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The economy is in excellent shape. Unemployment fell in the fourth quarter of 2006 to 7.7 percent - the lowest rate of the last decade. Growth is up, at 5 percent; wages are rising; exports are climbing; interest rates are low; there was a $7 billion surplus in Israel's balance of payments in 2006; and its currency reserves have reached an all-time high: $30.8 billion.

And all this is happening while our governmental institutions are collapsing. The prime minister is occupied with survival. He is devoting most of his time to repulsing the state comptroller's investigations of the Home Front, the Small Business Authority, the Investment Center, Bank Leumi and the apartment on Jerusalem's Cremieux Street - and, in the background, loom the threatening conclusions of the Winograd Committee. In this situation, he has no attention to spare for the Arab peace initiative, which will be brought up once again at the Riyadh summit, and he has neither the desire nor the power to push for implementing economic reforms. He wants quiet.

So how does it happen that the public sector is paralyzed, but the economy is nevertheless booming?
 
 


The process began with the Likud Central Committee. That is the original sin for which the public are still paying to this day. Its 3,000 members were allowed to control Knesset members and ministers. They determined who would be promoted and who kicked out, and the politicians caved in, fawned on them and did their bidding. Many people joined the Likud Central Committee not to elect better leaders, but to line their pockets - to arrange jobs, appointments and other benefits for themselves and friends. They became fixers, who went to the ministers to arrange tax breaks from the Tax Authority, grants from the Investment Center, loans from the Small Business Authority and the rezoning of land by the Israel Lands Administration.

Olmert, whose standing in the Likud Central Committee was poor, used his many governmental positions to "help" central committee members. That is what emerges from the state comptroller's inquiries and from Document 115, "Job Arrangements," which was disclosed by Channel 10 television. Nor should we forget the Sharon family and its "ranch forum," which distributed jobs to cronies like they lived in a private kingdom.

Now, we are undergoing a grand housecleaning, and that is a difficult time - like any treatment of an open wound. The state comptroller is investigating corruption, the police are arresting senior Tax Authority officials and the accountant general is laying down new procedures and rules for tenders that will prevent further deterioration. In other words, Israel is not Sicily, despite what former judge Vardi Zeiler has to say. The body politic is still manufacturing antibodies that are fighting the poisons.

Heal the body

But until the body has been cleansed and healed, it will respond with complete paralysis, at both the political and the bureaucratic levels. Fear of investigations is paralyzing everyone, including senior civil servants. People are not making decisions, but postponing discussions and sending issues to legal advisers for further study, for fear of investigations and inquiries.

But despite the paralysis that grips government offices, the private sector is continuing to work, produce, export and grow, as if there were no government. That is our good fortune: The private sector is circumventing the governmental obstacles. Thanks to it, growth has risen to 5 percent a year - not thanks to the government, but despite the government.

Lurking in the corner, however, is this growth's self-destruct mechanism: The paralysis in governmental decision making is bad for investment and development, and in addition, there is growing pressure to approve various budget increases, due to the weakness of the prime minister and of the finance minister. For instance, there is Abraham Hirchson's proposal to institute a negative income tax and the Histadrut's demand for a whopping 13 percent raise for public-sector employees - a raise that would entail increasing public expenditure by NIS 10 billion a year.

That is how the self-destruct mechanism works. It will not tolerate an economy growing at a nice 5 percent clip for three straight years already. It is seeking an opportunity to toss us back to zero growth and rising unemployment. Will we allow it to do so?