The Israel Center
for Social & Economic Progress
an independent pro-market
public policy think tank since 1984
Winner of the 2005 Award for Institutional Excellence and the 2006 Templeton Award for Student Outreach
Log in or Register
The Jerusalem Post7 Jun ’14
Unless the laggard Israeli economy is reformed soon, its problems—including its morally debilitating corruption—may threaten its future.
public policy • reform • judiciary
The six-year prison term for corruption handed down to Israel’s former prime minister Ehud Olmert caused Israelis great consternation.
In the past decade a former president, several ministers, mayors, high officials, bankers and others were incarcerated for the abuse of power and for corruption; not exactly cause for celebration.
Some Israelis felt pride that their lenient, liberal judges had finally started imposing severe sentences to stem increasing corruption in high places. Others resisted charges that their governance is increasingly corrupt by arguing that other nations also have corruption problems, but that they are ignored. Even the law-abiding USA, they added, has a huge lobbying industry misallocating astronomical amounts to powerful interests. The recent scandals in the Veteran’s Administration health services illustrated again that no government are immune to serious corruption.
Yet no one considers America corrupt.
Political favoritism that breeds corruption has indeed become the norm even in better governed Western democracies, let alone in the developing world. Unlike past tiny governments, big, welfare-dispensing governments take today a large part of GNP in confiscatory taxes. They use it imprudently and with little accountability.
Governments have become huge employers and spenders with immense economic clout, a source of great wealth for manipulative special interests.
Government’s wasteful ways have also infected big business, especially firms that benefit from huge government contracts and from competition- suppressing regulations. Such enterprises, notably banks, which are allowed to create money, become too large to fail, an economic moral hazard, as the recent mortgage-derivatives crisis on Wall Street amply illustrated.
While it is true that growing corruption, tied to increasing wealth, is a worldwide problem, Israel seems to have a bad case. As a young, rambunctious democracy (reminiscent of Elizabethan England) composed of so many different “tribes,” each with its own mores, Israel did not have a chance to develop the common traditions that fashion a civil society, and determine what is “not done.” It therefore lacks an effective tool for resisting corruption, namely vocal public revulsion.
Like some Eastern European countries, Israel has contracted the disease of a corrupting collusion of politics with big money because, ironically, of its Socialist anti-capitalist ethos.
Zionist leaders, blaming the devastating First World War on the failures of Capitalism, embraced, when Zionism was taking shape, what were fashionable Socialist and Communist ideas held by — who else? — intellectuals and cultural icons.
They also adopted the romantic adulation of “soul purifying” manual labor, preferably in farming; this, at a time mechanization and innovations were cutting sharply the need for farmers, while grain became much cheaper. Socialist Zionism established a politically dominated, anti-productive highly centralized economic system. It became inefficient and corrupt and virtually destroyed the labor collectivist sector which came to be the flag bearer of Zionism.
Under the British Mandate, the Socialist camp, assisted by the Jewish Agency, a government in the making, came to dominate Zionism. Financed by American Jewish (capitalist) contributions, Labor pushed for the nationalization of almost all land, labor and capital. The heavily subsidized, economically failing Communist kibbutzim became Zionism’s settlement model. Urbanization and commercialization were despised and undermined. A nasty class warfare was waged against the small private sector that successfully pioneered the Zionist enterprise since the 1880s.
Labor took also control of education, health and welfare, as well as the media and cultural institutions, establishing a retrograde, centralized, inefficient economy that was highly politicized and corruptible.
After Israel’s independence in 1948, government and Histadrut control of the economy became near total. The state’s heavy-handed bureaucracies caused economic retardation and impoverishment.
In 1977, economic dysfunction and spreading corruption unseated Labor.
A Likud government that replaced Labor vowed to liberalize the economy.
But Begin and his ministers, who did not understand economics, strengthened the role of government in the economy by greatly expanding Israel’s lame welfare system. They launched a misguided privatization program that “sold” for a pittance bankrupted government and Histadrut assets to politically connected oligarchs and granted them monopoly rights. This led to their eventual control of the economy.
Twenty family-owned highly leveraged pyramidal business groups came to own half of Israel’s market share while one percent of lenders received 70% of loans from the semi-nationalized banks. Socialism was replaced by Statism, inflicting even greater harm on the economy.
Bureaucracy and regulation created insurmountable entry barriers, discriminating in favor of politically immune big business and destroying competition (It takes 10 years to execute a real estate project; for 60 years not a single bank was established in Israel). They caused low productivity, growing income gaps and widespread impoverishment.
Israel, with its exceptional human capital, should have become one of the wealthiest countries. Instead most Israeli workers earn monthly about $2,600 while prices of goods and services are double the USA’s.
Apartments cost 140 monthly salaries.
Young people cannot make it economically. They have few career opportunities in most tycoon-controlled firms that are rife with nepotism.
Hundreds of thousands of Israelis have left Israel, a grave and present danger to its viability.
Gradually, under the stewardship of Prime Minister Binyamin Netanyahu, Israel has successfully reformed some of its economy doubling its GDP in the past 15 years. But it is a race against time, since unless the laggard Israeli economy is reformed soon its problems, including its morally debilitating corruption, may threaten its future.
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.
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.
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?
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.
Recognized by the IRS as a charitable organization pursuant to Section 501(c)(3) of the Internal Revenue Code.
Tax ID # 13-3129249
Copyright © 2001-2022
The Israel Center for Social & Economic Progress
“Where there is
there is no Torah.”
Pirkei Avot (Ethics of the Fathers)
Contributions made out to Friends of ICSEP can be mailed to:
Fox Associates, 100 Front St., West Conshohocken, PA 19428, USA