01/23/2013 06:17 pm ET Updated Mar 25, 2013

Israel's Elections Results: It's the Socio-Economics, Stupid!

For over the past twenty five years the central issue at the heart of all Israeli elections has been "peace and security." The election results from yesterday's vote show a complete volte-face, with social and economic issues topping the list of the electorate's concerns.

In the summer of 2011, Israel was rocked by mass demonstrations. On one Saturday night, some 400,000 people took to the streets of all the major cities, protesting against what they deemed as the collapse of the Israeli dream. The demonstrators were, for the most part, middle class. Israel had weathered the global recession quite well. There had been no toxic assets, no bank or mortgage foreclosures, no rise in unemployment and economic growth remained steady. So what were people complaining about?

The two biggest gripes revolved around housing costs and the unequal sharing of the national (military) burden. Israel has one of the highest percentages of home ownership (read: mostly apartments) among OECD countries -- around 70 percent. While university (college) education is not expensive here (around $4,000 per year), prices for apartments are. The typical middle-class model in Israel had the parents saving money to help their kids buy their first apartment when they got married (if lucky, both sets of parents pitched in). Today, the prices are so high that it is basically impossible for middle class couples to procure a place to live in or near the large urban centers. The Israeli real-estate bubble is new and contrasts deeply with what took place in the U.S. When the bubble was on in America, prices in Israeli real-estate were actually contracting. As the bubble burst in the States, it began to pick up steam in the Holy Land. One big difference is that the Israeli bubble is really a supply and demand issue. There are simply not enough apartments to go around for a growing population.

As mentioned, housing is not the only complaint the middle class has. The issue of who serves in the Israeli Defense Forces and who is exempt is an acute one and the angst over it has been growing in recent years. In contrast to the Israeli myth of universal mandatory conscription, two large minorities are exempt from military service: the Ultra-Orthodox Jews and the Israeli-Arab population.

Israeli Arabs are not forced to serve in the Israeli army for obvious reasons. After the dust cleared following Israel's War for Independence (1948), there were approximately 180,000 Arabs in the new Jewish state. Five minutes previously, they had been the enemy. There was a sense that they could constitute a potential fifth column. There were genuine concerns over trust and loyalty. Over the course of time, some Israeli-Arabs chose to either volunteer for the Israeli army or actually demanded to be conscripted by law. Of the former, the best example is the Bedouin population, whose males typically serve as trackers attached to combat units. Of the latter, the Druze population requested that the Israeli government pass legislation that regulates mandatory conscription for all of their men. Since the 1950s, all Druze men serve in the IDF -- the overwhelming majority in combat units.

The Ultra-Orthodox requested an exemption for several hundred army-age men during the War for Independence. Prime Minister David Ben-Gurion granted the request, figuring that this was a population that was shrinking, soon to disappear. In today's demographic constellation, some 70,000 Ultra-Orthodox receive exemptions from military service. Within 10 years, over 20 percent of the army-age Israeli men will be eligible for exemption. The operative meaning of this statistic is that the IDF will be facing a manpower crisis very soon.

Following the mass protests, Netanyahu created a commission to investigate the situation and to make recommendations. He chose Professor Manuel Trachtenberg (PhD, Harvard) to head the group, promising to implement the recommendations. The Trachtenberg Committee came up with serious proposals for how to solve many of the outstanding issues. The implementation was partial at best.

In the meantime, during the course of 2012, Netanyahu publicly emphasized the Iranian nuclear threat, succeeding in removing the socio-economic protests from the national focus. Or so it seemed...

The two new major political players that emerged from yesterday's elections -- Yair Lapid (19 seats) and Naftali Bennett (11 seats) -- both placed a high premium on resolving the issue of the "unequal sharing of the (military) burden." Similarly, each party in its own way emphasized an economic agenda that focused on dealing with the housing situation.

Lapid was careful not to pigeon-hole his party on the right-left continuum. It is unclear exactly where he stands, except for his support of the "two-state solution."

Bennett's party is clearly very right wing. He openly declared his opposition to the establishment of a Palestinian state and called for the annexation of most of the West Bank.

Whatever coalition government will be formed, there is no doubt that the socio-economic issues will have to be dealt with. It is the will of the people.