Everything You Thought You Knew About the Israeli Economy Is Wrong

Israel doesn’t need Bibi, it needs Old Bibi, not 'white knights' Yair Lapid and Moshe Kahlon who don't even have the question right.

Dreamstime.com

Here are two almost universal assumptions about the Israeli economy and the prime minster.

The first is that the standard of living in Israel has been declining and that the economy is either in dire straits, or soon will be, just you see. The second is that Benjamin Netanyahu is responsible for this.

That is why the media treats the social-justice protests, which lasted just a few weeks well over three years ago, as though they ended yesterday and about to explode again. Israelis are portrayed as decamping by the tens of thousands to Berlin to escape the high price of chocolate pudding.

What we are told

The press also covers the anti-Israel boycott, divestment and sanctions movement as though it were growing stronger by the day, and wails that Israel will inevitably find itself economically and politically isolated. We are told we pay much more for goods and services than Americans and Europeans do; we are told we are burdened with confiscatory taxes.

Unemployment is growing, we are told; people are being driven into poverty and the economy is spiraling into a slowdown. Tycoons are risking our hard-earned savings on dubious business deals.

How can Netanyahu not be at fault for this? He’s been prime minister for the past five years and before that was the finance minister who set into motion many of the economic policies that remain in place today. His government panicked during the social-justice protests, but when they died down, he proceeded to ignore the recommendations of the committee set up to address the protestors’ demands. The government has done nothing to rescue us from our sad state of affairs.

And now for the truth

At first glance it would seem remarkable that in an age when every conceivable bit of information is at the fingertips of anyone with access to a laptop or a smartphone, that the public could be so misinformed.

Of course, information relating to the economy is hard to understand and is often contradictory. The people whose job is to interpret it for the public – the media and political leaders – have an inherent bias toward crisis and drama, especially at election time. Panic-mongering over-the-top criticism gets more hits for journalists online and more attention for politicians than dispassionate analysis.

People complain about the high cost of living, but the fact is that since 2003, average household income has risen by over 50%, faster than consumer prices. Prices of food, housing, electricity and water climbed rapidly, but prices of furniture and clothing have fallen because of the competition from imports.

Household income has grown because the percentage of with two wage earners has risen from just 30% a decade ago to 44% today. Wages growth has been slow, but it has grown faster than in Europe.

The percentage of Israelis living under the poverty line has been dropping steadily since 2009, as the National Insurance Institute reported this week. Israel’s tax burden is quite low, at 30.5% of gross domestic product versus 34.1% for OECD countries. Unemployment is close to a record low.

Israel has enjoyed virtually uninterrupted growth since it climbed out of its last recession more than a decade ago. We have had no bank bailouts, no debt crises and none of the wreckage from burst housing bubble.

This is a remarkable record, given Israel’s reliance on the economies of the United States and Europe. It is even more remarkable considering we’ve been through three wars and three years of chaos just over the border in Egypt and Syria.

Credit Stanley Fischer and (whisper it) – Yair Lapid

Does Bibi deserve credit for this? Not really. He did a terrific job as finance minister a decade ago and we are today enjoying the fruits of that. But since he returned to power as prime minister in 2009, he seems to have lost interest in the economic policy as he pursues more important issues like threatening Iran, seeing down the Obama threat, helping Mitt Romney get elected and most important of all making sure he remains prime minister.

“What’s good for General Motors is good for America.” That old chestnut has a lively existence on the Internet despite the fact that no one ever said such a thing, at least not in those words (which just goes to show that access to information doesn’t guarantee anyone will use it).

But the spirit of that sentiment exists in Netanyahu’s mind, namely, “Having me as prime minister is good for Israel.”

That Israel never suffered a housing or banking crisis in the early days of the Netanyahu government in 2009 is due mainly to then- Bank of Israel Governor Stanley Fischer. Likewise, we avoided a fiscal crisis at the start of his next government thanks to, of all people, the now-loathed Yair Lapid. Not that Lapid had any idea what he was doing, but his naiveté allowed the Finance Ministry mandarins to put the government’s fiscal house in order after the newbie minister took office 18 months ago. Meanwhile, whether it was various undertakings in housing policy or the Business Concentration Law or the Food Law, Open Skies or port reform, or the renewed drive for privatization in the last government - it was someone else who led the way, not Netanyahu.

Please do worry on

No one should finish reading this column feeling that Israelis have nothing to worry about. The housing situation is dire; prices have reached a point that they threaten the standard of living for the up-and-coming generation of middle class. Israel’s schools are not providing an adequate education for the knowledge-based workforce Israel needs. Haredim and Arabs are cut off from the mainstream economy. Monopolies and cartels, both by big businesses and unions, remain a dead weight on growth and development.

All of these problems have been talked about at length, but the efforts to address them have been feeble. They all affect the one big issue that no one in the media or politics talks about - which is that Israel needs to improve its labor productivity to ensure sustained and higher levels of economic growth.

The Great White Hopes for the economy – Yair Lapid in 2013 and Moshe Kahlon in 2015 – have nothing to say on this issue. Instead, they campaign as post-modern Robin Hoods taking from the well-connected and well-heeled and giving it to the hard-working middle class. They address Israel’s economic problems as they are portrayed in the media/political echo chamber, a problem of “where is the money,” not “how do we make more of it.” It’s a pity we can’t have the old Bibi back as finance minister.