Israel's Man of the Year in 1993 is Minister of Finance Avraham Shohat. This was an easy selection based on three major achievements. First, he overruled committees of bureaucrats and experts and fought off gangs of special interest groups to obtain near unanimous cabinet approval in June for a Free Export Processing Zone (FEPZ). He submitted the FEPZ bill to the Knesset in November, which immediately passed a first reading. If he stays the course, the bill will become law in early 1994.
Second, he repeatedly overruled committees of bureaucrats and experts drawn from his ministry, the Bank of Israel and the professions to block the imposition of a capital gains tax on shares traded on the Tel Aviv Stock Exchange. In so doing, he made it possible for the stock exchange to continue to finance the creation of dozens of new, high-tech firms that are the vanguard of Israel's capitalist revolution.
Third, he has taken a tough line against the bailout of money-losing, state-owned enterprises, but he cannot win this battle without support from his colleagues in the cabinet, which is hard to come by. He has tried to stand up to the troglodytic Histadrut, Israel's leading enemy of free-market reform. He has fought his left-leaning colleagues in the cabinet tooth and nail to prevent them from taxing and spending the country to the poorhouse.
Shohat is a civil engineer by training, former mayor of Arad, and late entry into national politics. First elected to the Knesset in 1988, he quickly rose to Chairman of the Finance Committee, the legislature's most important body. From there, it was a quick step up to Minister of Finance. Shohat is literally the only person within the Israeli system who has accepted responsibility for the overall health of the economy -- growth, new investment, more jobs, lower inflation, lower taxes, and smaller government. The Prime Minister rarely deals with economic matters. All other ministers are concerned only with the goods they can deliver to their constituents. He has exercised his responsibility with distinction.
Here are the other awards for 1993:
Insight of the Year. The former Secretary-General of Histadrut, Yisrael Kessar, is now Minister of Transport. As Secretary-General of Histadrut, Kessar was a proponent of big government in every respect. But as Minister of Transport, with responsibility for the success of transport enterprises in his domain, Kessar has come to see that costs and prices matter. On December 7, 1993, Kessar spoke at a conference on shipping and ports in Haifa, announcing that he was examining various options to reduce expenses for shipping expenses. The Jerusalem Post reporter quoted Kessar as saying that "the country's shipping fleet will be cut if the Government does not reduce tax expenses for local shipping companies." Kessar stated that his tax reduction plan enjoyed the support of the ministers' committee on economic affairs and he hoped the cabinet and Knesset would adopt his plan to cut taxes.
Embarrassment of the Year. Israel did not, does not, and in all likelihood, never will need U.S. loan guarantees. Throughout most of 1993, guarantee-backed loans were raised at 7.5 percent interest and redeposited at 3.5 percent interest. Finally, at year's end, about a third of the money was allocated for lending to the monopoly Israel Electric Corporation below cost. Shame on everyone who contributed to this folly.
Outrage of the Year. This is a collective prize, earned by every Israeli official, bureaucrat, academic, or interest group spokesmen who talked free-market reform, but practiced socialism and the status quo. The Scorecard recites numerous examples of this outrage.
Surprise of the Year. The surprise was the authors, and the episode was uniquely personal. Several appointees in the Ministry of Finance who had been interviewed as background for the 1992 Scorecard later said that an unfair, unduly harsh line was taken against the new Labor-led Government's economic policies. In the spirit of fairness, I asked for another meeting with these officials for the express purpose of listening to their side of the story, namely, the positive economic achievements of the State of Israel.
They graciously granted the meeting in early 1993. Surprisingly, these officials had just submitted their resignation to the Minister of Finance, frustrated over the lack of economic reform. Every attempt of theirs to change economic policy was blocked by one or another political interest. They were no longer willing to defend the system.
Acknowledgments
First, a short note about sources. For a small country, Israel puts out a large amount of information. It is, for example, home to the second largest foreign press corp in the world after Washington, D.C. In addition to the annual Statistical Abstract of Israel, the Government publishes a variety of monthly statistical bulletins. The Bank of Israel publishes its own Annual Report, along with a host of other reports and papers. The commercial banks publish economic newsletters, and the Tel Aviv Stock Exchange issues monthly, biannual, and annual reports. Each of the major English and Hebrew newspapers and periodicals includes special sections on the economy. Israel, in fact, has two pink-colored financial dailies, Globes and The Telegraph. This is remarkable for a country of just over 5 million people. It is easy to be critical of the lack of analysis in much of the daily press that often accompanies the reporting of data or policy announcements, but there is no shortage of information.
It takes a team to put together the Scorecard. The key participants at the Institute for Advanced Strategic and Political Studies (IASPS) in Jerusalem include Rachel Yarden, research associate, who monitors the English and Hebrew press on all aspects of economic policy, provides expert translations of important Hebrew stories and undertakes inquiries with Government and private officials on my behalf. Zev Golan, associate director of IASPS, assists me with a variety of research endeavors during my periodic data-collection visits to Israel. Karen Poll, office manager of IASPS, keeps the flow of information moving back and forth between Jerusalem and Stanford and coordinates the production of the Hebrew edition of the Scorecard in a cheerful, timely and professional manner. Robert J. Loewenberg, President of IASPS, provided valuable comments on previous drafts and a endless stream of fresh insights into the Israeli version of "democratic socialism." David Yerushalmi, President and C.E.O. of Israel Export Development Corporation, the firm that hopes to build Israel's first Free Export Processing Zone, shed valuable light on recent changes in regulations governing the Tel Aviv Stock Exchange and what they might mean for the future of Israeli capitalism.
Of course, I also want to thank the Hoover Institution. The Director and his able staff provide the resident scholars of the Institution with outstanding facilities and a stimulating environment in which to work and write.
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