There’s Little They Can Do for Israel's Economy, but Let’s Pressure Our Politicians Anyway

The bit they can do is dependent on pressure in the media and on social networks. Otherwise it’s too easy for them to cave to the tycoons and unions.

Eytan Avriel
Eytan Avriel
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Participants in the Feb. 26, 2015 Israel elections TV debate.
Participants in the Feb. 26, 2015 Israel elections TV debate. Credit: Channel 2
Eytan Avriel
Eytan Avriel

Some focused on offense, others listed their achievements or explained why they had none. Most stuck to the standard formula: sound bites.

In the next opinion polls, we may see whether the televised debate (which earned a 31% rating) influenced voters. But one thing is certain: We heard ambiguous campaign promises at best, and there isn’t much of a link between pledges and actions anyway. Even if election winners want to do what they promise, they’re often handcuffed.

Two recent articles in the international media stressed problems noticed in the Israeli debate too: the gap between desires and capabilities, and the gap between boasting and achievements.

The Economist returned to the Greek crisis and discussed the gap between the wishes of voters and the ability of their newly elected officials to supply the goods: to end the austerity policy.

The British weekly emphasized two perspectives. The first: It’s not clear how much the Greek government can fill the state’s coffers with additional tax revenues on companies and the wealthy, as the election winners have promised. The Economist reminds us there’s a ceiling on income as the tax rate rises, and it’s reasonable to assume that this ceiling has fallen in recent years as firms have learned to move around among countries.

The second perspective focuses on the fact that Greece, like all countries, doesn’t operate in a vacuum. It’s very dependent on its trade and finance partners.

In the Greek case, implementing the policies of the new ruling Syriza party depends on the willingness of Germany and the rest of the European Union to alter rescue agreements signed in the past. It’s also clear that the alternative of scuttling the process, not paying debts or leaving the euro zone bear no less an economic price.

It’s not impossible that the austerity Greeks will be forced to bear will be even more painful than what they’ve experienced so far. If you think this story isn’t connected to the Israeli story, the following is The Economist’s conclusion.

“National politicians come to power on the back of economic promises made to their domestic electorates. But the forces that determine whether their economies prosper are global, not local—whether the Chinese economy slows down or speeds up, what happens to oil supplies and so on. National politicians will be blamed for the adverse effects of those forces, even though they are not under their control. The corrosive effect is to add to voters’ cynicism about politics and undermine support for democracy.”

Pesky foreign speculators

In other words, Prime Minister Benjamin Netanyahu, Isaac Herzog, Tzipi Livni and the participants in the Channel 2 debate have only a very partial influence on Israeli economic growth and living standards. Most Israeli economists will agree that the country’s interest rates are dictated by rates elsewhere around the world and global capital flows — in other words, what foreign speculators do.

Export growth is set mostly by markets. Some economists — for example at the Bank of Israel — say local economic policy is all but marginal compared to the weight of global trends. Even completely local markets are influenced by events overseas that our politicians have no control over. For example, what will happen in the real estate market once French Jews immigrate to Israel because of the terrorist attacks in Paris?

Based on this principle, the link between politicians’ policies and alleged economic achievements is often a coincidence, or absent altogether. In other cases, economic performance stems from policies that were implemented years earlier.

For example, commentator Jürgen Jeske claims on the Project Syndicate website that Germany’s economic successes — strong exports, low unemployment and a balanced budget — stem from German policies immediately after World War II, which created the German economic miracle. The current policies are completely different and may actually harm the German economy, he says.

This phenomenon can certainly be found in Israel. Politicians excel at blaming other politicians; for example, those who came before them (Netanyahu blaming Ehud Olmert), or those who did not let them finish the job (Yair Lapid blaming Netanyahu).

To the same extent, politicians take ownership of successes. In both cases, their contributions to failures or successes are often partial or even coincidental, certainly when we consider general trends such as economic growth, living standards and the cost of living.

Economy Minister Naftali Bennett can talk about his handling of the cement monopoly, the problems at the Standards Institute and the new Food Law, but he’ll mislead his listeners if he makes a link to the cost of living. Lapid can declare he made the ultra-Orthodox find jobs, but this phenomenon started long before him.

And if the Israeli economy published good numbers one day because of the drop in world oil prices, which is not in any way connected to decisions made in Jerusalem, we can already write the victory speeches of the finance minister and prime minister and count the number times the word “I” appears.

Fear of the banks and insurance firms

The bottom line: Politicians talk, distort and scatter promises and slogans — some of which they even believe. But their ability to influence major economic processes is much smaller than the people think.

It’s smaller because the economy is very much influenced by what happens around the world. It’s smaller because every country has constraints, and it’s smaller because all politicians face political constraints that prevent them from doing the right thing.

Often these political constraints are the main obstacle. Parties don’t deal with the strong unions that have taken over state-owned companies because they’re afraid of their power during primary-election season. Ministers fear the tycoons, and Knesset members never forget that these oligarchs may be their bosses when they complete the “public” chapter of their careers.

No one wants to confront the banks or insurance companies, and until very recently no politicians were willing to take on the cellphone firms. And few if any politicians are willing to confront defense officials.

Sometimes, even if there is a willingness to do the right thing, the legal and bureaucratic system puts a stop to it. Almost all politicians fear interest groups, and almost all of them put the interests of the voters who sent them to the Knesset ahead of the interests of the general public. Bennett will take care of the settlers, Yaakov Litzman the ultra-Orthodox with European roots and Arye Dery the ultra-Orthodox with Middle Eastern and North African roots.

This may be part of democracy, but most of the public — people not part of a minority with Knesset representation or not belonging to an interest group — will remain last in line to receive a share of the pie.

That’s why it’s not worth getting too worked up over what the politicians promise; their ability to deliver the goods is so limited. It’s also not worth demanding a “strong leader” — can there be such a thing? And he may only represent a particular interest group at the expense of everyone else.

Still, sometimes we get a politician who actually implements reforms, even against his own interests. When he was communications minister, Moshe Kahlon introduced competition to the cellular telephony market despite pressure from some of the wealthiest people in the country.

Meanwhile, Netanyahu established the committee on economic concentration, even though he was close to the Dankner family; he also established the Sheshinski committee on taxing revenues from the exploitation of natural resources, even though his door was always open to the tycoons.

How did all that happen? Pressure from the public. The huge protests of the summer of 2011 created so much pressure that some politicians put in motion processes that could only end with reforms.

Pressure on politicians in the media and on social networks makes them fear for their jobs; they’re even forced to carry out changes that don’t match their personal interests. It’s no great tragedy that our politicians are weak and “under pressure.” If only the public, the press and the social networks put enough pressure on them, they’ll do the right thing.



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