The October failure
Yom Kippur 2008 is a Day of Atonement for the economy. And yet, the image that came up in the meeting of economic experts with Tzipi Livni and Ehud Barak this week harked back to Yom Kippur 1973. That is the situation, more or less, one of the experts said. The Egyptian army has come as far as Be'er Sheva, the Syrian army is on the shores of the Kinneret, and the government has not yet decided whether to open the emergency storage facilities and call up the reserves. The government is paralyzed in the face of this unprecedented challenge. The result of the new economic-social failure, for which Ehud Olmert, Roni Bar-On and Stanley Fischer are responsible, might be no less dramatic than the results of the political-security failure that brought about the Yom Kippur War 35 years ago.
We should listen to the expert-prophet of doom. Three years ago he precisely predicted the crisis on Wall Street. Two years ago he predicted correctly that an economic tsunami was on its way to Israel. He is not the only one. In quite a few Tel Aviv high-rise office buildings sit fairly conservative professionals who are seeing the worst. Senior economists who do not tend to have extreme opinions are anxiously watching what is happening and not happening. Without discussing things among themselves, experts are analyzing the global financial crisis and the Israeli economic breakdown in similar terminology and sometimes using the exact same words. Everyone agrees there is not a day to waste. It is one minute to midnight.
The virus is one of a lack of responsibility, of zealous and foolish faith in the market's mysterious hand. This faith, which became religious dogma after the Berlin Wall fell, led to the process of the market's destruction, a process that strengthened over about 20 years. The cheap money of recent years turned the market's destruction into a cancer. Wall Street's conservative values eroded. Stable, cautious and traditional banking was replaced by an adventurer system of hedonistic and greedy financial institutions. The greed became a component in a game for the sake of the game.
Capital of mythic proportions, which was disconnected from real industrial capital and real economic values, was busy cloning and upgrading itself without restraint. Without the threat of socialism to rein them in and lacking the moderating presence of the state and regulation, global capitalism went into a tailspin. It lost its ability to right itself and became a bizarre and corrupt bubble that had to burst.
The experts in Tel Aviv are not Shelly Yachimovich and Dov Khenin. They are central, veteran market players who have seen for years how the market has been losing its balance; how the market that believes only in itself is swallowing up the country, dismantling society and eroding the middle class; how the time to sober up has arrived, the time for penance, they say. What has been will no longer be. The major recession descending on America, Europe and Russia will continue for years and spawn a new world order that will no longer heed the market's powers as if they were a god and idols.
The problem is Israel. The virus of irresponsibility has struck it three times. Once in the 1990s, when it adopted blind faith in the market, which led to widespread privatization, the concentration of huge amounts of capital in the hands of a few tycoons and the creation of dangerous social gaps.
The second time was when Israel recklessly reformed its capital market. That led to the unfettered issuing of corporate bonds, most of which were financed by speculative activities abroad. They are casting a cold shadow on the local financial system to the tune of about NIS 100 million.
Israel's third mistake came during the past year, when it kept interest rates high, the shekel strong, and pursued a dogmatic policy of non-government interference. This led to the quiet withering of industry and production.
These three strategic mistakes stemmed from worshipping the market, ignoring society and disgust with the state. All three stemmed from the illusion that the private sector and business can replace the political and public realm in everything and everywhere. All three show that Israeli capitalism in recent decades has suffered from a lack of good judgment and responsibility.
There will be no choice. Just as the Bank of Israel intervened yesterday, so the government will intervene. With criminal tardiness, the state's powers will be called up and thrown into the fray. Israel will bleed economically, but will overcome. And when we return from battling the immediate crisis there will be no choice but to do battle with the crisis in values. After we overcome the market failure we will have to heal the cultural failure of worshipping the market.
Until next Yom Kippur, Israel will have to do soul-searching that is not economic alone. The state will have to redefine itself as a social-democratic society that balances market forces with the basic values of partnership, fairness and responsibility.