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
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The Jerusalem Post9 Jan ’14
The productivity of Israeli workers is only two-thirds that of Americans, and their salaries are much lower.
The Taub Center’s “2013 State of the Nation Report – Society, Economy and Policy in Israel” reveals, albeit unwittingly, why despite years of pouring billions into transfer and welfare payments (about NIS 55 billion out of the 400b. that was last year’s budget), the grave problems of poverty and income inequality in Israel are not only unresolved, but seem to have grown worse.
The Taub report illustrates how ideological presuppositions, ostensibly supported by “research” based mostly on questionable premises and faulty data, have generated government policies that pursue ephemeral goals via impossible-to-implement means at an extremely high cost to hard-pressed Israeli taxpayers.
Despite the repeated failures of these policies, some of the economists who exposed them still insist that by pouring more money into such failed policies, we will somehow manage to get better results.
If Israeli welfare policies fail to tackle the country’s intractable social problems successfully, it is in part due to a refusal to learn from the many years of their failure, and to a reluctance to take a fresh look at the challenges facing Israel’s society and economy, which could help us adopt more serious and effective policies for stimulating rapid economic growth.
Only rapid growth could create a “rising tide that can lift all boats” as US president John F. Kennedy famously hoped.
Although it arguably possesses the best human capital in the world—as George Gilder persuasively argued in his The Israel Test—and although it benefited from over $300b. in foreign investments, the Israeli economy still cannot fulfill its enormous potential.
The Israeli economy is highly politicized and concentrated.
The public sector is the largest employer and buyer in the economy. Extensive government interference and heavy bureaucratic regulation kill competition, reduce efficiency and breed nepotism and corruption.
Israeli politicians have encouraged the formation of huge monopolies, most of them dangerously leveraged. They have erected insurmountable entry barriers.
Small businesses, the engines of growth in any economy, are choked by taxes and regulations and starved for credit (which is the chief reason the Negev and the Galilee remain economically backward). Politically connected big businesses use their monopolistic clout to hike prices of most consumer goods and services by 100 to 300 percent, making it nearly impossible for most families to make ends meet.
Our tycoons, and their tens of thousands of enablers—politicians, big-shot lawyers and accountants, PR and media persons, academicians, and the many who keep them all in clover—shamelessly demand astronomical salaries and bonuses, even when they fail and destroy wealth—mostly people’s pensions—in the billions. The Hebrew language has no word for “accountability.”
This has created in Israel perhaps the greatest income gap in the Western world. This unconscionable gap has inflamed a destructive politics of envy.
It pits interest groups against each other in a permanent struggle to gain government favors. It has launched an obsessive drive for a putative equality that has been used as an excuse to further extend welfare handouts.
Dependence on welfare, which never seems enough to its advocates, even though transfer payments and welfare policies consume about 14% of the government budget, was perhaps an unavoidable necessity in the first years of the state when Israel had to absorb masses of impoverished immigrants.
While perhaps helping the poor to keep their heads temporarily above the waters of inflated prices, it also spawned armies of well-heeled bureaucracies and a costly “welfare lobby” with many advocates in academia, research institutes and the media.
THIS WELFARE culture, with its incessant drumbeat of “equality” and annual anti-poverty festivals exacts a punishing cost from the poor. It has helped fashion a distorted, laggard economic system of the kind that government-run welfare systems inevitably spawn (extensive welfare cannot be managed without heavy bureaucratization and high taxes that shift resources from productive to anti-productive uses). It has been denying the poor the opportunities offered by a thriving economy, the opportunity and dignity of earning their own livelihoods. It has condemned them to perpetual penury and dependence for three generations now, and is still doing so, with all the attendant social pathologies this implies.
Worse, welfarism, which succeeded decades of even more disabling socialism and the nationalization of almost everything (including land, water and electricity), has perpetuated an economic culture where people prosper and become millionaires, even billionaires, not by serving people’s needs, as in a competitive market economy, but by using political connections to get unlimited unsecured credit and to build rapacious monopolies that rob consumers. It has turned Israel’s financial sector into a great destroyer of wealth, and Israeli industry – with the exception of its hi-tech sector – inefficient and non-competitive (hi-tech prospered within a sort of competitive market bubble by getting most of its financing from abroad and selling its products there, while enjoying the privilege of not being unionized).
Labor markets have been extremely politicized by monopolistic public service unions that dominate the Histadrut Labor Federation. They extort very high salaries and benefits at the expense of all other workers. As for housing, with government controlling 93% of land and the building industry dominated by monopolies and cartels, a few real-estate wheeler-dealers became billionaires and most contractors millionaires, while young Israelis have to spend 130 months of salary to buy a modest apartment.
YOU WILL find none of the above – not a word about these grave problems—in the Taub Center report, though it claims to “provide a big-picture perspective of Israel’s society and economy.” This, despite the fact that for the last few years, the policy community and the media have been shaken by studies that exposed the great perils of excessive concentration in the Israeli economy and its dangerous ramifications. Perhaps the Taub Center report should have been renamed “The State of the Welfare State Report.”
Since the Taub Center is supported by the Joint Distribution Committee – a welfare-dedicated institution – it is perhaps not surprising that its report opens its macro picture section with a 68-page discussion of “Poverty and Inequality Over Time: In Israel and the OECD” (it is a mystery why Israeli policy makers would want to emulate the OECD, as they so eagerly do, considering the less-than-stellar performance of most of its constituent economies – Spain, Italy, France, Greece, Ireland, etc.). It then follows with a 15-page macro perspective that focuses almost exclusively on “developments in the government budget,” as if government is the only significant player in the economy.
It then immediately reverts to what runs like a red thread throughout the report: its single-minded preoccupation with inequality among various groups, and in education and health. It considers these as “primary socio-economic issues,” but totally ignores their etiology in the economic distortions and handicaps we enumerated.
AFTER MANY years of ignoring the low productivity of Israeli workers while incessantly harping on a distorted picture of unemployment in the haredi and Arab sector (the statistics on these two sectors are totally unreliable, since much of their economic activity goes unreported), the Taub researchers at long last discovered that low Israeli labor productivity crucially affects Israeli prosperity. But they got the reasons all wrong by totally ignoring the anti-competitive and inefficient structure of the country’s economy, plus the politicization of the workplace, ascribing low productivity to mostly one factor: lack of equality in education.
Poor education does indeed impact employment negatively, but not mostly for lack of equality; rather it is because a “national” – namely government – system, run by a huge bureaucracy and dominated by monopoly teachers’ unions, has destroyed the excellent semi-private (and therefore competitive) high-school system that made Israel a leader in science and technology. Meanwhile, the social sciences and humanities departments in universities, which have been captured by stale neo-Marxists and postmodernist dogmatists, have produced hundreds of thousands of worthless (employment-wise) diplomas, acquired at great cost to the students and the taxpayer (who subsidizes education).
The obsession of welfarists like the Taub researchers with the false ideal of income equality, by which they measure social advancement, is what skews the Taub Report so badly. It causes them to recommend policies that have badly hurt the economy and its people. Income equality is an impossible-to-realize, false ideal. There is no way a complex economy that wishes to encourage creativity and excellence can avoid rewarding people with different skills and productivity differently. Nor is income equality the major factor in securing equality among people. Luck, innate talents and evolving abilities, where a person was born and when, often play a much greater role.
Yet the pursuit of a pie-in-the-sky equality makes the Taub researchers promote policies that damage economic growth, thus depriving the poor of their best hope – a growing share in a prosperous economy, even if it is not an equal share.
More must be said on the devastating results of this unfortunate conceit, this misleading ideology. More must be said on the role played by our good American brethren who have contributed since the beginning of Zionism to the transformation of the Zionist enterprise, meant to make Jews a productive people, into predominately a welfare project. But this is another opera and must wait for another occasion.
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 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.
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