On March 31, 2009, Israel’s 32nd government, under the leadership of Benjamin Netanyahu, was sworn into office. On April 9, 2019, voters will go to the polls to elect Israel’s 35th government and what may be Netanyahu’s fourth straight time around as prime minister.
Whichever way the elections go on April 9, the State of Israel will by that date have been ruled for just over 10 consecutive years by the same person. Ten years in a row with Netanyahu dictating social and economic policy, diplomacy and defense, a record that has never been matched in Israel’s history except by David Ben-Gurion.
How has Israel fared in the decade of Bibi?
If Netanyahu had been president of the United States, he could have congratulated himself as someone who will go down in the history books as presiding over a period of prosperity. For an American president, there’s no better marker of success than the economy he left behind after leaving office.
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Netanyahu has much to be proud of. The last decade has been an amazing period of prosperity. Netanyahu inherited the prime minister’s job when Israel and the world were being battered by the great recession. There is an element of luck coming into office when things are looking so grim, but the inescapable fact is that 10 years later, Israel’s economy has been one of the world’s big success stories.
There is nary an economic indicator that doesn’t look good. Gross domestic product has risen an average or 3% or more annually, unemployment is at a record low, employment is at a record high, more ultra-Orthodox and Arabs are joining the labor force, and the national debt as fallen to 60% of GDP.
It’s a remarkable achievement both in absolute terms and relative to a good part of the world. At a time when the world’s stock markets are being shaken by fears of debt and slow growth in the developed world, Israel feels strong and confident.
Of course as an American president, he would have had to surrender power after just eight years with no thoughts of a fourth term in office (fifth, if you count his government in the 1990s). But the undeniable facts about Israel’s economy still leave some questions. Does Bibi himself deserve the credit? Do the last 10 good years ensure than the next 10 will be just as good?
Among economists and economic commentators, the answer is subject to debate.
Bibi can take credit for the 10 good years, but not for reasons he would be proud of. The prevailing view is that Netanyahu and all of Israel reaped the benefits of policies he undertook when he was finance minister in 2003-05.
Those painful measures probably cost the Likud Party 12 Knesset seats in the 2006 election, but they addressed many of the biggest economic problems Israel faced at the time. They were critical to the country’s ability to weather the great recession starting in 2008 and enter into a period of sustained economic growth.
But that was Netanyahu the finance minister, not Netanyahu the prime minister who would reap the benefits later.
The other factor had nothing to do with Netanyahu – it was Israel’s rise to high-tech power starting in the 1990s. “Netanyahu managed to ride the wave,” says Prof. Manuel Trajtenberg, who led the National Economic Council under Netanyahu and a government committee making policy recommendations after the 2011 social-justice protests.
What he means is that the prime minister wasn’t responsible for the high-tech ascent but made sure to do nothing to undermine it. Trajtenberg stresses one unique contribution Netanyahu made to Israeli high-tech: the hugely successful focus on cybersecurity. Today, Netanyahu is positioning Israel as a smart transportation power with a similar insight into global trends.
In general, anyone trying to reach an understanding of Bibi’s role in the economy over the decade runs smack into the battle between his supporters and his enemies. They can’t even agree on what Netanyahu’s strategy was, since it changed once in the wake of the 2011 protests and again in 2013.
Until 2011, Netanyahu basically took a line not very different from the classic one of the pre-Trump U.S. Republican Party: lowering taxes and reducing government interference in business. It was a continuation of his policies when he was finance minister.
The protests brought an abrupt halt to these plans as he learned it wasn’t what the public wanted. He followed the recommendations of the Trajtenberg committee and abandoned tax cuts, increased government spending and stepped up regulation. Caps on bankers’ salaries, the natural gas framework and increased royalties on natural resources followed.
Bibi never much cared for the change and didn’t like having to give the finance portfolio to coalition partners, first Yair Lapid and later Moshe Kahlon. The result is that the man who had built a reputation as “Mr. Economy” turned his attention after 2013 to national security issues.
In the final analysis Netanyahu took little interest in the economy and did even less over the last decade.
The raw numbers show how little changed. Israel’s tax burden in 2009 was 22%; in 2018 it was 23.4%. Public spending as a percentage of GDP rose only slightly as well, from 31.4% to 32.2%. Defense spending, on the other hand, fell to 5.5% of GDP from 6.5%. Spending breakdowns inside the budget are for the most part unchanged.
Is Israel ready to repeat its successes over the coming decade? It is a pertinent question at a time when global stock markets are at a boil and worries proliferate about the world sliding into a recession.
In 2009 Israel was better prepared for a coming recession than any time in its history, thanks to the Netanyahu policies of 2003-05. This time around it is less ready: The budget deficit is growing, the debt burden has stopped falling and it has failed to address the economy’s fundamental problems.
These are problems of labor productivity and the need to integrate the ultra-Orthodox and Israeli Arabs into the labor force. Alas, Netanyahu didn’t use the decade he has been in power to effectively address any of them.