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Liberating the Israeli economy from occupation

By Ariel Natan Pasko
web posted August 16, 2004

Well, I'm sorry to have to say, "I told you so," but the neo-socialist backlash is well underway in Israel. Israel's left-dominated radio and television, orchestrated another "media frenzy" recently, after the Central Bureau of Statistics published their latest report on the state of the economy and the poor. This follows the Labor Party's recent complaints -- when coalition negotiations with Likud came up -- of the need to rollback much of the Israeli government's economic reform program.

The CBS study -- based on a poll 7,200 Israelis aged 20 and over from all regions of the country -- found that 46 per cent of Israelis don't manage to cover their monthly household expenses and that 54 per cent of Israelis have given up on clothes and shoe shopping. Thirty-eight percent of Israelis polled, forgo heating and air conditioning in their homes due to lack of money and 37 per cent do not believe their financial situation will change for the better.

Most painful, are the results of the survey relating to health care and food. The CBS found that 65 per cent are in need of dental care yet 45 per cent -- over one million Israelis -- did not seek treatment. Thirty percent of respondents do not have complementary health insurance because of the additional costs. Fourteen percent of Israelis aged 20 and over -- an estimated 550,000 people -- have forsaken food purchases in the past year due to financial difficulties, while half a million passed up on buying needed medications in 2003, according to the study.

Leftist politicians and the media jumped on the survey results to decry the government's attempts to free up the economy after decades of "socialist occupation". They described the situation as "two states for two peoples-rich and poor," playing on the leftist pro-peace process slogan "two states for two peoples," meaning Israel and Palestine.

Well, I for one am against the "occupation," ... socialist, economic control, that is.

But, there is a bit of truth to what those leftist "protectors of the poor" say -- funny how so many of them are so well off -- a well known phenomena world-wide, rich socialists. According to reports, Israel is in second place globally -- behind only the United States -- in income disparity. That is the gap between the poorest and richest sectors of society. But there's a major difference, Israel has a small economy just pulling out of it's worst recession ever, with almost 11 per cent unemployment, and the US has a very large economy, with hearty growth and less than 6 per cent unemployed. Entrepreneurial opportunities at all levels abound in America; Israelis still await those same opportunities.

As I wrote in, "Israeli Capitalism With A Human Face," back in March 2003, "I'm generally in favor of the attempt by Finance Minister Netanyahu and the Israeli government to reform the economy. It should be obvious to all by now that it's way overdue. But, it must be capitalism with a human face . That is, it must be done with a concern not to further impoverish the weaker sectors, in the name of progress. It must open up opportunity at the same time that it reduces the government budget.

"Developing a system of retraining for the newly and long-term unemployed is crucial. With many labor intensive jobs having left or leaving the country, the hi-tech downturn, and now planed public sector cuts; some combination of government sponsored programs through the Labor Ministry (they're supposed to be working right?), vouchers -- for use in private retraining -- from the National Insurance Institute, and serious encouragement for the growth of a private sector retraining industry, on a massive scale, is mandatory! And that retraining should emphasize entrepreneurism as well as the new skills being taught. Israelis should no longer expect 'big brother government' to take care of their futures. A safety net yes, a free ride no.

"Jews have always done well economically throughout their history; there is no reason that in the Jewish State it should be any different. If we don't help provide the tools to people to pull themselves up, they might just pull us down; maybe we should even give them a hand up. If some half-baked 'Thatcherite' program is implemented without serious thought -- like is currently planned -- then the masses of growing poor, will probably still feel that, "Capitalism has a bad name in Israel." It might even lead to a neo-socialist backlash that would set back the cause of economic liberalization in Israel a generation or more. That would only put us on the highway toward third-world status. We as a society cannot suffer pockets of great wealth and pockets of great poverty -- labeled capitalism -- or the 'Neo-Socialist Workers Paradise' of total equality and no growth.

"But a well thought out and balanced program of tax cuts, budget reductions, capital market reforms, deregulation, monopoly busting, increased labor mobility, retraining for the 21st century economy, and encouragement of the non-profit social welfare sector to take over where government leaves off; true economic freedom, that is, capitalism with a human face , could transform the Israeli economy into a dynamic, robust, vibrant one. It would become an Israeli economy and society that pulls Aliya -- immigration -- like a magnet, not only from the lands of despair and danger, but also from the lands of prosperity, such as Europe, South Africa, Australia, and America. Imagine what a million well educated -- and free-market oriented -- American Jews could do for Israel?

Policies like these, in harmony with our long held Jewish traditions of Tzedakah -- righteousness, charity -- and concern for the poor and weak; combined with the equally long held Jewish tradition of entrepreneurial spirit, could lead Israel toward her goals of prosperity and fulfillment. It would be an Israeli capitalism with a human face"

For the purpose of understanding the following examples, the Shekel/Dollar ratio is about 4.5:1. The average income of the richest 10 percent of households in Israel is 41,835 shekels a month, compared to an average income of 3,108 shekels a month, for the poorest 10 percent. Most Israelis -- 72 percent -- earn less than the average wage of roughly 7,000 shekels a month. Nearly 30 percent of Israelis earn minimum wage or less.

But, not all unemployed people have been hit so hard. Recently retired, former Knesset Speaker and Labor Party MK Avraham Burg has benefited from Israel's "trickle down" socialist occupation of the economy. His generous retirement terms include not only an office, a car, and two aides but even four burial plots at Har Herzl (the National Cemetary for Israeli political dignitaries) in Jerusalem, for him and his wife. Two plots are from the Knesset and two from his stint as head of the Jewish Agency (a quasi-governmental agency). Can he be buried twice?

According to Knesset sources, they estimate that Burg will be entitled to 44 months of salary for an aide, at a cost of 440,000 shekels. Apparently the Jewish Agency will finance his office, car, and additional aide. If the Knesset decides to finance the office, car, and additional aide, then the Jewish Agency will be saved the costs. The cost of the latter should come to another 1.1 million shekels a year. And that doesn't even include his retirement pension...

Ex-prime ministers Shimon Peres and Ehud Barak (also from the Labor Party) are each getting about 2 million shekels this year from the public's tax monies, for their office budgets. This, even though Barak is now a highly paid consultant -- said to command $130,000 a month salary -- in the private sector. Peres it is rumored, sucks off the nipple of the state to the tune of about 5 million shekels a year, pensions and all. Yet Labor Party leader Peres fawns concern for the poor, demanding the abandonment of the government's economic reform program -- the only chance for average people who aren't entitled to bureaucratic thievery, to get ahead -- in his coalition negotiations with Sharon. So much for social solidarity...

I've pointed out the Left's hypocrisy, but make no mistakes; Likud Party politicians, and all the others, are just as guilty of bureaucratic thievery. Case in point, Likud's David Levy, who always claims to represent the poor. His Knesset biography declares "construction worker" as his occupation, something he hasn't done for at east 30 years, since becoming a politician and joining Israel's "trickle down" socialist occupation of the economy. As a Knesset member he makes upwards of 25,000 shekels a month, but in addition to that he receives a "pension" as having been a former minister in the government. Not long ago, a Ha'aretz reporter discovered a discrepancy in his "retirement" supplement and brought it to the attention of the Knesset payroll office. Rather than receiving the about 22,000 shekels a month, he was "entitled" to (watch out for socialist occupation entitlements), Levy was "only" receiving 2,200 shekels a month. After the mistake was cleared up, Levy pocketed -- after taxes of course -- another 180,000 shekels, just like that.

Levy's windfall of 180,000 shekels -- at taxpayer expense -- is enough to support five poor families (at about 3,000 shekels a month) for an entire year.

Finance Minister Netanyahu's reform program has slashed the government's budget, especially social welfare spending -- except for politicians and other fatcats -- but hasn't provided for a reasonable chance at job retraining or entrepreneuring. It was done too fast, without re-educating the Israeli masses -- long trained to expect "big brother government" to provide for them -- to be able to help themselves and take advantage of a freer economy. De-monopolization, capital and labor market reform, privatization of government owned companies, educational reform, have all lagged behind.

With the best of intensions, and generally the right idea that Israel needs serious structural reform, Netanyahu and the current Sharon-led Israeli government, have almost blown it. The proof is in the growing demand -- by Labor and others -- to reverse Netanyahu's "Thatcherite/Reaganite program". Even a mini-revolt started within the Likud itself. Trade and Industry Minister Ehud Olmert proposed his own alternative 2005 budget, claiming it would "soften" the reforms for the poorest sectors. Although minimizing the cuts to the social welfare budget and public sector (Israel has one of the most bloated public employment sectors in the democratic world), Olmert's proposed budget did little to help open the economy to growth.

More neo-socialist backlash, this time from within the ruling party itself.

And, an important point must be made, Ehud Olmert has been Sharon's "point-man" for some time. He floated the Gaza withdrawal idea before Sharon announced his disengagement plan; he floated the idea that settlers who don't leave Gaza quickly, should be offered less compensation, before it's been taken up by Israel's Justice Ministry; and he's floated an alternative budget to Finance Minister Netanyahu's 2005 budget (the official government proposal).

Sharon publicly supported Netanyahu's budget. Doing so, helped Sharon "toughen" his position vis-a-vis coalition negotiations with the Labor Party for joining the government. But will Sharon (an ex-moshavnik, from a collective farm), switch sides when it becomes feasible to do so? It is an open secret that Sharon favors Olmert over Netanyahu as heir apparent, when he steps down.

During the cabinet debate on the 2005 budget, Finance Minister Netanyahu criticized Trade and Industry Minister Ehud Olmert and Defense Minister Shaul Mofaz, "Unfortunately, there are two ministers sitting here, one with a highly developed social conscience and one devoted to education, trying to win public adulation by cheap, destructive populism," Netanyahu charged. "Their outrageous claims merely arm our opponents who are trying to frustrate our plan to rehabilitate the economy." All wars involve friendly-fire tragedies, Netanyahu continued, "In this case, the friendly fire is aimed right at all our backs. Their intention is to fire specifically at me, but the result is injury to the economy of Israel, the credibility of the government, and our ability to recruit the public's support for the fundamental change the economy needs in order to restore growth in the years to come."

Netanyahu promised that all reforms planned for 2005 would be implemented, including reforms in the capital market, real estate, and the privatization of Discount and Leumi banks and of the ports, the oil refineries and the electric company.

The cabinet passed Netanyahu's revised 2005 budget (17-3) -- Ehud Olmert was one of those who voted against it -- but canceled some of the proposed cuts in education, pensions, and health care. The budget will now be sent to the Knesset, which is to approve it by the end of December, although in previous years approval was postponed to between January and March.

Will the budget's approval be dragged out, to be dangled before the Labor Party, and others, in coalition negotiations?

And what of the Histadrut labor federation, another remnant of the socialist occupation? They have been threatening to declare a labor dispute if the budget was passed, according to the head of its unions department, Shlomo Shani? Two weeks after their declaration, workers could begin a strike or sanctions. "The strength of the sanctions and their duration will depend to what extent the cabinet accepts the finance minister's proposal literally, which includes a series of edicts that will harm salaried people and pensioners," Shani said.

Will the Histadrut, run by Amir Peretz of the One Nation Party (who recently voted to merge with the Labor Party), provide Labor with "muscle" in its coalition negotiations with Likud? Will there be a long drawn out general strike in Israel, whose purpose is to roll back economic reform?

More important than the question of peace with its neighbors (the last few years of the Oslo War have given a pretty good answer to how realistic an idea that was), Israel needs to reform its economy in such a way as to guarantee economic liberalization and future growth. That reform has to give Mr. Joe Israeli, the hope of a better future and the skills to acquire it, to forestall a neo-socialist takeover.

Israel needs to liberate itself from the socialist occupation of its economy.

Ariel Natan Pasko is an independent analyst & consultant. He has a Master's Degree in International Relations & Policy Analysis. His articles appear regularly on numerous news/views and think-tank websites, in newspapers, and can be read at: www.geocities.com/ariel_natan_pasko (c) 2004/5764 Pasko

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