Ahead of the battle over power itself: Why Fischer came out batting for Sheshinski
Bank of Israel governor: Vested interests must not be allowed to affect distribution of gas profits by illicit means. The public must not be swayed by dirty tactics and personal affronts.
He circled his prey warily, built his case piece by piece, missing not one single point for or against. He built an ostensibly balanced picture, cold and sober. One might have thought it an intellectual discussion of financing or taxation. And then he pounced, attacked and bit down, and clarified that this was no mere academic exercise in economics. This was a lesson in citizenship.
"Vested interests must not be allowed to affect the distribution of the gas profits by illicit means. The public must not be swayed by dirty tactics and personal affronts." Thus spake Prof. Stanley Fischer, governor of the Bank of Israel.
'Nuff said. From that moment, all was clear as day. He didn't have to add a single word.
For the first time since the government launched a committee to revisit royalties and tax payable by private enterprise for exploiting Israeli natural resources, the professor chairing the committee, Eytan Sheshinski, could breathe easy. The sheriff had ridden in, laid his hand on the professor's shoulder and spelled it out: anybody who messes with him, is messing with me.
Nobody wants to mess with Fischer. His reputation and prestige are unmatched in Israeli circles. He isn't just waiting, as most of his colleagues are, for a cushy job with one of the Israeli oligarchs. He isn't living under the constant threat of being evicted from the club of the 500 men working for the local oligarchs, in a state of perennial terror of losing their fireside seat in the clubhouse, their top-tier wage and cocktail party status.
Why? Because that isn't his club. His club is in Washington or Basel.
Also, he knows a thing or two about economics and the free market.
The organizers of 2021 Conference asked Fischer to relate in his speech on Wednesday to the topic of long-term planning in Israel.
On the face of it, his "dirty tactics" speech was about an isolated case – the efforts by the tycoons to sway government and public against raising tax. Ostensibly, it was not about long-term strategy.
But delegitimizing the dirty tactics used by some to sway public opinion to advance the oligarchs' interests is not a tactical matter. It is strategic.
When politicians, public personalities, lobbyists and publicists working on behalf of the oligarchs threaten professional people and national bodies, they are a clear and present danger not only to the economy, but to democracy.
Fischer lays a trap
Fischer's timing was not a coincidence. Six days after the Sheshinski Committee recommendations were announced, ominous voices began to arise from the Prime Minister's Office. Benjamin Netanyahu would hear both sides to the argument, we heard. In other words, the committee had heard the claims of the gas barons, but Netanyahu was hinting that he would be reopening the discussion.
Fischer (not to mention Sheshinski and the other committee members) realized that boundaries needed to be set right away.
What Fischer did trapped Netanyahu. Fischer threw his weight behind the Sheshinski recommendations. He spelled out to the prime minister that change to the recommendations would not be legitimate, not from an economic perspective, or from a public one.
Wait a moment, though. Why is it that the firmest support for Sheshinski arrived from Fischer, of all people?
Allow us to remind that Fischer is an economist who spent most of his career developing, defending and promoting what economists call "the Washington consensus" with almost missionary zeal. That is the economic theory that has ruled the International Monetary Fund, the World Bank and most economists for the last 30 years. The heart of the Washington consensus is competition, the free market, tax cuts, mobile exchange rates, deregulation, privatization, and encouraging foreign investment.
So how it is that this man, the former vice-chairman of the IMF and former vice-chairman of the Wall Street empire known as Citigroup, supports the conclusions of a government committee that argues for dramatically increasing tax on private investors, some of whom are foreign, who found great discoveries of gas – after the event (meaning, after they found the gas)?
One possible explanation is that Fischer has been revisiting the Washington consensus in his heart, after Washington was forced to rescue most of the investment banks on Wall Street following the global economic crisis.
Or, there might be a simpler explanation. Fischer doesn't think the principles of free market are a religion. They are a means to achieve economic ends, no more. And if the tax payable by the business barons can be significantly increased without impairing their incentives, and without discouraging future investment and risk – then that's what should be done, when the issue at stake is natural resources that belong to the people of the State of Israel.
Fischer's intervention in a red-hot argument between a handful of tycoons and a government commission discussing tax, shows that even though he theoretically focuses on the financial matters within the province of the Bank of Israel – in practice he feels it his right and duty to intervene in any economic or civilian matter that he feels is important enough.
Tax on hydrocarbon drills has nothing whatsoever to do with the stability of Israel's banks. It is only tangentially and distantly related to inflation, to the amount of money, or to Israel's foreign currency reserves. Moreover, the main message of Fischer's speech was not some fiscal insight or monetary aspect of the gas discoveries: it was the democracy of the thing, the public aspect of the fight - "dirty tactics," as he called it.
Dirty tactics and the Dankner precedent
When Fischer says "dirty tactics", he is speaking from his heart. A year and a half have passed since he and the Supervisor of Banks at the Bank of Israel were in the very position Sheshinski is in now – they were under violent attack by a handful of tycoons. The reason was that, as the financial crisis raged, the central bank leaders felt that the chairman of Bank Hapoalim at the time, Danny Dankner, had to go.
Fischer was astonished to find that most of the major players in the Israeli public sphere were disinclined to openly support his battle to impose proper governance on the biggest banking corporation in Israel. Some even spoke out against him and his supervisor. He discovered who really runs the country, and sometimes the media, and who did not cavil at using dirty tactics.
A direct line runs between the battle over the Sheshinski Committee and the battle over ousting Dankner from Bank Hapoalim. And that isn't it. A top source in government put it to us this week: "The battle over Sheshinski is just a test of weapons ahead of the battle over the economic concentration committee." That would be the committee that the prime minister set up to discuss the power accrued by a handful of business magnates, and how their power affects competition and competitiveness. "Sheshinski was up against a tycoon and a half," the government source sniffed. "The economic concentration committee members will be up against the ten most powerful people in Israel."
Sheshinski involved a battle over big money, and government tax and energy policy. At the economic concentration committee, the battle will be over power itself, about the structure of the economy. In speaking about "dirty tactics" used to sway public opinion, Fischer revealed that he is aware of the issues touching less on the economy and more on the very nature of democracy in Israel.
A month ago a treasury official was asked – before the Sheshinski Committee had published its final report – what eh thought would happen if the Israeli gas companies had utter control over one of the big media outlets in Israel. He hesitated, and then said dryly, "The committee would probably have never been born."
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