Enemies of reform

Many of the enemies of the government austerity plan concede that it might be necessary to cut costs. What they fiercely resist is the structural repercussions of cost cutting, the reduction of the public sector and the welfare state. They argue that the rich may be the plan’s chief beneficiaries while lower paid strata will bear much of its cost.

What they do not understand is that the gross inequities in Israel do not originate in the higher tax exemptions that people in higher tax brackets will get, which are peanuts compared to the huge transfers of wealth to the rich caused by government sanctioned monopolies.

Rather, structural deficiencies built into the non-competitive Israeli economy enabled a small group of rich families and their allies in the bureaucracy and the banking oligarchy to bleed the Israeli consumer, especially the lower paid strata. With government sanction, Israeli monopolies impose on consumers 30-50% monopoly rents on practically everything they buy and on the credit they use.

While the austerity plan is indeed urgently necessary, it cannot be expected to resolve by itself such basic inequities or to enhance employment providing growth. Unless followed by a fuller structural reform that will establish healthy competition by annulling most of the monopolies dominating the Israeli economy, especially in financial markets, the transfer of resources from the public to the so-called private sector may not result in significant productivity growth, the only solid basis for economic recovery.

True, the Israeli private sector may be much more efficient than the public sector (no great achievement, since it cannot inflict the grave damage government interference causes) it is not sufficiently efficient to make Israel competitive on world markets. You cannot expect a lumbering monopolistic elephant, an inefficient Israeli private sector to act like a race horse in external competitive markets.

The remedies proposed by the enemies of reform are essentially a return to the same distorted economic system that created the huge disparities in wealth in the first place. They not only demand that the government continue on its welfare state path that skyrocketed transfer payment to over 30% of its 70-plus billion dollars budget, but insist on increased “benefits” that will further destroy any incentive to work (300 thousand Israelis are unemployed while a similar number of foreign workers do their job).

This will condemn the poor, whom they pretend to care for, to everlasting poverty, to a life-long debilitating and degrading dependency on handouts from the political establishment. Enhancing profligate government spending will not cure the economy but drive it over the edge. Not only will it not help the lower paid strata, it may actually cause massive unemployment, and the loss of livelihood and savings.

In militating for anti-growth policies, our self-appointed “social advocates” ignore the clear lessons of the past and continue to insist that it is possible to continue financing such regressive policies by increasingly strangling a shrinking productive sector with punitive taxes. If there ever was a country where the welfare state experiment was given its greatest scope it was Israel (the Scandinavians have perhaps “bettered” Israel, but they are gradually retreating after paying stiff social and economic penalties).

Under the socialist governments that molded it in its formative years, Israel not only instituted far-reaching welfare measures, but has also legislated, at the behest of the Histadrut, “the most progressive labor laws.” Yet despite billions in subsidies and other benefits it was precisely those entities that adhered to the welfarist and egalitarian ethos that went repeatedly broke, from the kibbutzim to the Histadrut economic empire.

The costs were borne, of course, by the hapless members of the kibbutzim and by the Histadrut workers. They lost not only their livelihood but also their pensions, which were despoiled by the Histadrut (and Amir Peretz has the gall to pose as the protector of workers pensions). To a great extent, the failure of the Israeli economy, its chronic low productivity, its distorted allocation of resources, its rule of nepotism and its huge waste, replicate on a large scale the failure of the socialist model.

In Israel, a twist was added so that the chief beneficiaries of the socialist collapse became the new oligarchy of politically well-connected families and the high echelons of the bureaucracy who, like in Eastern Europe after the collapse of Socialism, picked up the pieces. By exploiting a putative privatization program and their unlimited access to bank credit, they managed to take control of most of the country’s assets and to further their monopolistic stranglehold of the economy.

The recent write-off of billions of shekels in bad loans given by the bank managements to their cronies testifies to the huge price Israel has to pay for the gross misallocation of resources by its unaccountable bank oligarchs, who draw huge salaries and benefits in millions despite their utter failure and the fact that they may drag the whole financial system down, and the Israeli economy with it.

A major reason Israelis do not revolt against their iniquitous system is the brainwashing they are subject to in their educational system by neo-Marxists and enemies of the free market. Our intellectuals have managed to fashion an anti-capitalist Israeli ethos, and this ethos is exploited by strong elements in the media, especially in public broadcasting, to undermine any pro-market reform.

Anyone listening to the false and hysterical accusations by Oded Shahar, Channel One’s economic commentator (who has only one string to his fiddle, hate the rich) or to the sly anti-reform campaign Shelly Yechimovitz mounts on Israeli public radio must be very worried about the prospects of the austerity plan to pass through a Knesset, where a bunch of populists like Minister Zevulun Orlev will do all they can to undermine it.

Finance Minister Netanyahu and Prime Minister Sharon have plenty on their hands. But if they will not face up to the enemies of reform by using their skills to explain to the public what they are doing, and, more importantly if they do not address the real grievances voiced by the enemies of reform, it is not certain that the Herculean task they have undertaken will indeed result in the economic growth we all so desperately need.