The government monopoly on land, that is, control of the supply in the face of increasing demand, is obviously one of the causes of the high price of land and housing (as are subsidies given to potential homebuyers in the form of subsidized mortgages). The government must get out of the real estate business and put the land it is monopolizing up for sale to ordinary Israelis. Until land is sold, the leasing arrangement must be changed from 49 years to 99, or 199, years. This will reduce government involvement in land deals, cut bureaucracy and encourage private entrepreneurship. Leases for land in urban areas which are poorly utilized should be sold, providing profit for the government and the potential for better, more efficient land use.
What needs to be done:
A holding Development Company for the Negev and perhaps for the Galilee should be established, with shares offered to the public on the TASE. In return for the capital raised, the land will be transferred from the government to the Development Company which will build on the land, rent it or sell it based on economic considerations.
If all land is private, it will not be necessary for the government to set or require building completion dates from contractors or to award them bonuses. To do so would be to miss the meaning of private property. Individuals who own private property which they have paid for are free to develop or not to develop their property as they see fit. As long as there is no artificial restriction on the supply or demand, market forces will take care of it. The government's role should be to ensure a competitive market in land and that one person's land ownership rights are not harmed by the actions of a neighbor—or by the government.
Kibbutzim are rich in land resources, and their sale would cover the kibbutz debt without requiring taxpayers not living on kibbutzim to fund kibbutzim which cannot support themselves. The government needs to eliminate the obstacles imposed by the Committee for the Preservation of Agricultural Land, change the zoning laws, and compel the debt ridden kibbutzim to sell enough land to eliminate their own debt.
Israeli governments until now seem to have deliberately set out to overcharge consumers. This is especially true in housing, where the high price of housing may in part be attributed to a spate of taxes and tariffs: 30% on glass to protect the domestic glass firm; 15% on steel to protect the local steel factory; 30% on cement to protect the cement monopoly; 20% on ceramics, 30% on elevators, 40% on wood, 45% on air conditioning equipment.
What needs to be done:
When restrictions on imports and exports are eliminated as part of the Jubilee Plan, these tariffs will disappear and, together with competition in these industries, this will allow prices to fall.
We conclude where we began. Israelis live off money donated by other nations to the tune of almost $10 billion a year. No other country in history has ever come close to receiving such sums, year after year. Almost one-seventh of the GDP comes to Israel as charity. This has proven to be economically disastrous. It prevents reform, causes inflation, fosters waste, ruins our competitiveness and efficiency, and increases the future tax burden on our children who will have to repay the part of the aid that comes as loans. The worst part of the aid equation is that it transforms every Israeli, rich and poor, into a welfare recipient.
One of the reasons that Israel does not earn its keep is because the country, speaking generally, cannot compete in global markets. Most of its production serves the protected local market. Many goods are therefore inferior and prices too high. So far, politicians have refused to undertake the necessary economic reforms to insure competitiveness and restore growth. The longer this process has been put off the tougher it has become to take even small steps. It has always been easier to seek outside money than confront the special interests that have our economy locked up.
What needs to be done:
There can be no equivocation on the issue of continued dependence on foreign aid. It must cease. Any individual who wants to donate money to Israel is welcome to help the poor, the hospitals, or the yeshivot (religious schools). But money flowing into the government’s coffers means politicians and bureaucrats get even greater control over the lives of ordinary Israelis. It allows the government to continue propping up failed businesses and sectors.
An economic plan for Israel must address the state's immediate need for investment and jobs, and its overall need for economic freedom and independence. State intervention in the economy has failed. It does not stimulate investment and create productive jobs. It destroys freedom. It is high time for the government to step aside and let private initiative do the job.
Israel is 48 years old. Two years short of its Jubilee year, Israel shows no signs of being able to walk on its own. The economy is dependent on the generosity of foreigners and Israel’s own children are in effective economic bondage to those who loan money and expect to be paid back with interest. Israelis are themselves in economic bondage to their own government, for which they work almost half of every year rather than working for themselves.
Israel is virtually unique in the post-socialist world in its steadfast adherence to state control over its people. The government preempts the development of genuine housing and mortgage markets. It subsidizes unsustainable jobs. It tolerates a virtual national labor monopoly. It finds every conceivable excuse to stall the sales of state-owned enterprises and banks. It sustains a regime of confiscatory taxation. It nurtures monopolies and cartels. It devalues the currency almost every day. It spends billions of shekels on social programs the country cannot afford in pursuit of egalitarian goals that actually become harder to reach the more that they are pursued. It blocks the free flow of imports. It distorts the economy through investment grants and subsidies. It owns almost all the land, keeping land prices beyond the reach of ordinary Israelis. It props up a bankrupt agricultural sector. It regulates small business out of business. The only ones left defending this failed system are politicians who know better but want to protect their own power and economic interests, and who enjoy government handouts or protection from competition.
The failure of this ossified system stems from its heavy dependence on foreign aid and charity, and the absence of investments. While foreign aid and unilateral transfers (including loan guarantees) add up to more than $9 billion annually, net foreign investment each year is a mere fraction of that. A high rate of investment would mean that old equipment is being replaced with new equipment, that industrial capacity is increasing, and that production of goods and services will rapidly rise. Foreign aid on the other hand, goes straight into the state treasury to finance general government spending, largely on consumption.
It is bad policy to rely on free money from abroad. We must cut spending, lower taxes, privatize state-owned enterprises, deregulate business, break up monopolies and cartels, sell off state lands, terminate linkage and wage indexation, and free up labor markets. The issue is not a lack of knowledge about what to do, but about the will to reform.
A whole new free system is clearly needed to restore growth and eliminate the addiction to foreign money. Perhaps a new system cannot be built overnight without economic dislocation; planning for incremental change to be executed piecemeal over many years means planning for no change at all. Big Business, Big Government and Big Labor will work ceaselessly against it, and politicians will chop away at it until nothing remains. This year has seen the postponement of the already approved 1996 tax reform and all the much touted tax cuts of 1995, which were offset by new taxes. A real, swift overhaul of the system is needed.
"Proclaim freedom in the land, it shall be a Jubilee for you." Let this be Israel’s motto. The Jubilee Plan is a program to ensure that by Israel's 50th year in 1998, she will be free.
Freedom from bureaucratic procedures, freedom from licensing, monopolistic labor practices, undue taxation, capital controls, trade restrictions and other barriers to business. Freedom for the consumer to purchase what he wants, freedom for the entrepreneur to compete on fair ground and sell what he wants. Freedom from foreign aid.
Economic repression has long enough flowed throughout the land from the regulated centralized economy. It is time economic liberty flowed forth instead. An economic rebirth in Israel will give its people hope and an opportunity for a peaceful and more prosperous and independent future. Proclaim freedom throughout the land.
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