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The Wall Street Journal18 May ’10
The OECD’s invitation to Israel is a “seal of approval” but the country still needs more reforms.
Following 15 years of negotiations, Israel, whose per capita gross domestic product approaches $30,000 (approaching that of Germany), was invited last week to join the OECD’s club of democratic, market-economy countries. After receiving what Prime Minister Benjamin Netanyahu termed “a seal of approval,” Israel is now poised for another quantum leap in its development.
The OECD invitation will make Israel even more attractive for investors and help accelerate the country’s already remarkable growth rates, which in the pre-crisis years was about 5% per annum. Israel withstood the global financial meltdown much better than most industrialized economies, avoiding a recession and the sort of exploding budget deficits we now see in Europe and the U.S.
“This is an important further step in the acceptance of Israel as the advanced economy it is, and of its integration into the global economy,” Stanley Fischer, the governor of the Bank of Israel, told me.
It has been a long haul. Possessing some of the best human capital in the world, Israel was hamstrung from its inception by its Socialist heritage (remember the universally admired kibbutzim, now practically defunct?). Since its founding in 1948, when seven Arab armies attacked the tiny nation of 650,000 at the time, it had to cope not only with several wars and relentless terrorist attacks, with blockades and boycotts, but also with a statist system rife with bureaucracies and monopolies that impaired competition and efficiency. They left the talented Israeli worker half as productive as his American counterpart, and poorly compensated.
Everything used to be nationalized in Israel: land, water, electricity, the banks (in practice), most large industries and businesses, education, and health care. Israelis learned to their chagrin what Americans are now about to find out—that it is sometimes simpler to win wars than to repair the ravages of powerful bureaucracies, especially in education and health care.
In 1984, runaway inflation of an annual 400% and a near financial-market collapse forced Israel to start reforming its anti-productive system. But it was only after the tax cuts, deregulation, and privatization that Benjamin Netanyahu pushed through—first as Israeli prime minister in the late 1990s, and particularly later as finance minister in 2003—that the Israeli economy took off. As George Gilder documented in his riveting book “The Israel Test,” it was then that the country evolved into a “leader of technological progress and scientific advance.” Israeli high tech, Mr. Gilder noted, is the source of some of the most profitable American developments. When you open a computer and read “Intel Inside” it might as well say “Israel Inside.” The most significant innovations of the Intel chip are Israel-made.
Despite its stunning technological prowess that has launched 2,500 startups in a nation of only 7.5 million, Israel was, and still is, inhibited by an anti-productive economic system. Its economy is dominated by about 20 families, who have been able to take advantage of a politicized privatization process and gain control of many of the major assets that once belonged to the government and trade unions. A recent Bank of Israel report noted that these pyramid-style conglomerates control more than half the market assets in Israel. This great concentration of economic and political power, according to the bank, is not only a great impediment to competition and efficiency but may actually expose Israel to extreme risk. A collapse of one of these groups (which was only narrowly avoided recently) might have devastating domino effects on Israeli markets.
The good news is that both the Israeli government and the Bank of Israel say they are prepared to take strong measures to rectify this dangerous situation. These will involve tightening some regulatory practices to make it more difficult for minority owners to gain control of a chain of firms through a highly leveraged pyramid structure. It will also require the abolition of some tax privileges that these pyramid groups enjoy, as well as moves to increase transparency and competition.
The oligarchs will naturally resist with all their considerable might, including help from academic and media “consultants” and from the monopolistic trade union federation. But reformers are determined to continue improving Israel’s economy by further reducing government debt (already cut to 80% of GDP from over a 100% earlier this millennium), cutting taxes, and increasing competition in financial markets.
Joining the OECD will no doubt assist Israel’s development. But it may also put additional burdens on its economy, which is already reeling under the heavy load of welfare costs and transfer payments that consume a third of its $70 billion budget. The powerful Israeli welfare lobby has already announced that it will use the OECD’s comparative statistics to push for increased welfare expenditures.
But generous welfare systems have not worked well for the OECD’s richer members, and have proven devastating for some of its poorer nations, as is evident in Greece. Should OECD “benchmarks” push Israel to increase its high welfare expenditures even more, it will impede the country’s efforts to reduce the already extensive government interference in its economy. We can only hope that Israel’s extraordinary vitality and creativity will again prevail, even in face of such new challenges.
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.
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 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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