Power, democracy, economic stability are all on the line in Israel

As Israel grapples with judicial reform, the dismissal of its Shin Bet chief, and the debate over the role of unelected officials, it stands at a crucial crossroads. In a climate where institutional independence is under siege and economic certainty is weakening, the challenge becomes clear: How does a modern democracy safeguard its future? The answer lies not in concentrating power but in rigorously maintaining the delicate architecture of checks and balances that underpin both democracy and economic prosperity.

Between law and politics: The critical role of legal certainty

At the heart of any thriving modern state lies an independent, credible, and stable judiciary. In Israel, the judiciary has long served not merely as an arbiter of justice but as a pillar of economic trust, attracting international investors who see in it a guarantor of stability amid political volatility. For decades, Israel was not only the Start-Up Nation but also the Rule of Law Nation, where contracts were enforceable, property rights protected, and legal interpretations consistent and reliable.

However, today, sweeping judicial reforms and aggressive political campaigns against the courts are eroding that foundation. Investors do not fear political change – they fear unpredictability. When fundamental laws or their interpretations can shift overnight, investment risk calculations become untenable. The direct outcome is a chilling effect: projects frozen, investments withdrawn, opportunities lost.

Experience across global real estate markets has shown that investor confidence is highly sensitive to the strength and stability of legal frameworks. Investors are not driven by ideology but by pragmatic considerations. They prioritize clarity, predictability, and legal protections – conditions that only a strong and independent judicial system can provide.

Thus, Israel must recognize that the erosion of judicial independence is not merely a domestic political issue. It strikes at the heart of the nation’s economic viability. To restore certainty and rebuild trust, Israel must embark on a historic constitutional project – a foundational document that anchors the separation of powers, codifies civil rights, and provides an immutable legal framework immune to transient political winds.

Israel’s Declaration of Independence (credit: ARIK BENDER/MAARIV)

Institutions under siege: Lessons from the Ronen Bar affair

The firing of Shin Bet head Ronen Bar was not an isolated political maneuver. It illuminated a deeper structural threat: the politicization of professional, nonpartisan institutions that should remain firmly outside the reach of political whim.

Democracies do not survive because of the virtue of their politicians alone; they endure because critical institutions – security agencies, law enforcement, and regulatory bodies – maintain loyalty to the law and the public, not to individual leaders. When personal loyalty is demanded over institutional integrity, a democracy edges closer to becoming an autocracy.

This phenomenon is not theoretical for investors and business leaders. In the global economy, political instability is closely tied to economic risk. When headlines highlight the politicization of security services or the dismissal of senior officials based on perceived disloyalty, the message to investors is clear: Institutional stability is at risk. Such developments undermine confidence, increase uncertainty, and ultimately deter long-term investment and growth.

Capital, talent, and opportunity flow to environments where institutions are protected, not persecuted. If Israel allows political actors to transform professional institutions into instruments of personal power, it will undermine not only democratic governance but also its economic foundations.

The global market reads these signs sharply. Investors may admire Israel’s entrepreneurial energy, but they will not stake their future on a system where contracts, permits, and regulations are vulnerable to political retaliation. Israel must decide if it wants to remain a country of opportunity or risk becoming another cautionary tale of institutional collapse.

The dangerous narrative against non-elected officials

The recent wave of populist rhetoric targeting unelected officials is not merely dangerous – it is profoundly dishonest. It seeks to dismantle the very mechanisms that protect democracies from descending into majoritarian tyranny.

Judges, legal advisers, central bankers, and regulatory commissioners are not supposed to serve political masters. They are tasked with upholding the rule of law, maintaining fiscal discipline, and defending the public interest – especially when doing so is inconvenient to those in power.

Critics claim that unelected officials thwart “the will of the people.” But democracy is not just about majority rule; it is about constitutional governance, the protection of minority rights, and the preservation of civil liberties against impulsive political tides. The real will of the people is to live in a country where contracts are honored, rights are protected, and government power is checked – not to hand unlimited authority to any political party or leader.

Observations across various legal and political systems demonstrate that countries undermining their institutions often face economic contraction, capital flight, and increased social instability. Investors recognize that where judicial independence is compromised, regulators lack autonomy, and prosecutorial systems serve political interests, the rule of law is weakened – making contracts insecure and investments significantly riskier.

Israel must not fall into this trap. Protecting independent institutions is not defiance of democracy – it is its highest expression.

The economic cost of eroding checks and balances

The stakes are not academic. Continued erosion of Israel’s institutional integrity carries tangible economic consequences that could define the nation’s trajectory for decades.

If the assault on checks and balances persists, Israel could face a cascade of negative outcomes: a brain drain as top talents migrate to more stable environments; downgrades in sovereign credit ratings, leading to higher national borrowing costs; declining foreign direct investment; and deepening social divides as economic opportunities shrink.

Moreover, the sectors most critical to Israel’s economic success – technology, real estate, innovation – are particularly sensitive to perceptions of political risk. In the world of international finance and investment, reputations are easily damaged but exceedingly difficult to repair.

Already, anecdotal evidence from venture capital firms, multinational corporations, and international developers suggests a growing hesitation to commit long-term resources to Israel under current conditions. If perception hardens into conviction, reversing course will become exponentially harder.

The impact would be far-reaching: job creation would slow, tax revenues would fall, social services would strain, and political polarization would intensify – creating a vicious cycle difficult to break.

Rebuilding institutional trust: A national imperative

Israel’s path forward requires more than promises. It demands structural action: the adoption of a formal constitution; the reinforcement of judicial independence; the de-politicization of regulatory agencies and security services; and the public reaffirmation that the rule of law supersedes any political ambition.

It also requires leadership willing to embrace restraint. True statesmanship is not measured by the ability to command but by the willingness to be bound by law, by principles, and by the understanding that no leader, no majority, is above the institutions that safeguard national stability.

The preservation of institutional checks and balances is not only a matter of democratic principle, it is also a critical foundation for economic resilience and strategic stability. Historical and contemporary examples demonstrate that when the separation of powers erodes, countries experience heightened political risk, reduced investor confidence, and long-term economic decline. Strong, independent institutions provide the predictability that markets require, ensure that legal frameworks are upheld impartially, and offer a safeguard against arbitrary decision-making. Without these protections, the environment for both domestic growth and international investment deteriorates, leading to broader societal and geopolitical vulnerabilities.

Israel has a unique opportunity to show the world that democracies can renew themselves from within, even under pressure. But time is short. Each further encroachment on institutional independence makes the task harder.

Conclusion: The future Israel must choose

The choice facing Israel today is both stark and consequential. It is not simply a matter of governance versus democracy, but of responsible leadership versus the risks of unchecked power. The country stands at a crossroads: to remain a nation recognized for its innovation, resilience, and adherence to the rule of law, or to risk becoming isolated, unstable, and economically vulnerable.

Checks and balances are not administrative hurdles; they are essential safeguards that uphold freedom, ensure prosperity, and protect national dignity. Preserving them requires vigilance, principled leadership, and a sustained commitment to the democratic foundations that have supported Israel’s success.

Protecting judicial independence, regulatory integrity, and the impartial functioning of public institutions is not an optional ideal – it is a fundamental requirement for a stable, prosperous, and free society.

The trajectory Israel chooses will have far-reaching implications. Stability and confidence are built through balanced governance, not the concentration of power.

At a time when the global community, investors, and future generations are observing closely, it is critical to reinforce the values and structures that ensure a resilient and vibrant democracy.■

The writer is an international real estate investment expert and former member of Knesset for the Shinui Party.