2003 Year-End Report

Memos
26 May ’04

Our work in 2003 proceeded along the two intertwined tracks that we projected in our Work Plan 2002-3, namely, Policy-Related Work and Education for the Elites, especially university and high school students.

We have continued our Media and Networking roles, and have added a Research track this year.

We explained the rationale for proceeding along these two tracks in our work plan, so rather than repeat it here we shall highlight developments in each of these spheres.

Policy-Related Work

We engaged in two major projects over the past year:

1. The preparation of a comprehensive, integrated overall economic reform plan

The comprehensive economic reform plan was developed by the prominent French economist and businessman Mr. Jacques Raiman, chief economic advisor to French Finance Minister (later Prime Minister) Eduard Balladour when he undertook the successful reform of the French economy in 1986. Subsequently, Mr. Raiman built the largest computing business in Europe. He graciously accepted our invitation to come to Israel and examine its economy from the perspective of an outsider, and to draft a reform proposal after consultation with Israel’s top economists and public figures.

Mr. Raiman spent several months talking with a few score top economists, meeting the Governor of the Bank of Israel, and twice with the Minister of Finance and other high officials. To assist him in sorting out the rather complex problems surrounding Israel’s controversial monetary policy, we hired the services of John Mueller, former economic advisor to Jack Kemp and a leading expert in monetary policy and the role of central banks in the economy. Again, we chose a foreign expert to study the matter because the Israeli economic community is so involved in an ongoing conflict between the Bank of Israel and the Ministry of Finance that it is difficult to find someone with enough authority and knowledge who is not in one camp or another. Also, it was thought that a fresh look at the issues by an outside expert can result in new insights and novel proposals for reform.

After ten days in Israel and extensive consultations with several local experts, including the Governor and Deputy Governor of the Bank of Israel, Mr. Mueller submitted a detailed report. It contained many new insights, sufficient to arouse the interest of Israel’s widest-read economic columnist, who published an extensive interview with Mr. Mueller, discussing his proposals. The conclusions of Mr. Mueller’s study, and of a second analysis he made of Israel’s labor markets, were incorporated into Mr. Raiman’s reform plan.

Mr. Raiman’s work was constantly facilitated by economists with the most intimate knowledge of the Israeli economy, chief among them David Boas, a close associate of ICSEP (he did two “100 days plans” commissioned by us) who was for almost a decade the head of the Budget Division of the Ministry of Finance. Through the vast experience he gathered at this strategic juncture of the Israeli economy, Mr. Boas knows intimately the innards of the Israeli economy, how its various institutions relate and function, who are the major players and what positions they take. This is invaluable information in assisting us in our effort not only to fashion the best possible reform plan but also in getting it implemented.

The various proposals included in the Raiman reform plan are now being tested by several Israeli economists running simulations and regressions to examine their applicability and determine whether there are any unforeseen consequences. We want to have this reform plan completed in time for the beginning of deliberations on the next state budget in May-June 2004.

2.The elaboration of a detailed and concrete plan for the reform of financial markets

A plan for the reform of financial markets is now in the final process of formulation. We started with a skeleton plan drawn up for ICSEP by David Boas and a group of financial experts. We are integrating it with a more detailed plan independently developed by Mr. Yitzhak Devash, a brilliant financial expert and financier who is also most concerned – as are other independent financial market players not connected to the banks (most are) – with the fact that our financial markets are so dysfunctional, and is determined to do something about it. We are now holding several brainstorming sessions with several groups of economists, financial experts and public figures.

A consensus has emerged in these sessions among most knowledgeable observers about what must be done. While the plan calls for the separation of provident funds from the banks and the elimination of activities that represent a clear conflict of interest – steps that will certainly curtail the banks’ power – the plan also calls for compensation for the banks for such loss by enabling them to keep selling shares in the provident funds and also allowing them to sell various insurance products.

The principle task will be to convince the Ministry of Finance to adopt the plan, or something similar, and to gain for it public support strong enough to overcome the fierce resistance that will be mounted by most vested interests, principally the banks.

Since such “lobbying” activities cannot be undertaken by a tax-exempt entity such as ICSEP, a separate not-for-profit body, “Citizens for True Social Justice,” has been incorporated in Israel by advocates of this reform plan to handle its political aspects. This body, established by university graduates from our courses on The Free Market and Its Critics, has already scored a number of successes, especially when it managed to discredit the Histadrut’s campaign of vilification against Benjamin Netanyahu’s economic reform plan with a vigorous ad campaign it undertook in the papers, and through public demonstrations, appearances and writing in the media and the formation of a web site dedicated to economic reform.

The group has already started talks with other bodies interested in financial markets reform, such as a union of the self-employed and the Israel Chambers of Commerce, in an effort to create a coalition in support of reform. It is also looking for support from friends in the Diaspora, both moral and financial.

In a letter written last May to ICSEP’s chairman Dick Fox, Finance Minister Netanyahu praised ICSEP for mobilizing “groups of influential economic experts who back the governments’ economic plan and (for being) enormously helpful in broadening public support for the plan. This,” Netanyahu added, “has greatly facilitated my recent efforts to restore Israel to economic health.” ICSEP is confident that we can continue to do useful work in this role in the coming year.

Education for the Elites

1.University and pre-army seminars on the free market and its critics

We held six seminars in the last year (continuing from the previous year) under the auspices of the National Student Association: four at the Hebrew University and two at Tel Aviv University. In addition, our seminar was also offered as a full credit course for outstanding students at the Herzliya Interdisciplinary Center.

The course is built around Milton and Rose Friedman’s book and film, “Free to Choose”. Each three-hour session is devoted to one of the ten chapters of the book, starting with an introduction of basic concepts, followed by the showing of a 30-minute video of Friedman explaining his concepts, and a two-hour discussion. The students have to prepare weekly reports on their readings, as well as an end-of-course digital presentation on a topic of their choice. There are numerous applicants for the courses, and only 10% can be accommodated under our current budget. All candidates for the courses are at least third-year university students, with outstanding records both as students and as social activists, and from a variety of faculties. Quite a number are doctoral candidates.

It was fascinating to see their transition from hostility to market ideas, which was due either to ignorance or to the socialist indoctrination that most social science and humanities students undergo at the universities, to their understanding and endorsement of the market. Over 95% of the participants expressed their deep appreciation for the course and for the changes it brought about in their thinking, changes that expressed themselves in some of them forming the group “Citizens for True Social Justice” and the commitment of most to work for the realization of market ideas in Israel.

“The seminar is most interesting,” one of our graduates wrote. “It opens our mind to clear and convincing economic analysis. The principles we have discussed are vital. They deserve deeper thought and analysis and analysis, and, most importantly, further dissemination.”

Dr. Michael Reiner, the Israel representative of The Koret Foundation that helps us greatly in funding these seminars, writes: “I find that your seminar succeeded in opening the mind of these students to the free market philosophy. On attending, one could not help but enjoy the lively discussion and progress you have made in bringing about a conceptual change among your students… When I approached some they stated that your seminar is in fact the one and only forum they have at the university in which they have the opportunity to discuss free market thought…”

Another significant offshoot of our seminars was the formation of a group of young brilliant attorneys, under the direction of Avi Nov, Esq., currently working on his doctoral thesis at Hebrew University. This group of six will try to encourage economic change and reform by utilizing legal means, such as appeals to the courts to prod government regulators to fulfill their duty in curbing monopolies. We expect great things from this initiative, which is just being set up.

We have also begun offering our seminar at an important pre-army leadership seminar outside of Jerusalem for students who have completed high school and are undergoing intensive intellectual and social leadership training for a year before their army service.

2.High school courses on economics and entrepreneurship

This past year, our high school program was composed of 14 classes in 6 schools, with a total of 460 students. Each class received at least one session a week. New schools joined this program as a result of the warm recommendations they received from the principals where the programs started the previous year.

The program is very popular among students, parents, teachers and principals. Each class starts with a study of basic concepts of topic to be studied, and is followed by a vigorous debate based on press clippings that the students gather, so that the knowledge they gain is grounded in current economic developments. Topics covered in the lessons include the state budget, the family budget, money and its costs, inflation, interest rates, economic growth, what contributes to welfare, entrepreneurship, and how to establish a small business.

4.Kivunim – a new web site magazine dedicated to the battle of ideas

Kivunim, edited by Ben Zion Levy, was launched 3 months ago, after a year and a half of planning, testing and preparation. Its purpose is to acquaint the Israeli intellectual elite with a whole range of ideas that challenge the prevailing leftist ideology and political correctness in Israel. Most Israelis do not read English easily, and are therefore exposed primarily to a limited range of ideas. We bring to them in Hebrew translation the best and most important articles and essays from the American and European publications on important issues, stressing the connections among economics, society, culture and policy.

Commentary Magazine, The Public Interest, The City Journal, The Weekly Standard, The National Review, as well as the web sites and publications of the IEA, the Heritage Institute, the Manhattan Institute and others, have graciously allowed us to use their materials in Hebrew translation, as have many individual writers and columnists. We are also disseminating original Israeli works which we commission, and are encouraging younger talent to write and reach a wider audience.

Towards the end of each week, we publish a major piece, and one or two additional pieces during the week. We advertise in the Friday edition of Ha’aretz as well as in academic forums. During October, we received 1,670 readers; in November, the number grew to 3,717. The Web site has so far received only compliments from its readers.

Media Work

ICSEP’s President, Daniel Doron, as well as other ICSEP associates and staff, work intensively with the media, publishing articles, appearing on radio and television, and participating in public events, such as the Herzliya Conference, teacher’s seminars, rabbinical forums, political parties activists assemblies, various Kibbutzim platforms, women groups in the Jewish and Druze sectors, etc. We get more requests for appearances than we can undertake. We also meet with representatives of other voluntary bodies trying to instill some sense of economics into their activities.

Networking

As in the past, ICSEP can offer not only its economic expertise and programs, but also its extensive network of contacts to help recruit support for economic reform. Our Advisory Council members and others who work with us regularly appear in the media and at a variety of policy forums, helping elucidate economic issues and reduce the resistance to reform plans.

Research

The Koret Israel Economic Development Funds (KIEDF) has engaged ICSEP to manage a demonstration KIEDF Koret Senior Fellows program that focuses on issues affecting the small business sector in Israel. In 2003-2004, one Senior Fellow – David Boas of Boas Consultants Ltd. – has been selected to prepare a comprehensive study on the impact of both the Israeli banking system, especially credit policies, and the state’s assistance programs on small business development and employment creation in Israel.

Staff

We could not have accomplished our demanding and intensive work without the dedication and capability of our staff, chiefly Eran Bartal, an organizational expert, entrepreneur and economic editor of Makor Rishon, a weekly. Eran directs the work of the four teachers teaching our high school courses: Doron Shalev, a Kibbutz native specializing in educational training; Dikla Yogev, a graduate in Statistics and linguistics; Gilead Tapias, a native of South Africa and a graduate student in economics; and Yaron Dayagi, a graduate in industrial and management studies. We purposely choose teachers with a variety of background, and mostly for their skill in teaching and relating to the kids.

Daniel Doron, who is holding all the university seminars, is assisted by three tutors and organizers: Eran Bartal; Adi Schwartz, an accounting graduate; and Guy Seigel, who just received his degree in economics and Chinese. They have managed to choose the best applicants from the over 300 received each year and have helped give the seminars their unique character, so attractive to the students.

Special thanks are also due to Mr. Ben-Zion (Benny) Levy Esq. MBA, founding Director of Channel 23, the cable channel of Israel Educational Television and head of its internet service. Benny brought his immense experience as an esteemed television editor and producer to help us plan and put together our new Website Kivunim. Benny is assisted by our chief editor, Iri Rikin, a famous TV and press literary critic. Together they supervise the work of several part-time editors and translators, and are responsible for the high standards Kivunim has become known for, and for the quick word-of-mouth spread of its reputation, even before we engaged in a program to promote it.

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