Netanyahu Needs to Get Off the Fence if He Wants Economic Reform

The prime minister has let others lead the way in his new government, but now it's time for him to drive.

There may have been a few problems with how the late Ariel Sharon behaved as prime minister, but a lack of self-confidence was not one of them.

There is no other explanation for Sharon’s daring decision to appoint his sworn rival – and the only person within Likud who threatened his leadership – to the powerful post of finance minister in 2003. Not only did Sharon give Benjamin Netanyahu one of the most important positions in his cabinet, he gave his rival free rein to manage Israel’s economy as he saw fit.

The match between them was among the most successful in Israel’s political history. With Sharon’s backing, Netanyahu dared to pursue visionary and courageous policies that in practice rescued Israel from a major economic crisis.

Now, some 10 years later – and a year into Netanyahu’s third term as prime minister – one might wonder whether he learned anything from his old boss. As a practical matter, Netanyahu’s influence is nowhere to be seen when it comes to managing Israel’s economy. Instead, he has given free rein to his cabinet ministers to do what they wish – and they are doing a lot.

The list of steps that the Netanyahu government has undertaken since it took office a year ago is long. And what is even more impressive is that they're steps relating to Israel’s most vexing economic problems. There doesn’t appear to be a single stone that the Netanyahu government has left unturned, including issues that previous governments hadn’t dared touch for decades. And Netanyahu deserves kudos for that.

When it comes to the country’s infrastructure, for example, the government is pushing for reform of the two strongest and most intimidating monopolies – the ports and the state-owned Israel Electric Corporation. In addition, the state’s relationship with the country’s ultra-Orthodox population is undergoing a complete overhaul, with cuts to government child allowances, as well as funding for yeshivas and day care benefits – not to mention legislation approved this week limiting the draft exemption provided to Haredi yeshiva students. Initial steps have also been made to ensure that Haredi schools teach the secular core subjects.

On the issues of Israel’s competitiveness and the insufferable degree of business concentration, the government has pushed through a revolutionary economic concentration law as well as a law encouraging competition in the food industry, plus another curbing anticompetitive policy in the agricultural sector. The government is also working energetically to tackle housing costs. It has chalked up one accomplishment on that score, with a reform making it easier to enclose balconies already clearing the Knesset.

A public panel, headed by Prof. Eytan Sheshinski, provided a framework for taxation of Israel’s major offshore natural gas reserves, and the current government is in the process of wrapping up highly important steps involving taxation of gas exports. A second Sheshinski committee is currently wrestling with policy regarding the state’s other natural resources.

At the same time, the government is thoroughly revisiting an impressive list of other major issues in our lives, including the relationship between public and private medical care in Israel (through a panel headed by Health Minister Yael German); the problem of poverty (the Alaluf committee); and a committee rethinking the country’s law on the encouragement of capital investment.

And then there is the most important issue of them all: An effort to reform the Civil Service Commission and modify how the government itself functions.

No doubt all of these are very important steps, targeted specifically at our greatest socioeconomic weaknesses. Even if fundamental change is only brought about in the relations between the state and members of the ultra-Orthodox community – integrating them more fully into the workforce – the current Netanyahu government would justly earn the title as one of the most productive in the country’s history.

There is no problem when it comes to the quantity of government action. The problem is with its quality.

Half-baked reforms?

Netanyahu’s lack of involvement with the economic agenda – particularly in areas that require the government to go head-to-head with other centers of power in Israeli society – raises a very real concern over whether cabinet members can really achieve breakthroughs in the areas that the government is pursuing. We should be worried that the government will ultimately settle for half-baked reforms that fail to address these fundamental problems, and in the worst case could actually perpetuate them for years to come. And that’s something every Israeli should lose sleep over.

When it comes to three specific agenda items, the risk that this could occur seems real.

The first involves reform of Israel Electric Corporation. Unlike the issue of port reform – which involves a decision over whether or not to build private ports to compete with the state-owned ones – reform of the electric utility is more complicated and could easily be stymied over the details. It includes the degree to which the IEC should control electricity transmission facilities in the future; the extent, if any, of the independence of a future electricity authority; and the extent to which private electricity firms should be able to continue to expand their output. Decisions on these details will decide whether major reform is actually achieved. The fact that, as part of the reform plan, the state is considering allowing excessive salaries for IEC employees – and in the process put them above the law – is not an encouraging sign.

The second issue involves the integration of Haredim into the workforce, in contrast to the effort to draft them into the army or national civilian service. The crux of the employment issue is the ability to require Haredi schools to teach core subjects – because unless these subjects are taught and the students graduate with basic skills, they will never hold down jobs.

The low profile the Education Ministry is taking on the issue, and the fact that the ministry has been saddled with the task as if it weren't a problem involving Israeli society as a whole, are not good omens. Netanyahu’s deafening silence when it comes to everything related to changing the status quo with the Haredim reinforces concerns that he is not fully committed to such a change – and that at the first politically opportune moment, he will give in and undo all the achievements made up to this point.

The third issue is so low-key, it’s not clear that it even exists. It concerns the proposed civil service reform, a front that Netanyahu has left for the new and inexperienced civil service commissioner to deal with. It is doubtful that even an experienced civil service commissioner could do battle with the strongest forces in the government and the Histadrut labor federation without the prime minister’s backing. So far, such backing doesn’t exist, so it’s hard to be optimistic about plans to overhaul the civil service. But without such reform, which would shake up government, change labor relations and boost productivity, the State of Israel will find it hard to move ahead.

There’s also a fourth issue the prime minister continues to evade, and that’s the relationship with Israel’s own Arab citizens. It’s a politically explosive matter. Even though the prime minister knows that without the advancement of this 20% of the country’s population, Israel will not be able to tackle poverty and economic disparities and boost growth, he has refrained from speaking out or leading any significant steps in this regard.

Netanyahu is at the helm of one of the most productive governments ever when it comes to the economy, but it’s not clear this will help him outdo Sharon, under whose term as prime minister the economy made its biggest breakthrough. Netanyahu isn’t standing in his ministers’ way, but he’s not really helping them either. And without the prime minister’s assistance, the really painful problems of the Israeli economy cannot be resolved.

Moti Milrod