In the early 1980s, Israel's economy staggered into its worst-ever crisis. Hyper-inflation ran rampant, rising to 445% in 1984. Groceries updated their prices twice a day and the public lost any faith in had in the shekel.
The saying at the time was "green, and far" - and indeed, anybody who had greenbacks hastened to smuggle the money abroad, or at least to hide it under the mattress. Exporters stopped importing the money paid them abroad. Israel's foreign currency reserves shrank and shrank.
Moments before the final collapse, two professors of economics were recruited: Eitan Berglass and Michael Bruno. They put together a plan to halt the hyper-inflation and submitted it to the prime minister, Shimon Peres, and to the finance minister, Yitzhak Moda'i.
The plan called for deep budget cuts, wage cuts, high real interest rates, and freezing the exchange rate of the dollar and prices, too. A special cabinet meeting was summoned that lasted two days (!) and in early 1985, the crucial vote was held.
Sharon, then the Industry minister, voted against the plan. He did not like the budget cuts. He had always believed in more government and more involvement.
Happily, the plan won a majority and was carried out. It rescued the economy from the deepest hole into which it had ever sunk.
Road to hell, paved with good intentions
Throughout his many economic functions, Sharon believed the government played a key role: that it must act, do, build and promote; therefore its budget should be as big as possible, which of course meant taxes should be as high as possible. It was an antiquated view of economics that does not believe in a free market, the private sector, and free economics.
After the 1977 upheaval in which Likud took power, Sharon served as agrriculture minister under Menachem Begin. But instead of focusing on farming, Sharon poured massive budgets into Judea and Samaria, building settlements under every possible tree. Not for Sharon piddling little affairs: he always aspired to redraw the map and character of Israel. That was why he always made sure that whatever portfolio he received, he would remain in charge of the Israel Lands Administration.
In September 1984, Sharon was named ministry of Industry and Trade. He immediately adopted the view of the Manufacturers Association, which supported protecting Israel from imports. Sharon raised the Customs barrier, set senseless rules to block imports - for instance, Hebrew printing on imported pencils from China. The result was that Israeli industry regressed. It did not become more efficient and it did not become more advanced.
Later, during the 1990s, Sharon took over the Housing & Construction Ministry. Here too he wouldn't let the market do its thing. He told contractors where to build, how much to build, and set the standards, too. He even made sure to 100% guarantee housing for new immigrants from Russia, which resulted in poor quality construction in inappropriate places the Russians hated.
The caravans that Sharon scattered throughout the land turned out to be a tremendous waste that did nothing but make a few Likud cronies very rich. The situation grew so bad that Moda'i, the finance minister, demanded Sharon be tried, no less, for overspending the Housing Ministry budget by billions of shekels. Sharon never saw budgets as an obstacle, only as a means to achieve his ends.
Road to recovery
After he won the 2003 elections, Sharon understood he had to replace Silvan Shalom as finance minister. The economy was in deep crisis. He brought in Benjamin Netanyahu.
It was a good decision. In the last three years Sharon and Netanyahu cooperated, however much they loathed each other personally.
Netanyahu is the man who initiated a free economic policy: slash at the public-sector pork barrels (his "fat man") and encourage the private sector (his "thin man"). Sharon didn't like his approach, but allowed Netanyahu to slash at the budget, to reduce public sector wages, to hack at entitlements, to lower taxes, and to pursue a variety of reforms.
At the ends of the day, Sharon actually backed his finance minister. He only intervened twice: he made sure the defense budget wouldn't be cut, and made even more sure that farmers wouldn't be charged more for water.
Sharon meanwhile concentrated on politics. He initiated and carried out the disengagement from Gaza, which breathed fresh new life into the economy. He even managed to significantly reduce terrorism. The disengagement also restored Israel to the family of nations and triggered a flood of foreign investors. The abatement of terrorism returned Israelis to the malls. The bottom line is that the diminishment of risk, the increase in investment and the rise in private spending were key elements of restoring strong Israeli economic growth.
Netanyahu and Sharon share the credit for extracting Israel from the crisis of the intifada. Both contributed to achieving rapid economic growth, to the drop in unemployment, to the boom on the stock market. To whom goes the greater credit? You may decide for yourself.
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