Introduction

The Arab community comprises a fifth of the population of Israel and faces serious economic, social, and political problems. This chapter begins with a review of the economic theory of minorities and that of discrimination, the aim being to see what light theoretical work can throw on the status of the Arabs in Israel. The second section examines demographic, economic, educational, and employment development since the British Mandate. Conclusions are then drawn about the relative strength of what might be called endogenous and exogenous factors in explaining the economic development of the Arabs in Israel. Endogenous factors include religion and culture. Exogenous factors are the environment in which the community lives: Is it encouraging or discouraging and discriminatory? Is the state active or passive or even negative in helping the minority develop? Endogenous factors such as motivation, education, and even culture and beliefs are affected by exogenous factor over time. This differentiation, although tenuous, is analytically useful.

The Economic Theory of Minorities

Most of the theoretical work on minorities has been about economically successful ones. It has analyzed which traditions, cultures, and beliefs minorities have that have enabled them to succeed. Most of the work on minorities has been on groups, such as Jews, Huguenots, and the overseas Chinese, that succeeded in the face of discrimination.