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Israel's Fool's Paradise

Prime Minister Binyamin Netanyahu Appoints Commission To Draft Economic Proposals In Wake Of Huge Protest Movement

Protestors Pledge To Continue If Netanyahu Does Not Comply With Their Demand For Social Justice

IsraCast Assessment: Prime Minister Must Present Credible Solutions Primarily To Housing Crisis For Young Families

(Photo: Tomer Yaffe)

 The stage has been set: hundreds of thousands of young Israelis have signaled Netanyahu they mean business and the PM has pledged to remedy their economic plight as best he can. But can the PM reset his capitalistic ideology for a more welfare state policy as demanded by the protestors. Analyst David Essing is of the view that the stakes are extremely high.

 'No compassion!' - years ago Prime Minister Ariel Sharon's shot that barb at the the economic policy of his Finance Minister Binyamin Netanyahu. Today, Prime Minister Netanyahu has got the message from the hundreds of thousands of Israeli protestors who have rocked the state to its very foundations. The question being asked is whether Netanyahu, a leader with the bedrock belief that wall to wall capitalism promotes the greatest economic well being for all, will heed those young middle class rebels who fear they have no future in Israel. So far their battle cry 'the people demand social justice' has resounded louder and louder across the state. The articulate student spokespeople keep telling Netanyahu: 'You may have maximized state profits but you have minimized our future hopes!' And when the PM and his cabinet ministers point to Israel's economic success story, compared to many European countries and even the U.S., it sounds like the proverbial surgeon saying he performed a brilliant operation, although the patient has died. So after being taken totally by surprise, Netanyahu like most politicians in a democratic society, realized he had better go with the flow.

A team of no less than twenty-one economic experts and a bevy of cabinet ministers was swiftly set up to draft proposals by the High Holidays. It will not be easy. Netanyahu revealed his ambivalence in his Knesset speech by first referring to the 'populist wave' sweeping the country before atoning that the protestors did have a case. At the same time, the PM and his cabinet ministers have stressed the need to act 'responsibly' and to keep the national interest always in sight - something he and the other secular parties of Kadima and Labor, failed to do during their terms of office over the past two or three decades. During that period they transformed the state from its socialist leanings to a more or less 'dog eat dog' capitalist system. Meanwhile on the other hand, powerful interest groups were able to extort exorbitant funding from the public coffers. These range from financial tycoons, cartels, ultra-orthodox religious groups and the settlers in Judea & Samaria. The result has been that young, secular Israelis, who did not organize into their own pressure group, were left out in the cold during the country's economic boom that survived two Palestinian intifadas and two wars with Hizballah in Lebanon and Hamas in the Gaza Strip. (Needless to say, many of these secular Israelis did most of the fighting along with the religious 'knitted skullcaps' from the settlers' camp.)

Figures just released by Israel's Central Bureau of Statistics make interesting reading against the background of the protestors' demands. Yonatan Levi, one of the most impressive leaders of the protest movement puts it this way: 'I am twenty- seven years old, served in the army studied at university and would like to marry, settle down and have two kids. Now I know every month it will cost 5,000 shekels just for day care and another 4,000 shekels for rent (that's a sum of $2,500) even before I even think of paying a mortgage and other family expenses'. Now the latest statistics show that average gross salaries have dropped to 8,450 shekels per month that's about $2,400 (before income tax). Keep in mind that Israelis also pay a whopping 16% value added tax on just about everything including food, except for fruit and vegetables. (The government after taking office even considered slapping the VAT on fruit and vegetables but backed off after an angry public reaction). Moreover, more than 25% of wage earners earn less than 3,000 shekels per month, which is below the 4,100 so called minimum wage.

(Photo: Tomer Yaffe)

How could the dream of the founding fathers, including Herut's Menahem Begin, of an egalitarian Jewish state have dissipated to such a sorry state of affairs? One cause is the fractured political system of coalition governments in which no one party can form a government and therefore pays off coalition partners for their political support. For example, Kadima's Tzipi Livni's was unable to form a coalition government because she refused to bribe Shas with increased grants to religious institutions. Not that Labor did not buy political power by pandering to the ultra-orthodox parties that generally hold the balance of power.

In addition, there are 'focuses of power' in the Israeli economy. The highest paid salaried employees are found in the publicly run Electricity Corporation and Mekorot Water Authority who have no qualms about shutting down the power or turning off the tap, if their lucrative wage demands are not met. Their average salary is 21,000 shekels per month, that's about $6,000 with extraordinary fringe benefits, such as free electricity. Moreover, the Histadrut Union Federation, that is generously financed by these two corporations, backs their demands. On the other hand, the Histadrut pulled the rug out from under the lowly social workers, who take home an average of 4,000 shekels or so.

There are far reaching, even crucial ramifications for Israel's future. Professor Dan Ben David the head of the Taub Center for Public Policy at Tel Aviv University has been a 'cry in the wilderness' for over a decade. Interviewed repeatedly in the Israeli media, Ben David has warned:'People must realize we are losing the state!' Successive Israeli governments have been penalizing the country's most valuable resource - the young secular Israelis who defend and build the state. In his view: 'The young people demonstrating are so right, but even they do not realize just how problematic the future is that we are passing on to them. A significant part of the population feels it has no stake in Israel's future'. This in a state that has more Noble Prize winners per capita than any other country in the world, yet whose governments have failed to get its political and social house in order. Ben David asks the politicians what national priority finances families of eight to ten children and enables their healthy parents not to go to work as a way of life? But at the same time it allows those elderly people, who are incapable of working, to live in abject poverty? And he adds how has Israel reached the point that it mistreats those young people, the best that any society could produce, those that contribute years of their lives and sometimes give their lives for the state?

In his view, there is no lack of public money, ability and knowledge to remedy the situation before it is too late. The acute housing shortage is a case in point. Why are prices so insane? Most of the land is owned by the state so what is all the double talk about high land prices being the root of the evil and the lack of supply?'

What is likely to happen now? The younger generation has massed in the streets and is finally fighting for their rightful place in the Jewish state. It is signaling the government that they are fed and will be ready to man the barricades, but will give political leaders the opportunity to do the right things. Barring unforeseen circumstances, such as the Palestinian September, there are several obvious measures that Netanyahu could fall back on - the tycoons have become public enemy number one being perceived as out to fleece the public. Higher taxes and more regulation is apparently in the works for them and the well off. (Believe it or not, Netanyahu actually had an income tax reform in the pipeline that would have the rich pay less tax- that has obviously gone by the board.) VAT, a big burden on low income families, may also be slashed from 16%. But more than anything else, housing is the bugbear that requires more than the cutting of red tape.

The protestors will likely want to see government guarantees for low cost housing for young couples as its litmus test. The latest economic downturn in the U.S. and elsewhere may make it more difficult for Israel's government to increase the deficit. So far, the protest movement, that is mainly secular, has welcomed the ultra-orthodox and settlers by saying 'our tent is big enough for everyone'. But it may only be a matter of time before what are generally viewed as the government's special treatment for these sectors comes to the fore. Peace Now has just issued a report contending the settler sector in Judea & Samaria receives an extra two billion shekels from the state coffers. Settler spokesman Danny Dayan has categorically rejected the figure as being fraudulent and has visited the tent camp on Rothschild Boulevard in Tel Aviv.

Will the protest movement succeed in its strategy of projecting a non-party approach in order to bring as many Israelis as possible inside its tent? In the long run, the allocation of national income is obviously an issue of the highest political order, just ask U.S. President Barack Obama. However in Israel it has, until now, always been pushed to the sidelines by the question of which leaders can best cope with the more burning issues of war and peace and Israel's very survival. The weeks ahead will determine whether the Jewish state has entered new uncharted territory with the stakes extremely high. In the past, Binyamin Netanyahu proved he had the economic expertise to navigate the Israeli economy out of a slump into an OECD success story. But along the way he lost touch with a vital national interest - the justified needs of the younger generation. Now he is tasked with keeping the economy on track in difficult times but to do so by implementing more compassionate policies.

David Essing

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