When you consider the vast implications of Prime Minister Benjamin Netanyahu’s plans, announced last week, to sharply increase defense spending over the next decade, the non-response by the public has been deafening.
Maybe that’s because Bibi chose to reveal his plans in the middle of August, amid another recurring crisis with Gaza. Maybe it’s because the strategic threats he spoke about were only vaguely hinted at; the details, he explained, are contained in a classified report. Or maybe it was because he framed the whole issue in deadly dull terms, of benchmarks for defense spending.
But if the government goes ahead with what the prime minister wants, the impact on the economy could be profound and almost certainly not for the better, whatever Netanyahu and his chief economic adviser, Avi Simhon, say. It may even leave Israeli militarily weaker.
Israel has enjoyed an unprecedented era of prosperity thanks in part to the wonders of Startup Nation and freer markets. But that’s only part of the story. The other is that the government has adhered to a policy of strict fiscal discipline. Budget deficits have been contained, our national debt has been declining and government spending as a percentage of gross domestic product has been in decline. The tax burden has fallen, too, and today by developed-country standards is quite low.
- How Israel could get shot down in a U.S.-China tech war
- PepsiCo-SodaStream deal: How can a company making bubbles be worth $3.2 billion?
- Turkey opts for economic warfare over economic policies
One big factor in the drop in government spending is that military expenditure as a function of the size of the economy has declined from as much as 24% after the Yom Kippur War, to just 5.8% of GDP now, even though Israel one of the world’s top spenders on military.
The figure dropped both due to the growing economy and the perception that Israel’s security situation isn't as precarious as it was in the first 50 years of the state.
Now Netanyahu is saying the threats have grown to such an extent that we have no choice but to reverse that 40-year trend.
The plan is to increase the defense budget, which includes the army, the Mossad and Shin Bet, to 6% of the gross national product, starting in 2019.
That doesn’t sound like a lot, but it adds up by his own estimates to as much as 4 billion shekels ($1.1 billion) a year.
Arms race in the Middle East
The strategic threat can be explained in one word: Iran. Our other enemies, like Hamas and Islamic militants, are of too little consequence to require a major defense spending increase. There is an arms race quietly going on in the Middle East, but the big spenders are countries that – these days – are practically our friends, like Saudi Arabia and the UAE.
Iran, on the other hand, presents the threat of recurring conflicts with its proxies in Lebanon and Syria, cyber warfare, and perhaps even a face-to-face missile war. All of those threats are implicitly addressed in Bibi’s shopping list, which includes strengthening “attack capabilities,” cyber-war, missile defense, homeland security (against missiles) and completing the security fences ringing Israel. It suggests a costly reorientation away from traditional tanks and guns toward the tools of 21st-century warfare.
I won’t pretend to be a military strategist or to have inside information on threats unknown to the public, but I can say with confidence that we will regret a suddenly increasing defense spending and tying it so tightly to the size of the economy.
Oddly, Netanyahu portrayed the economy and the army as a loving couple doing favors for one another.
“Over the last two decades we have cultivated a free market economy to meet the needs of the state, first and foremost defense,” he said in announcing the plan. “Today we need to invest more in defense in order to protect our economic achievements and ensure continued economic growth.”
A pity it doesn’t work that way. As it is, the government has been playing fast and loose with the budget at a time when the economy is showing strong economic growth and tax coffers have been filled by tax windfalls from giant mergers and acquisitions. This month’s credit upgrade by Standard & Poor’s is a stamp of approval but not a permanent one.
It can’t go one this way forever, although Netanyahu seems to think so when he says that the underlying assumption of the defense spending rise is for the economy to expand by 3% to 4% a year. That’s a tall order.
When the economy slows or slips into recession, the defense budget will be in effect untouchable -- except when there is an urgent need to boost it to pay for a war. The Netanyahu plan would suddenly leave Israel either with the big budget deficits it has avoided, or cut spending sharply elsewhere, which means on education, health, infrastructure and welfare, where Israel already underspends.
Netanyahu seems to see defensive power in the narrowest terms of deploying more and better weapons than our enemies.
But military strength is also about having the people with the skills to design and build an Iron Dome, not just about the budget to pay for it. If the size of a defense budget were the only factor, Saudi Arabia would be a super-power.
Power in the 21st century, even in military terms, is about having an educated population, about a state that inspires a sense of belonging, about values like innovation and tolerance, and about nurturing a society that ensures a reasonable standard of living for all. But there are things the prime minister is willing to sacrifice for some more missiles.