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The Weekly Standard22 Apr ’13
The economic future of Israel now rests in the hands Netanyahu, Lapid and Bennet.
Will they succeed in fulfilling the most difficult and complex mission of liberating Israel’s economy?
reform • limiting government
Israel is facing numerous security threats, and yet the country’s most recent round of elections in January focused not on security but on the need to reform a dysfunctional economy and liberate the enterprising spirit of a nation that boasts more startups than Europe. Paradoxically, it was the success of Prime Minister Benjamin Netanyahu in stopping West Bank terrorism that gave Israelis the respite to finally tackle economic issues. Nonetheless, Netanyahu’s party, Likud, lost about 25 percent of its voters because of the perception that it had failed to advance necessary reforms.
The election’s big winners were two parties committed to economic reform: the new, middle class, mostly secular “Yesh Atid” (We Have a Future) led by the charismatic Yair Lapid, and the reconstituted observant and patriotic party, “Habayit Hayehudi” (the Jewish Home), led by the successful high-tech entrepreneur, and former Netanyahu chief of staff, Naftali Bennett. Lapid was named finance minister and Bennett now heads the Ministry of the Economy and Trade, which until now mostly assisted Israeli monopolies under the pretext of protecting Israeli jobs. If they manage to coordinate efforts, and get Netanyahu’s backing, they can finally enable Israel’s economy to realize its enormous potential.
Israel’s politically dominated economy, shaped by decades of Socialism and statism, had created an unholy alliance between politicians, top bureaucrats, and a few highly leveraged, pyramid-structured monopolies owned by about a dozen or so tycoons. The big banks massively misallocated credit, erected entry barriers that choked competition and generally lowered efficiency. The heavy monopoly rents inflated costs and prices and badly distorted Israel’s capital, labor, and real estate markets.
Consequently most Israeli workers earn a relatively low $1,200 a month, while most goods and services are costlier than in the U.S. Israelis pay eleven years of salary to buy a small apartment. A medium sized family car costs the equivalent of a Lexus in the U.S.
Most grating is the fact that while most Israelis barely make ends meet, a few rapacious oligarchs have become ostentatious billionaires, and their large army of facilitators, political operators, managers, lawyers, accountants, journalists, and PR people live in clover.
This wide income gap ignited the massive social protests of the summer of 2011. When leftist activists, heavily funded by the New Israel Fund, and supported by the media, attempted to take over the protests and demanded a return to socialism and the resignation of Netanyahu and his “capitalist” government, most Israelis rejected it and the demonstrations petered out. In the ensuing elections, most Israelis supported parties advocating less government interference.
Attempts by the Bank of Israel and Netanyahu to dismantle the pyramid structured monopolies and the tycoons’ hold on financial institution and credit allocation have been so far stymied by protectionist Knesset members, bureaucrats and regulators. While conceding that the dangerously leveraged pyramids pose a great risk to the economy and have already cost Israeli savers billions of Shekels in losses, their putative solutions preserve the status quo.
Netanyahu’s new government, especially Finance Minister Lapid and Economic and Commerce Minister Bennett, faces overwhelming challenges. Lapid must cut 14 billion shekels from a profligate 280 billion government budget. The temptation will be to symbolically cut some outrageous expenses, and then raise taxes on citizens who are already taxed by nearly 37 percent of GNP. But raising taxes just to finance highly wasteful government expenditures will undermine growth. Instead, Bennett and Lapid should launch a bold, growth-stimulating initiative that deregulates small enterprises, grants them access to credit now unavailable and frees them from a tax system that treats small businessmen as cheats even while it allows big business to pay very little taxes.
Lapid and Bennett could borrow a page from Netanyahu’s 2005 successful financial market reforms that broke the Ha’Poalim-Le’umi bank duopoly which had misallocated credit so badly to loss-making cronies that for at least a decade, the Israeli economy did not grow. That reform propelled a dramatic five-year 5 percent growth rate and saw the public’s assets double.
Similarly now, Lapid and Bennett’s task is to stop the government from repressing enterprise. The economic future of Israel now rests in the hands of two serious, bright politicians. They will need strong support from an overburdened prime minister. His ability to give them support and encouragement, and their ability to master in a short time, how to navigate the treacherous shoals of Israeli politics, despite their lack of experience, will determine whether they will succeed in fulfilling the most difficult and complex mission of liberating Israel’s economy.
The Jerusalem Post30 Jun ’15
Israel’s last elections proved how right David Ben-Gurion was when he said that, in Israel, whoever does not believe in miracles is not a realist.
PJ Media20 Jun ’15
The security challenges facing Israel obscure other deep concerns about the viability of Israel’s economic system.
The Jerusalem Post7 Jun ’14
Unless the laggard Israeli economy is reformed soon, its problems—including its morally debilitating corruption—may threaten its future.
Israel Hayom15 May ’14
What does it say about Israeli society and the system of government when a prime minister is convicted of taking bribes?
Israel Hayom23 Feb ’14
What kind of education should it offer and at what cost?
The Jerusalem Post9 Jan ’14
The productivity of Israeli workers is only two-thirds that of Americans, and their salaries are much lower.
The Jerusalem Post11 Jul ’13
As he completes an exceptionally difficult 8-year tour of duty during a worldwide financial crisis, Stanley Fischer has achieved a unique status.
The Weekly Standard7 Jun ’13
When Israel finally discovered a bonanza of natural gas about five years ago everyone was happy. But then fierce arguments broke out—and rightly so.
Israel Hayom2 Jan ’13
The Israeli government could eradicate poverty by breaking the monopolies and spurring competition.
The Jerusalem Post7 Dec ’12
Our socialist and statist heritage bred our inefficient system. But foreign aid and remittances were serious enablers. The struggle against political and economic concentration could finally permit Israelis to overcome this destructive heritage.
Israel Hayom8 Nov ’12
The time to prepare the reforms is now, so that after the Israeli elections, the prime minister can immediately devote his time to moving them forward.
The Financial Times21 Jun ’12
Israel Hayom6 Jun ’12
To grapple with the impending crisis, Israel’s government must improve the nation’s competitiveness.
The Jerusalem Post7 May ’12
The Wall Street Journal3 May ’12
Reform-minded Prime Minister Benjamin Netanyahu is stymied by bureaucrats and monopoly tycoons.
Middle East Quarterly30 Mar ’12
As the high hopes for a brave new Middle East fade rapidly, Western policymakers must recognize that promoting market economics and its inevitable cultural changes are far more critical to the region’s well-being than encouraging free elections or resolving the Arab-Israeli conflict.
The Jerusalem Post17 Feb ’12
The choice is between an efficient, growth-inducing market economy or a welfare state, meaning a huge government that actually harms the poor and inhibits prosperity.
The Jerusalem Post25 Oct ’11
Aversion toward the rich has had strong roots in Zionism since its early leaders embraced Marxist practices.
Is capitalism in crisis? Of course.
The Jerusalem Post10 Aug ’11
The tent-dwellers’ revolt calls for the enforcement of ‘the will of the people’ (like all autocrats). It refuses to rely on Democracy.
The Jerusalem Post9 Aug ’11
David Lewis, the exceptional entrepreneur and philanthropist, and head of the Isrotel Group dies at 87
The Jerusalem Post20 Jul ’11
Although MKs appear concerned over rising costs, it was they who allowed this injustice to occur in the first place.
The Jerusalem Post28 Jun ’11
Who is to blame for the shameful situation in which millions of Israeli workers – who earn about half what American workers earn – have to pay double for goods?
The New Republic19 May ’11
A Middle East peace strategy that could actually work.
The Jerusalem Post15 Mar ’11
Israel needs to slash its state budget by as much as possible if it wants a chance at fighting waste and corruption.
The Jerusalem Post9 Mar ’11
Too little attention has been paid to how Egypt’s socialist past and welfare-state present shaped the current rebellion.
The Jerusalem Post7 Feb ’11
The Herzliya Conference has become an important international event, but one central issue is absent: Israel’s debilitating economic concentration.
The Jerusalem Post22 Jan ’11
It’s highly unlikely that government can ever learn to make long-term plans and execute them efficiently.
The Jerusalem Post23 Dec ’10
How can one dare compare narrow-minded religion with the all-embracing faith of universality and equality that is socialism?
The Jerusalem Post1 Dec ’10
Many of the social and economic troubles we are experiencing are due to the public’s lack of understanding of the need for economic literacy.
The Jerusalem Post17 Oct ’10
The PM’s courageous decision to tackle economic concentration was misrepresented by several of our media publications—owned of course by tycoons.
The Wall Street Journal8 Oct ’10
Economic concentration hurts the country’s viability and the chances for peace.
The Jerusalem Post4 Oct ’10
A damaging ethos of ‘welfarism’ and distributive politics has come to dominate not only academia but our cultural, military and even our business elites.
The Jerusalem Post19 Aug ’10
The reformers must know the importance of the reform’s success both for Israel and for their careers, and what damage they will incur if it fails.
The Jerusalem Post13 Jul ’10
Kagan’s admiration for Justice Aharon Barak’s philosophy may have revealed her own predilection for radical judicial activism.
The Jerusalem Post30 May ’10
We must dismantle the oligarch-owned monopolies that impoverish the Israeli consumer and choke our economy.
The Wall Street Journal18 May ’10
The OECD’s invitation to Israel is a “seal of approval” but the country still needs more reforms.
The Jerusalem Post10 Feb ’10
The world’s astonishment at Israel’s response to the Haiti disaster is insulting. What we saw there was Israel’s true face.
The Jerusalem Post10 Jan ’10
Individual initiative and freedom are essential for creativity—in hi-tech as in all other spheres.
The Jerusalem Post14 Oct ’09
As far as Rose Friedman was concerned, public kudos did not matter that much. She persisted in being a rose, no matter what.
The Jerusalem Post22 Sep ’09
Lasting peace must grow from the bottom up, from an “economic peace process” that proves what advantages peace has to offer on a daily basis. It cannot come from signing peace agreements with radical and corrupt entities propped up by corrupting Western handouts.
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