Social justice or a market economy?

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.

Filed under:

fundamentals • public policy • limiting government

At the recent Herzliya Conference, the question was raised whether the Israeli economy should be “managed” according to the principles of social justice or of the market economy.

As a “vision,” Social Justice – a codeword for the welfare state—undoubtedly trumps capitalism.

Social Justice is indefinable so it can mean anything: from free tuition to subsidized housing. In contrast capitalism seems niggardly.

For Capitalism – the dirty word Karl Marx, a brilliant propagandist, attached to the market economy – can make no unlimited ideological promises. The market economy is merely a process of production and distribution of goods and services, the best we know in a world of imperfect people.

Yet capitalism created “values” when it freed humanity from crushing poverty, from the need to labor hard just to keep body and soul together, when it immensely improved human life in any parameter imaginable from longevity and health to the status of women and children.

Many are unmoved by the astounding freedoms that capitalism created, the ability to pursue happiness and self-realization, because they do not guarantee absolute equality (an impossible task, really, since people so differ in their abilities, circumstances and even needs). But they get excited over Socialism’s enticing vision: “from every person according to his abilities and to each according to his needs.”

They do not realize that it is difficult to balance our capacity to produce with our needs, which will always exceed our abilities. Even more intractable are the questions about who will determine what our “abilities” are, and what are our “needs.” Politicians? Experts? Or perhaps the kibbutz’s general assembly or Daphni Leef, Stav Shaffir and their wise councilors?

The question of whether the principles of social justice or of the market economy are best for “managing” our economy is really meaningless. Economies cannot be managed from above. Furthermore, while the achievements of a market economy can be measured, it is impossible to assess “Social Justice.” How do you compare a very complex reality with a nebulous “vision”? So instead of debating vague abstractions, why not examine certain concrete problems facing the Israeli economy and decide what offers a better solution.

Let us first tackle the problem of excess political and economic concentration in Israel. It is increasingly acknowledged as the underlying reason for the failure of the Israeli economy to realize its immense potential, to provide economic security to all its citizens, and become one of the richest countries in the world.

That only a few family-owned conglomerates control most assets in Israel, and use most of its credit, makes the Israeli economy highly uncompetitive and consequently very inefficient. The capable Israeli worker produces only two thirds of what an American worker does, and his salary, therefore, is miserably low. Lack of competition is also the reason Israeli consumers pay prices on everything often inflated by 100 percent to 300% over world prices, and why about half their salaries are literally plundered by our oligarchs who can charge such prices with impunity.

For over 30 years, people have spoken up about how the weaker strata are most harmed by our system.

But the self-proclaimed social lobby and champions of the poor had nary a word to say about how the poor are exploited by our distributive political system that enriches the politically powerful at the expense of the weak, by self-seeking politicians, public sector bureaucrats, rapacious captains of industry and commerce and their conglomerates and monopolies, by the Histadrut labor federation and by the banks.

For decades they just demanded more and more money to fund failing state systems, including the government’s educational monopoly that managed to make Jews nearly illiterate and a judicial system that cannot deliver justice.

Until Itzhak Elrov and his colleagues launched “the cottage cheese rebellion” last summer most Israelis, especially our elites, lived in denial of the fact that hundreds of thousands of Israeli families can hardly make ends meet while there are many who live in great luxury by exploiting all the rest; those who Guy Rolnik called “the connected,” and I named our “Hevrocracy” (the “Hevre” being the “in” group).

In the 2006 Herzliya Conference, our think tank, ICSEP, presented a plan to radically reduce poverty in Israel.

First, competition must be encouraged by breaking up monopolies and cartels and fully opening Israeli markets to imports. Much lowered prices would enhance purchasing power, especially of the low income strata that devotes much of its income to consumption.

Low prices will generally boost demand, employment, productivity and wages, as was the case when telephony was made competitive.

Second, we suggested a gradual lowering of housing costs, the biggest expense of Israeli families.

Housing costs are highly inflated by the government’s land monopoly (owning over 93% of all land) by exorbitant taxes, by cumbersome regulation and by private (such as cement) and labor monopolies. Reducing housing costs can ease the lifelong yoke of high mortgages, and free resources for productive investment.

Last, but not least, the inflated Israeli public sector (employing every third person) must be cut and made efficient, leading to many billions in savings and possible reduction in punitive taxes.

Powerful vested interests that exploit poverty made sure the plan was not implemented.

So there is our choice: an efficient, growth-inducing market economy or a welfare state meaning a huge government that actually harms the poor and generally inhibits prosperity.

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