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[This post is the 3rd of a 15 part series on Jewish Philanthropy]

A powerful and consistent trend that is affecting the role of Jewish philanthropy in Israel is the decline in the will and ability of the Government of Israel to address the needs of its constituency. I call this trend: the decline of Jerusalem. For world Jewry philanthropy in Israel, this trend represents both a threat and an opportunity: while it expands the menu of options for philanthropic interventions it is also overstretching its resources.

In every country people are frustrated with the way their government spends their tax dollars. I am yet to meet the person that does not criticize his or her government for inefficient spending or ineffective execution.

Yet, the right of Israelis to be upset with their government can be established based on international benchmarks. The public sector in Israel puts the brakes on our growth and prosperity more than any other government in any developed nation.

According to the 2006 Global Competitiveness Index of the World Economic Forum Israel is ranked fifteen in the world in its overall level of competitiveness. However, in-depth analysis will show that our business sector is ranked 8th in the world in terms of its sophistication, availability of human capital or technology. Furthermore, in key areas such as research and development Israel is a world leader. At the same time, the performance of our public sector and government is ranked 29th! No other developed country suffers from a similar gap between the high performance of its business sector and the underperformance of its governance. (For a detailed analysis by the Reut Institute please click here; for a post on this gap click here).

Hence, the argument that Israel needs to make its government more efficient and effective or shrink it is well founded. The former is very difficult to achieve due to structural constraints and the power of labor unions. Hence, the shrinking of government has become inevitable through cuts in social budgets and privatization. In spite of the fact that it may be tragic for the weaker parts of society, it will probably continue (unless a fundamental change in the relationship between the government, the employers and the labor unions occurs. Click here for a post on the example of Denmark).

The structure of our political system and our electoral laws are the underlying reason for this grave weakness of the government. Short and unstable tenures and fragmented legislature and executive generate powerful incentives for short term, sectarian and populist conduct. Israel needs the exact opposite: long-term and substantive political leadership that focuses on broad and collective interests. (for a detailed discussion of the crisis of Israeli government in my blog please click here)

This is the backdrop for the decline of Jerusalem.

However, as Jerusalem declines other sectors of Israeli society fill the gap. They are the business sector, mayors, professional (career) civil servants, philanthropists and non-profit organizations. With stable tenures and a much higher capacity to take decisions and implement them, these sectors increasingly assume positions of leadership and authority in areas that used to be dominated by political elite from the seat of government in Jerusalem.

The 2006 Second Lebanon War offered a dramatic, even scary manifestation of this trend. 'Jerusalem' has proven utterly ineffective in dealing with the magnitude of the crisis. It was other sectors that responded much more effectively.

Other symptoms for the decline of Jerusalem are scattered across the entire society and are covered by the press on a daily basis. In fact, Israel is muddling through in almost any area that is dependent on efficeint and effective decision-making and execution by 'Jerusalem'. Education, law enforcement, environment and labor force participation are just a few examples.

By the way, recently, even the Bureau of the Prime Minister has acknowledged this powerful trend and has been leading a reform that will consolidate and regulate the growing role of these sectors.

I argue that this trend represents a great opportunity for world Jewry to recapture a central role in Israeli society through its philanthropic activity. The opportunity here is two-fold:

First, Jewish philanthripy has a much wider menu of options for its intervention where it can make important contributions to Israeli society.

Second, world Jewry is in a position to impact three of the emerging sectors: it can influence Israeli philanthropists and business sector through leadership by example; and it can leverage its present and future giving to nonprofits and municipal institutions toward better and more effective and efficient performance.

I believe that rising to this challenge embodies one of the biggest opportunities of Jewish philanthropy in Israel and a key to restoring its central role in Israeli society.

Coming up: Part IV - Diminishing marginal impact

Gidi Grinstein is the founder and president of the Reut Institute.