier, better equipped and in higher numbers, while recognizing that only those that truly dedicate their lives to the study of Torah can be exempted from Avodah.

The ability of the Government to carry out such an adaptive change is the subject of another post.