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The Director’s Column

By Dr. Alvin Rabushka
Director, Division for Economic Policy Research

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Summer Follies

Now that his The Lexus and the Olive Tree has made it on to the best seller list, New York Times columnist Thomas L. Friedman has become even more of an Israeli political pundit. In his column of June 18, 1999, as prime minister elect Ehud Barak was in the midst of putting together his new coalition government, Friedman writes that the religious Shas Party has replaced the dying Likud Party as the alternative to Labor. He goes on to say, in the most astonishing sentence ever written by any American journalist about Israel, that "Shas is now the real alternative to the secular, free-market, liberal, democratic vision represented by Labor, Meretz and Shinui."

What? Labor and Meretz have a free-market vision? Friedman is either blind, ill-informed, out to deceive his readers, or all three. The truth, obvious to anyone with an inkling of knowledge about the Israeli economy, is that Labor and Meretz are two of the few avowedly socialist political parties left in the world. That Labor or Meretz have a free-market vision is tantamount to Ronald Reagan praising the free market economy of the former Soviet Union.

How Sad

"How Sad" is the title of an essay written by Amotz Asa-El in the July 6, 1999, issue of The Jerusalem Post. His sadness was largely directed at the reappointment of Avraham "Beiga" Shohat as finance minister, a post he held during 1992-1996. During those memorable years, Beiga presided over a huge increase in the current-account deficit, double-digit inflation, a massive 20 percent salary hike given to public sector employees while employees in the business sector experienced a 6.5 percent decline in real wages, virtually complete failure in privatizing state-owned enterprises, and a proposal to tax capital gains that savaged what had been Israel's most promising source of genuine private enterprise development, the burgeoning Tel Aviv Stock Exchange.

Indeed, to Barak's dismay, Beiga resurrected the issue of a capital gains tax in the midst of coalition negotiations. Barak reacted promptly to head off another stock market debacle. Yet, magically, Beiga moved back into the Treasury. The Tel Aviv Stock Exchange declined three days in a row after the announcement that Beiga would resume his old post.

Asa-El's column is doubly sad, for he, too, believes that Meretz has a free-market vision!

Basic Guidelines of the Government of Prime Minister Ehud Barak

At 3:16 p.m. on July 6, 1999, lawyer Gilad Sher, on behalf of Barak's party, presented Knesset clerk Aryeh Hahn with copies of the government's policy guidelines and coalition agreements.

The guidelines are broken down into 15 categories, with 107 separate paragraphs, covering every conceivable topic: peace and security, Jerusalem, settlements, constitutional development, change in the order of national priorities, the economy, immigration, education, religion, gender equality, the status of Israeli Arabs, health, transportation, and the environment. There is something for everybody in the new government's policy proposals, indeed, more than two chickens in every pot. There is, of course, no mention of what it will cost and little mention of who will pay for it.

The guidelines are a winding maze of contradictions, but they are exactly what one would expect from muddled, socialist economic thinking. Their central theme is reliance on the State, the Government, as defined in article 1.7.

Article 1.7: The Government will work to develop the economy in accordance with the principles of free and balanced economics, with a view toward increasing the amount of resources available to the State, being profoundly convinced that the prosperity of the State and its development are central components of its strength. The Government will view a reduction of gaps and the implementation of the principles of social justice as vital components in its economic policy and in the integrity of the State of Israel.

Free and Compulsory

Education is to be Barak's chief priority. The means are to be free (which means at the taxpayer's expense) compulsory (whether parents want their children in pre-kindergarten schools or not) education for ages 3-5, an extension of the school day (more teachers and higher pay), the expansion of higher education (more jobs for leftist intellectuals), a gradual reduction of tuition at institutions of higher learning (more taxes), and more student loans. This chief priority is to be directed by Israel's extreme left-leaning minister of education, Meretz Party leader Yossi Sarid. (Can Friedman possibly believe that Sarid has a free-market vision?)

Other highlights of the Basic Guidelines include such pop-left goals as cultivating tolerance, moderation, and respect for others (the Israeli version of multicultural diversity); basing all policies on the principles of equality, justice, and brotherhood (redolent of the Socialist Internationale); fortifying the rule of law and equality based on the ideas of social justice; cultivating stable growth by having "the Government" offer all citizens an equal opportunity to take a responsible part in the "national enterprise;" having "the Government" work towards raising the standard of living of weak social strata; having "the Government" work towards improvements in public health, employment, and housing conditions; and, having "the Government" work toward achieving gender equality.

What is missing is any mention of individuals and their rights, especially the right to keep a reasonable share of one's own income, or any mention of limits to State power.

The following articles make these broad socialist objectives more explicit.

Article 7.1 The Government, in its policies, will work to build a welfare state [don't you just love Sweden, whose citizens have fallen from 4th to 14th place in their standard of living among the OECD countries of Europe and North America?] and a just society with sensitivity for the needs of the individual. ["From each according to his ability, to each according to his needs?"] The Government will place concern for the citizen, and the war on unemployment and poverty, at the center of its policy. The Government will implement a comprehensive policy to reduce social gaps [more redistribution of income and wealth] and the dimensions of poverty.

The clearest example of muddled thinking appears in articles 7.5 and 7.6. In 7.5, the Government proposes to gradually reduce the tax burden and the budget deficit. In 7.6, the Government proposes to reduce the rate of taxation on the middle class. But in the same article it also proposes to expand the tax base and intensify efforts at tax collection to ensure a just distribution (a return to medieval concepts of just price and just wage?) of the tax burden.

The great bulk of taxes is paid by the middle class. The poor pay little and the few rich that live in Israel couldn't finance Barak's ambitious agenda even if he confiscated all of their income.

What else lies in Barak's Basic Guidelines?

• Government investment in development towns and underprivileged neighborhoods.
• Development of agriculture by ensuring reasonable water quotas for farmers (it would be hard to find any lower value-adding activity than this waste of water).
• Government efforts to help multi-child families, young couples, new immigrants, discharged soldiers, and residents of underprivileged neighborhoods to purchase or rent at reasonable cost, with the aid of a mortgage. The Government promises to guarantee housing solutions, including public housing (among Israel's great failures), for those in need.
• More assistance for pensioners.
• More assistance for the handicapped, single parent families, and children with special needs.
• The appointment of a committee to examine the extension of collective labor agreements to all workers, regardless of nationality, gender, or the manner in which they were hired (a compulsory, closed shop system, reinstalling the Histadrut's tyrannical control over individual employees).
• Releasing public lands to lower construction costs (which the bureaucrats have successfully resisted for 50 years), while maintaining renters' rights (sustaining rent control in the urban areas, which has led to the devastation of vast blocks of housing in central Tel Aviv).
• More assistance for war veterans.