What kind of economic program will a government in which Labor participates follow?
If we are to take seriously Shimon Peres’s priggish pronouncement that Finance Minister Binyamin Netanyahu’s market reforms are creating a “capitalism of pigs” and a “shitty economy” (this when Netanyahu actually averted an economic catastrophe and even initiated some growth), it will certainly not be a program of reform. In fact, if Labor gets its way, the economy will regress to where it was for so many decades under its management – to economic stagnation. Labor will seek the preservation of a centralized politically controlled system in which monopolies and corrupt unions thrive at the expense of the Israeli worker and consumer; in which work and enterprise are punished by exorbitant taxation, while workers are encouraged to become welfare wards trapped in ongoing poverty.
A recent publication, What Is the Answer? Economic and Social Solutions for an Economy in Crisis, edited by Labor’s MK Isaac Herzog and Dr. Roby Nathanson of the Institute for Economic and Social Research, illustrates the aridity of Labor’s economic thinking.
The collection of studies – some good and some even surprising in their candid condemnation of the welfare policies that Labor has initiated, supported, and still promotes – purports to represent “a true mirror image of the Israeli economy.” Herzog also claims that despite the fact “he is identified with a clear political line the studies in this collection are independent and absolutely professional.”
Herzog would not mind if we became like America. But he is convinced that a small state like Israel, facing great challenges, cannot afford to adopt a free market system. He doesn’t explain why Israel would not actually benefit from a thriving economy like America’s. Herzog also seems blind to 60 years of Israeli history which demonstrate that the pseudo-socialist alternatives embraced by Labor are prescriptions for economic disaster.
A summary of the issues the book discusses points out how limited and predictable Labor’s best economic thinking is. All the studies are devoted to the possibility of increasing the government budget deficit, to the possibility of reforming government bureaucracy so that it could better serve the welfare state, to enhancing the state’s role in closing the income gap and enabling the government to initiate economic growth.
IT IS reliance on government, more and better government (a contradiction, really), that is the bottom line of Labor’s economic thinking, according to these studies. All they deal with is the redistribution of income and enhanced welfare. As if wealth were manna dropping from heaven, and the only problem was how to distribute it; as if wealth distribution had no connection with economic growth.
Unfortunately, Herzog considers such stale failed ideas “creative thinking in new directions.” Nary a thought is given to how wealth is to be created or to what prevents Israel, a country blessed with superb human capital, from fulfilling its enormous economic potential.
It doesn’t even occur to Herzog that increasing the already bloated government budget will deny resources to a private sector that should be the real initiator of economic growth. (Unfortunately, in Israel the private sector is private in name only, since it is mostly part of an intricate web of monopolies and privileges granted by the government). Herzog would further extend the government by asking it to promote growth, without considering whether the government is capable of doing so or the costs involved. He learned nothing, apparently, from 60 years of industrial policy failure nor from the fact that government welfare policies actually increase the income gap. Otherwise, why would it keep growing despite the fact that transfer payments have grown exponentially and are now over 30% of the budget?
Like many non-economists, Herzog fails to understand the role of incentives, believing that it is possible to reform government bureaucracy despite the repeated failure to do so. Bureaucracies behave the way they do because it pays for them to do so. No administrative reform is likely to change that.
Herzog’s volume is remarkable not only for what it upholds but also for what it omits. Nothing is said about the real causes of Israel’s economic backwardness. Monopolies, especially in financial markets, wasted 20 years of savings by allocating them for speculative, non-productive investments by cronies. Israelis were thus robbed of billions of shekels in savings annually because interest rates were manipulated and kept low.
Nothing is said about the system of monopolies that forces us to pay a 30% surcharge on everything we consume. Amazingly these factors, which are responsible for massive unemployment, shamefully low wages, and for the fact that hundreds of thousands of families cannot make ends meet, are not even discussed by the experts that promulgate Labor’s economic thinking.
Labor may dress its old regressive polices in new clothes, calling them a Third Way. But essentially, the party has not changed its old Mapai statist ways. This is why Labor is a bankrupt party with little relevance to the enormous challenges facing Israel.
