SHERLOCK HOLMES AND THE CASE
OF THE
WAYWARD ECONOMY
Zev Golan
When the air controllers struck
and threatened chaos in the skies, Ronald Reagan fired 10,000 of them. And the land was quiet for ten years.
When the miners struck and
threatened chaos under the ground, Margaret Thatcher stood firm and the land
was quiet for ten years.
When Israel's Histadrut
labor monopoly struck the entire country and caused chaos everywhere, Bibi
Netanyahu gave them everything they wanted.
And labor relations were chaotic for the next year.
When Israeli students struck
the universities 11 months after the Great Histadrut Strike, demanding various
taxpayer handouts, Bibi met them halfway.
When the students rejected the compromise and went back to school
anyway, so as not to forfeit their entire semesterCBibi gave them what they
wanted anyway.
And then Israel's prime
minister went one step further. He
asked his justice minister to instruct his attorney general to halt court
proceedings against students arrested, in the course of the two month strike,
for blocking roads, beating policemen and engaging in other acts that caused
the general Israeli populace to suffer.
Maybe one needs to be a
mythological detective to discover what is happening in the Israeli economy, or
more importantly, why. Let us examine
the evidence and look for clues.
These two major Israeli
strikes, the Histadrut in December 1997 and the students in October-December
1998, offer evidence not only about their own nature, but about all the strikes
that fell between, and about Israeli government policy in general. The Histadrut struck in defiance of court
back to work orders, yet no one was charged or held responsible for a strike
which literally shut down the country, airports and all, for almost a
week. The students deliberately set out
to wreak havoc in the streets and disrupt the lives of Israeli drivers,
passengers, and others, and, in the course of their riots, some were
arrested.
Based on the precedent
(chilling in itself, but nonetheless, a precedent for Israel) of the Zu
Artseinu movement, student leaders should have been in for a bad time. Zu Artseinu, protesting the Oslo
Accords, engaged in non-violent civil disobedience and disrupted traffic. Their leaders were sentenced to jail for
sedition. Yet the Histadrut leader, Amir
Peretz, emerged from his de facto contempt of court a national hero, and was
given power of veto over economic policy by the government. And the students were, if the prime
minister's wishes will be heeded, to be freed and their demands met.
This dichotomy explains, in
part, the silence of Israeli pundits regarding the outlandish student demands
and government capitulation; and ditto for the Histadrut. The striking students are, essentially, the
Israeli equivalent of American WASPs.
In this case, they are White, Affluent, Socialist, and Politically-correct. The emphasis in Israel is on the socialist
and politically-correct. Conceivably,
one could be black and poor, but if he is socialist and politically-correct,
the media, academia, and the politicians will all support him.
The students sought to have
the state intervene, to build dormitories, to transfer income, to fund their
education and the failing university bureaucracies. The Histadrut sought the same for its most powerful members, the
mostly white, affluent, socialist P.C.-ers who run and benefit from Israel's
state-owned monopolies.
Thus Zu Artseinu
leaders were guilty of sedition, for being politically incorrect.
Cab drivers are usually a
good barometer of public feeling on any issue.
Visiting economists would do well to “interview” their cabbies to gauge
what Israelis really think about whatever is happening. Actually, interviews are unnecessary as the
cabbies are famous for volunteering their positions long before anybody
asks. And usually their positions are rational,
perhaps not grade A econometrics, but instinctively rational. Yet during the student strike, Israel's
cabbies were vociferously in favor of meeting student demands. This passenger tried, with every cabby he
encountered, to discover why; and it finally dawned on him that Israeli cab
drivers (not the new, young drivers renting cabs from others, but the cabbies
who have their own cab licenses) are all members of the upper middle class,
with high school age children.
Basically, they wanted me to pay for their children's education rather
than they themselves.
This is clue number one to
understanding Israeli economics. All
sectors in Israel operate on the principle:
Take whatever you can get.
Reagan and Thatcher ended that option and set their economies on a
healthy course. Bibi did not. IASPS associate fellow Yossi Laster doesn't
blame the cabbies for their attitude, so prevalent in Israel. Laster suggests they are acting as hunted
animals would. The state takes so much
from them, in so many taxes and other means, that they want to get “even,” or
at least hold on to something for themselves.
One of the hot issues in
Israel at the end of 1998 was religious councils. These governmental councils ostensibly provide, as monopolies in
each municipality, religious services to the Israeli public. What they actually provide is 2,000 high
paying jobs for religious party hacks.
The councils, their employees, and their pensioners consume about $115
million in taxpayer dollars every year.
But waste, corruption, or
the political-philosophical question of whether the state needs to provide
religious services were not what propelled the issue to the fore, or brought to
light proposals for reform. Rather,
Israel's High Court ordered the automatic appointment of left-wing Meretz
Party-affiliated Reform, and also Conservative, Jews to these councils. At year's end no solution had been found;
but the Orthodox hacks are desperately seeking to preserve their hegemony, and
the Reform hacks are seeking a piece of the pie. All at the continued expense of the Israeli taxpayer.
Take whatever you can get.
On the other hand, one of
the non-issues at year's end was the kibbutz bailout. While the Israeli media and politicians fumed at religious
councils which cost Israelis over $100 million, the latest bailout of bankrupt
kibbutzim engineered by the previous Labor government, and supported by the
current Likud government, has cost $1 billion, ten times as much. But kibbutz members are WASPs, and the pundits
are silent. Clue number two to Israeli
economics: All sectors will get
something, but WASPs will always get more.
Another vitally important
issue, just beginning to appear in the Israeli press, is one of military
preparedness. Under pressure from the
Knesset, the defense minister appointed his ministry's director-general, David
Ivri, to examine Israel's defense needs and security strategy, for the first
time in fifty years. Meanwhile, as the
threat of ballistic missiles aimed at Israel grows and Israel remains largely
undefended, and the army needs all the money it can get to develop some sort of
boost-phase intercept program, this same army continues to maintain a
reserve-service system that plucks the most productive members of Israel's
private sector from their jobs for several weeks every year, and puts them into
positions better and more cheaply manned by trained teens, and the army pays
them a large portion of their high private sector salaries for the privilege. The individual loses his freedom, his
company loses its income and his productive worthCand if he is self-employed,
his company shuts down while he is absentCand the army wastes money it
desperately needs to spend on advanced weapons systems. Apparently, the army must show that everyone
is equal. So rather than pluck only
those it needs, or those it can afford, or those not needed elsewhere, it
realizes a social (socialist) purpose rather than a military one,
and costs Israelis, as taxpayers and as free citizens, much more than they can
afford.
Clue number three: the issues supposedly being discussed are
smokescreens for the real issues.
Another not-debated-issue at
year's end was state funding for the film industry. Though the state cannot afford to fund the health system it
nationalized several years ago, and in the course of the year various medicines
were included, excluded, and then again included in a guaranteed basket of
medicines insurers are required to provide, as policy makers flip-flopped under
public pressures, the one sector in Israel which almost all political parties
agreed must be beyond haggling over dollars is cinema. The numbers are not big (neither,
ironicallyCor rather, necessarily, according to economic logic Care the numbers
of Israelis who attend state-funded films) but the principle is important. The Knesset voted that film makers must be
allowed to make films no one wants to see, and they must be paid salaries
several times the national average, regardless of budgetary needs in any given
year.
Bibi responded to this
assault on economic freedom and logic by contributing an extra NIS 10 million
from his own office's budget, to get the film fund off to a good start (film
makers, too, are, after all, WASPs).
An issue much debated, if
never actually seen, this year has been tax reform. Finance Minister Ya’acov Neeman promised comprehensive tax
reform, yet he reappointed Doron Levy, the Attila of tax commissioners. Tax reform in Israeli parlance seems the
word is used because no formal proposal has yet been made, and for one full
year now, rumors or leaks are all there is to be based on cutting the highest
marginal rate from 50-plus percent to an effective rate of 45 percent, while
making up for “lost” revenue by imposing all sorts of new taxes or expanding
old ones. Like the Scarlet Pimpernel,
Bibi, Neeman and Levy seem to believe that taxes should be here, should be
there, should be everywhere.
Taxes are currently withheld
from most Israeli employees when earned, but this has not satisfied the
government, which wants to ensure Israelis pay taxes on everything they own
everywhere, and thus, millions of Israelis may soon be required to file complex
returns, listing all possessions and sources of income. Banks, according to government proposals,
will be required to report to the government any transfers of funds in
customers' accounts. On January 13,
1998, Ha’aretz reported that the Income Tax Authority had demanded that
private realtors give them data about any client who rents property for over
$1500. A stock market tax is likely to
be imposed, to “level” the playing field on all investments. Like good soldiers on a battlefield, Neeman
and Levy seem determined: If it moves,
tax it. (See this Scorecard's
chapter on property tax.)
The most vilified economic
personality in Israel this year was undoubtedly Bank of Israel Governor Jacob
Frenkel. Frenkel foolishly sought to
stick to the government's inflation-target of 4 percent. When the state budget ballooned, he imposed
higher interest rates. Industry, the
press, cabinet ministers, think tanks, and everyone else attacked the governor. Inflation did, in fact, fall to next to
nothing and until the vibrations of the global crises in the fall, Israel's
annual inflation rate was 4-5 percent.
But the prime minister on a visit to London in December took a different
tack. He announced that the government
would readjust its 4 percent target to 10 percent. Problem solved.
Other issues which saw no
movement this year include the social security system, whose only reason for
maintaining a collection system separate from the income tax authority is to
provide jobs for the 5,000 social security system employees; state
universities, which receive $1.2 billion in taxpayer funds to provide jobs for
slightly under 19,000 people; the state employment service, proven by IASPS
Koret Fellow Shlomi Shuv, in IASPS Policy Studies No. 36,
to keep people unemployed rather than find them jobs, but which can employ
another 1,000 people at taxpayer expense, etc., etc., etc. And to set the tune for 1999, the Education
Ministry decided to impose compulsory public education for three- and
four-year-olds, a move that may put 10,000 members of the private sector (in
2,600 private nurseries) out of work, while costing taxpayers an additional
$180 million annually. A communist
party bill to this effect was passed into law in early January, with Prime
Minister Netanyahu's personal support.
In the course of the year, Neeman and Peretz agreed to raise budgetary pensions from 60 percent to 80 percent of salaries; the Knesset restored pensioners' entitlements to transportation and entertainment discounts; the state agreed to guarantee builders of the Trans-Israel road a profit; the Interior Ministry forbade the city of Ra’anana from offering high-tech firms a discount in municipal taxes, as an enticement to build there; state legal advisor Eliakim Rubinstein argued before the High Court that the state telephone monopoly Bezek has the right to charge callers for time they don't use because “it's been done this way in Israel for years;” and the Israel Lands Authority justified its rejection of low bids for state land by noting that because of a recession, low bids do not reflect market value.
In between the Histadrut
strike and the student strike, the following also struck, usually winning state
handouts or expanded influence over the private sphere: the Israel Lands Authority, the state
meteorological service, the Transportation Ministry, high school teachers, the
airport, the Histadrut again, municipal employees, the Labor Ministry, university
professors, schools, the Mekorot water monopoly (they did not exactly strike;
they locked management out to protest possible privatization), and the social
security system. Of all the action on
the strike front, however, the most telling event was the students joining with
Histadrut strikers, in the course of their own student strike. They said they were showing social
solidarity and went off to protest privatization.
The tax burden in Israel is
over 42 percent, the highest it's been since 1988. Government expenditures are about 55 percent of GDP. The public sector employs about one third of
the Israeli workforce, almost 600,000 people.
Add to that another 200,000 or so receiving unemployment benefits or government
income supplements. Then add to that
all the employees of state owned or subsidized sectors or industries (from
cinema, as noted above, to even high tech companies funded by the Ministry of
Industry and Trade), and what these numbers mean is that about half the Israeli
people are living off the other half.
Of course, the government supported half is off to a head start, with $3
billion in U.S. aid, and more billions in other unilateral transfers from
abroad, which allows them to pad their own wallets and maintain the system.
This is clue number four,
the most important, to understanding the Israeli economy C an entire country is
on the dole. The huge amount of foreign
aid that comes in props up a bankrupt socialist system and prevents Israel's
private sector from making any real progress.
Those in power live off the money of others and live for it.
This system is that which
keeps the public-sector half of Israelis on top of the other half. This holds for Labor Party officials, or
party-appointed officials, as well as Likud, for Jewish Agency officials, as well
as state-paid rabbis. This sector's
main purpose lies in preserving its domination over the productive sector, over
the private sphere, in perpetuating itself.
To this purpose it will subsume any other interests C economic growth,
moral integrity, political independence.
This is the final clue,
number five: the will to dominate
others, to stay on top, to take care of yourself.
It may be that the truly
productive members of society are a minority in most countries. The story of Israeli economic policy this
past year is one of a continued attempt by society's leeches to cling to the
backs of society's Atlases. The
unproductive know the solution to any issue is big government, income
transfers, equalizing the unequal.
The evidence is clear. All that remains is to assess the
performance of the Israeli government.
For perpetuating this
system, both in the continued reliance on U.S. aid and the capitulation to all
the sectors with their hands out to get more power and lord it over others, for
showing that violence towards others C whether by disrupting their lives on the
roads or by locking them out of their offices or by demanding a portion of
their earnings C is worthy of reward, and that he who is most violent achieves
the most, for teaching a new generation of Israelis that they should take what
they can get and that the government is their Great Hope, for using capitalist
rhetoric to perpetuate socialism and for, after winning the last elections,
forming a new government that pursues the same socialist political-correctness
of that which lost the elections, the government of Prime Minister Netanyahu
gets a grade of failure this year in economic policy.
Zev Golan is associate director of the Institute for
Advanced Strategic and Political Studies in Jerusalem and Washington, D.C. and
director of the IASPS Koret Fellowship Program.