Opinion |

Israel’s Bleak Future in a Permanent Coronavirus Economy

Send in e-mailSend in e-mail
Send in e-mailSend in e-mail
Business resumes in Tel Aviv's Shuk Hacarmel: Photo shows two women in partial profile, wearing white masks, one wearing a hat, buying apples from a vendor in a red T-shirt wearing a white mask
Business resumes in Tel Aviv's open market Shuk HacarmelCredit: Moti Milrod

About the only thing you can say with reasonable confidence about the coronavirus pandemic in Israel is that it’s not over. The future we face in terms of the economy is between the bleak and the even more bleak.

The first kind of bleakness is a second wave of contagion, which is what officials are now warning about. In that scenario, the number of sick grows to the level we saw in March and April, or even higher. The limited lockdown measures now in force can’t contain it, leaving the government has no choice but to close down the entire economy a second time until the virus recedes again.

The second coronavirus scenario poses an even greater threat. That’s one where there’s no second wave with rising then falling numbers, but the rate remains elevated for an extended period. The authorities hope that a coronavirus high tide wouldn’t infect enough people to justify shutting down the economy, but it would leave the government no choice but to step up measures such as more draconian enforcement of social distancing and targeted lockdowns for months, perhaps years.

A second wave would be bad enough. The economy is still struggling to regain some semblance of normalcy and nobody wants to go into Total Lockdown 2.0. Large numbers of people, likely still in the double digits, remain ut of work, either unpaid or laid off. Even the businesses that reopened are struggling and many, most obviously in the tourism sector, have no hope of recovery anytime soon.

The economy is forecast to shrink 4.5% this year even without a second wave, and the toll of a second wave on business will much higher than the first. Many of the jobs that survived the first wave will be killed off by the second wave as more and more employers go bust. As for the government, it cobbled together a 100-billion-shekel stimulus to boost the economy after the first wave and can’t repeat the act.

If Israel and other countries can cope with a second wave without the blunt instrument of a total lockdown, the damage may be constrained. But that may not be an option. While a regime of large-scale testing and targeted quarantines would exact a far smaller toll on the economy, it is far from evident than such measures will succeed. China, the pioneer in coronavirus policy, is trying this kind of smart containment, but we may never know if it’s really working since its coronavirus statistics are so suspect.

The true worry is the scenario of a coronavirus high tide. Smart containment may cost the economy less than total lockdown but the cost grows over time. Social-distancing deprives “contact” businesses, such as shops, restaurants and airlines, of economies of scale (you can’t squeeze as many people into a cafe or a plane). As businesses accelerate digitization to keep going, a lot of people will see their jobs disappear altogether – mostly those at the bottom end of the skills and pay ladder.

Wearing masks in the Old City of JerusalemCredit: Emil Salman

Thoughts and prayers

It’s all quite ugly. A coronavirus high tide could spell years of high unemployment, growing poverty and worsening income inequality. Many economists talk about worker retraining and the government subsidizing shorter workdays. But the reality is that governments, including Israel’s, are choking on debt and won’t be able to spend to correct the economic ills created by the coronavirus.

Globalization may also take a hit, but even its critics should think twice about cheering this on. All the advantages of globalization – lower costs, the more efficient allocations of resources and the ability of poorer countries to climb out of poverty (most famously, China) – will be lost. The gain globalization’s critics hope for with jobs returning to developed countries will be minimal because re-shored factories will inevitably be highly automated.

Under the circumstances, the Israeli government’s indecisiveness in the face of the growing number of coronavirus cases is understandable. The entire world is contending with the same problem: According to the International Monetary Fund, three-quarters of global economies are exiting lockdowns. Even as the coronavirus is intensifying, they feel they have no choice. They spent an estimated $10 trillion to counter the economic fallout of the pandemic but the global economy is forecast to contract by 4.9% this year anyhow, and the downside risks of an even bigger decline remain high.

Israel has no better an idea of how to contend with this than any other country. The policy now seems to be “try a little bit of this and little bit of that” while hoping and praying that a vaccine is developed or that COVID-19 dies a natural death.

The Israeli economy can’t afford a second mass lockdown. The public wants a policy that solves the coronavirus crisis, or at least provides an exit strategy.

But that’s not what Israel or any other government can offer right now. We don’t know enough about the virus and we’re running out of resources it mitigates its effects. As Winston Churchill said in the dark opening days of World War II, “I have nothing to offer but blood, toil, tears and sweat.” No one wants to hear a message like that, but it’s about all any of today’s leaders can offer.

Click the alert icon to follow topics: