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Capitalism Works, and of in All Places in Israel

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Sculptures of Karl Marx , German philosopher and revolutionary socialist, by German artist Ottmar Hoerl: picture shows four of them, painted a flat red color, being hoisted by chain for transport,  in Trier, southwestern Germany, Thursday April 4, 2013. For an artwork installation.
Sculptures of Karl Marx, by artist Ottmar Hoerl Credit: Thomas Frey, AP

If Israel’s Central Bureau of Statistics had a sense of humor, it might have released its preliminary GDP figures on May 5 rather than on Wednesday this week.  May 5 was Karl Marx’s birthday: and yet 200 years later, not only is capitalism alive throughout most of the world, it is alive and unusually well in Israel.

The CBS figures showed that the Israeli economy grew by 4.2% in the first quarter, making it the third quarter in a row with growth exceeding 4%-plus. It also marks the 15th year of virtually uninterrupted expansion. (There was a brief dip in 2009 as the world economy went bust but it wasn’t long enough to count as a recession).

Nor is economic growth in Israel suffering the same problems plaguing America and much of the Western world, where the biggest  (and in many cases the only) beneficiaries have been the 1%. Ordinary Israelis are enjoying a consumer boom that has seen surging air travel and car purchases. Indeed, it was a surge of car imports that gave the economy a huge lift in the first quarter.

The unemployment rate is at its lowest since the 1970s, even as more and more Israelis are entering the labor market. The percentage of people under the poverty line remains high, but it has been in sharp decline since 2012. Wages have been growing and remarkably, inflation has been close to zero for four years.

Even Israeli Arabs – who have traditionally occupied the bottom of the economic heap with Haredi Jews – have seen their poverty rates shrink sharply in recent years.

Capitalism in crisis

Marx’s birthday was an opportunity for the world’s pundits to rue the state of capitalism today. The general consensus is that it is in crisis, especially since the harrowing 2008 recession. The system is no longer delivering the good in terms of jobs, rising incomes and narrowing economic gaps as it did since Marx’s day, and especially since World War II.

The result is a tidal wave of inchoate populism, personified oddly enough by the arch-capitalist Donald Trump, and nationalism.

Quite tellingly, it has not revived much interest in class warfare, revolution or socialism, apart from academics mesmerized by the elegance of Marxist theory.

The fact is that capitalism does work, although far from perfectly. The quantum leap in technological progress and in the world’s wealth over the last 150 years was all due to the capitalist system. Meanwhile, the various manifestations of Marxist economics in the 20th century led to vast human suffering in the worst cases (such as Russia, China, North Korea and Cambodia) or at best economic stagnation (Cuba and Eastern Europe).

China, shining example of capitalism

Even today, China is a case study on how capitalism works its magic. The three decades of Maoism was an era of catastrophic economic experimentation relieved when Deng Xiaoping changed course and let loose Chinese business. Today, the remnants of the country’s state sector are nothing but a drag on the economy, even a danger, because of its mounting debt.

Capitalist China is not a people’s paradise. Its social welfare system offers little help to the those in need, labor rights are virtually nonexistent and basic freedoms are severely curtailed, albeit far less so than in the Mao years. But based on the UN’s Human Development Index, China is advancing steadily, which is no surprise because growing wealth in a capitalist economy solves a lot of other problems.

Israel is not a perfect example of capitalism. There are still cartels, protected industries, excessive regulation in some places and ineffective regulation in others, and labor productivity is low.

Evidently, these are not obstacles to growth. The capitalist ethos is at work in a business sector dynamic enough to overcome these problems and generate jobs. Startups exemplify this more than any other, but the fact is that dynamism seems to be pretty widespread.

Ironically it was the shrinking of the Israeli welfare state that enabled this to happen.

Serving briefly as finance minister in the early 2000s, Netanyahu cut government allowances sharply, sharply increasing poverty in the short-term but eventually forcing more people to work. Policies of privatization, deregulation and budget restraint gave the economy the flexibility to create jobs for those seeking them.

Could it have been done in a nicer way? Is there some formula for an economy to generate jobs and wealth and ensure that no-one is denied a minimally acceptable standard of living?

That, of course, is the dream, and one that came close to fruition in Europe’s post-war welfare states. It was what Marx envisioned, too, albeit to be achieved in an apocalypse of revolution and class dictatorship.

Marxism failed big time and the welfare state had so overextended itself by the late 1970s that it had no choice to pare itself back. Even today, the exemplars of the welfare state in Scandinavia rely on private enterprise to generate growth.

It’s ugly, often brutal and needs to be tamed, but as the Israeli experience shows, the capitalist system still works better than anything else.