In the Money

What Does Netanyahu Really Want for the Israeli Economy?

The prime minister doesn’t seem to have a fervent commitment to anything, and that’s no recipe for leading Israel forward to major economic change.

Finance Minister Moshe Kahlon, left, and Prime Minister Benjamin Netanyahu.
Reuters

It’s a mystery trying to figure out what Prime Minister Benjamin Netanyahu really wants. It’s not a question of what he wants for himself, as that’s rather clear: He wants to hang on to the premiership. He may also personally aspire to breaking the record set by David Ben-Gurion as the country’s longest-serving prime minister (13 years, which if Netanyahu is to break the record, he would have to serve his full current four-and-a-half-year term).

Netanyahu’s personal aspirations are well-known, understandable and legitimate. It is always desirable to have ambitious politicians, but what is not at all clear are the aspirations that the prime minister has for the country as a whole. What does he want to achieve on Israel’s behalf, what are his goals for his government and where does he want to lead the country?

It’s somewhat embarrassing that the prime minister’s goals for Israel are not out in the open, and it’s particularly embarrassing for Netanyahu, who in the past had clear aspirations. During the period from 2003 to 2005, as a member of late Prime Minister Ariel Sharon’s cabinet, he steered the country’s economy as finance minister, and in those years there was no doubt when it came to the strategic direction he was pursuing.

Netanyahu took over the economic steering wheel at the most difficult time one could imagine. It was the middle of the second intifada, when Israel was facing its toughest economic situation since the country’s early years. The period from 2001 to 2002 were in essence the country’s only recession (since the early austerity years), and one would have thought that only a suicidal politician would take over the Finance Ministry during such a tough time. Netanyahu took this impossible task upon himself, determined to save Israel’s economy and implement his neoliberal ideology and along the way usher in small government (as measured by its share of the economy), with small levels of government support and low taxes.

During those years, it would have been impossible to mistake Netanyahu’s intentions. He took every decision necessary to stabilize the economy, including the toughest possible decisions that went beyond cutting out the fat. He pursued this with a well-ordered ideology, expressed as he famously did by talking about “fat man” – the government – riding on the back of the lean citizenry.

It was clear that he was acting out of the sincere faith that he was saving the country and may have been making decisions that could hurt him politically, but it was only because he was convinced that they were necessary for the country’s economic future. Even those who did not support his policies at the time – and there were many – couldn’t have helped being impressed by his candor, determination and razor-sharp strategy.

More services and more taxes

In retrospect, Netanyahu’s purported political suicide is what paved his way back to the job of prime minister, a post that he had already held from 1996 to 1999. His courageous conduct as finance minister, along with the colorful “fat man-thin man” metaphor describing his ideology, positioned him as a politician with vision. Apart from Sharon, Netanyahu was undoubtedly the most important politician when it came to how Israel changed during the decade prior to the current one. And that was before his election as prime minister in 2009.

From the moment Netanyahu reached the top and began to reap the fruits of success, his personal vigor began to wane. He has been prime minister for six years straight since that election, and has just taken office at the head of his third government since 2009. The more time has passed, his image as charismatic strategist has been disappearing, presenting a mystery: What does he want? Where is this man at the helm trying to take Israel?

In the last six years he has been hit with a lot of things that messed up his plans. The global economic crisis that erupted in 2008, for example, put a halt to his plan to reduce taxes. The 2011 social protests in Israel showed that the public was sick of a neoliberal policy and demanding an expansion of government services, because the fat man had lost too much weight. Against his will, and apparently contrary to his own worldview, Netanyahu succumbed to public sentiment and provided more services at the price of higher taxes.

And even though Israel weathered the 2008 crisis very well, to a large extent thanks to the economic plan that Netanyahu had initiated in 2003, the country didn’t manage to translate that into increased growth rates and reduced national debt. On the contrary, growth has stalled for several years and the government’s deficit fails to recede below 2.5%. What Netanyahu managed to achieve under the toughest of circumstances, reining in debt and jump-starting rapid growth, he hasn’t managed to replicate under much better circumstances a decade later.

No socioeconomic strategy

At least part of this failure has to be attributed to an absence of a clear socioeconomic strategy from the prime minister. He lost his fervor for lowering taxes and now even supports the opposite. The proposed reduction of value-added tax on price-controlled food items, he would say, damages efficient tax collection and the ability to reduce the overall VAT rate. He doesn’t appear to think it important to maintain his government’s prior budget goals. In 2012-2013, the budget deficit rose to about 4%, and he also gave in to then-Finance Minister Yair Lapid’s demand in the debate over increasing the deficit in the 2015 budget.

He has no strategy for integrating the country’s ultra-Orthodox population into the workforce. He approved all the steps that Lapid’s Yesh Atid party pushed to require core subjects to be taught in ultra-Orthodox schools and for increased economic pressure on Haredim to seek employment, but then in his new coalition agreement he agreed to scrap those policies.

He also lacks a strategy for integrating the country’s Arab citizens into the job market. On one hand, he calls for their integration and approved funding for the effort, while on the other, just prior to the March election he warned that Arab voters were going to the polls “in droves,” signaling their exclusion from Israeli society.

One can surmise that the country’s infrastructure is important to him, and in fact Israel is seeing growth in infrastructure investment. In this regard, Netanyahu should be given credit for injecting competition in the port sector through the plan to build a new privately-run port, along with the equally-important policy regarding taxation of offshore natural gas discoveries. However, he didn’t show interest and wasn’t involved in promoting reform of the Israel Electric Corporation, reform that is still stalled. He also showed just tepid interest with regard to the most recent policy debates on regulating the natural gas sector.

The most important structural reform of the second Netanyahu era has involved the law limiting concentration of the power of corporate pyramids and conglomerates, for which he deserves full credit, but that’s the only important structural reform he can boast about. He has shown total disinterest in burning social issues such as reforming the public health system and controversies related to the National Insurance Institute and the state of Israel’s social safety net. He has also seemed totally apathetic about reforming the public service.

As a rule, a leader with pro-competitive and pro-business beliefs such as Netanyahu would have been expected to make it a national priority to place Israel in a top global ranking for the ease in doing business. Yet its current ranking shows the country to be one of the world’s most bureaucratic and least efficient. Boosting Israel’s ranking requires a broad outlook relating to the country’s low productivity, inefficient public service and archaic labor relations.

If Netanyahu still has the fighting spirit regarding any of these issues, it was reflected in only a subdued manner in the negotiations over the policies that the new governing coalition would embrace, through a single proposal to impanel a ministerial committee on regulation.

Netanyahu’s proposal for mandatory arbitration in sectors providing essential services was shelved over opposition from Moshe Kahlon, who is now finance minister. Netanyahu is not pushing reform of the public service. Efforts at a new social pact with the Histadrut labor federation are not on the table, and steps to improve bureaucracy and regulation are proceeding slowly in the absence of a commander at the top pushing for them.

That commander seems to be dozing off. He rouses to life when there is talk about a nuclear Iran or negotiations with the Palestinian Authority, but takes a snooze on any other issue. He fails to express staunch opposition or enthusiastic support for any other policy. He isn’t initiating any reform plans and doesn’t proclaim catchy policy slogans when it come to his preferred social policies. He doesn’t fight for a thing, and even with regard to the coalition agreements there didn’t seem to be a single provision that he was ready to kill or be killed over (other perhaps than reserving the right to set communications policy to protect the pro-Netanyahu daily Israel Hayom).

The results of the coalition negotiations, which look like a rout for Netanyahu’s Likud party, are an expression of a lack of readiness on the prime minister’s part to insist on any kind of principles. It simply doesn’t look like Netanyahu really cares about anything, and if the prime minister doesn’t care, it will be very difficult to lead the country to major change.