Where's the Money? Exactly Where It Was Before

The public has grown weary with economic policy that cared for the few at the expense of the many over the last decade.

Guy Rolnik
Guy Rolnik
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Guy Rolnik
Guy Rolnik

A year and a half after the Israeli street rose up to protest the cost of living, the voter spoke. Yair Lapid and Naftali Bennett were the big winners of the January 2013 election.

Shelly Yacimovich, who had seemed to be riding the horse of the protest by her lonesome, did increase Labor's strength in Knesset, but by much less than expected.

The outcome of the election teaches that voters wanted change – just not the one Yacimovich was offering. They accepted the focus on economic and social matters rather than a security-oriented agenda , but the concept of big government still frightened the majority.

The public isn't prepared to accept "big government" with tentacles in every corner of the economy, and not because it has Republican free-market small-government leanings. Mainly, it's because they think the government will waste much too much on ineffective, corrupt mechanisms.

The public has grown weary with economic policy that cared for the few at the expense of the many over the last decade. But people don't want the government to grow until they can be sure their tax money will come back to them in the form of well-priced, quality service.

The prime minister spent three boom years kowtowing to interest groups. He hardly carried out any reforms or structural changes to improve Israel's productivity, or to reduce inequality. His main way of dealing with the protest was to increase deficit spending.

If Netanyahu manages to cobble together a broad coalition, he can spend the next four years pursuing true reforms. His two natural partners in government, Lapid and Bennett, share his basic economic tenets; he could even find common language with Yacimovich in a number of areas.

The first thing the coalition should address is introducing competition into the business sector, eradicating economic concentration, reforming the capital market and refocusing government attention onto small businesses. All the parties basically agreed to this.

Lapid understood that he needs to sever ties with the tycoons he had been associated with socially and commercially; Bennett and Yacimovich railed against economic concentration; Meretz enacted a law against haircuts; even while Tzipi Livni avoided public declarations on the subject, her party's platform called for an end to economic concentration and oligarchy. The pet press of the business sector realized they it was losing the war over public opinion and, having no other choice, changed course. All this means that the next government can pursue reforms – breaking the monopolies, forcing competition on the banks – and crack down on economic concentration, whether Labor is in or out of the coalition.

While the new public discourse strongly supports economic reform, much work remains to be done in the public sector. Public monopolies must be dealt with as part of a more profound overhaul of the Israeli labor market – which would protect workers, not their places of employment.

Less than a quarter of workers in Israel are protected by membership in one of the economy’s powerful pressure groups, while the rest are left exposed to the cruelties of the free market. Lapid and Bennett have a huge advantage in dealing with these issues: They aren't captive to wheeler-dealers or vote contractors, who are deeply embedded in the Israeli monopolies and pressure groups.

These two men can back a comprehensive reform of the labor market, one that will give power and protection to all workers while diminishing the strength of the small groups, which are the only ones protected at the moment.

The huge budget deficit that emerged in 2012, and the deficits that can be anticipated if expenditures are not slashed, can be seen as a threat to anyone brave enough to take on the finance portfolio. But there is a flip side here as well: The gigantic deficit provides an opportunity for the Netanyahu-led coalition to create a crisis that will require harsh cuts: trimming the fat, first and foremost, in the defense establishment.

But don’t be Netanyahu’s jester

The appointment of former minister Moshe Kahlon as chairman of the Israel Lands Authority board 48 hours before the election was rightly perceived as a political ruse.

If Kahlon doesn’t want to look like Netanyahu’s court jester, he must demand that the government pledge to lower housing prices by 20 to 30 percent. Any compromise on this will tarnish the reputation Kahlon built for himself by slashing cellular prices.

Breaking up the monopolies requires determination and courage on the part of the coalition. But the real revolution – increasing the public sector's effectiveness, rousing the workforce and boosting productivity – requires a much broader coalition, a union of all segments of society and the economy.

These are ideas that sound utopian in Israel’s current political-social-cultural climate. But if we don’t head in that direction, we will be marching toward the abyss. The only remaining questions are when will the crisis strike and how serious it will be?

Lapid to the treasury, Lieberman definitely not

Yair Lapid leaped into political life a year ago with his now-famous question: “Where’s the money?” In recent months he has avoided this slogan, perhaps because it dragged him into pointed, quantitative discussions and he preferred ambiguity.

But Lapid knows where the money is for sure. He also certainly knows the Finance Ministry’s position on the matter.

The treasury is the most influential ministry when it comes to allocating funds: who gets them, why and how much. It is also the most vital position for anyone who wants to improve things for the middle class. It's also no secret that this coming year will be a tough one one for the Finance Ministry because of the huge deficit and the glum atmosphere in the public sector, which has been plagued by unending strikes and wage disputes. But if Lapid consciously decides to eschew the treasury portfolio, he will be disappointing his constituents.

Even if Lapid decides not to take the Finance Ministry, the prime minister must immediately drop the idea (even if it is only speculation or spin) of appointing MK Avigdor Lieberman to the job. Lieberman’s appointment as finance minister would breach the public's trust in Netanyahu. The attorney general may have closed the straw-companies case against Lieberman, but the millions that sprouted in the bank accounts of Lieberman’s daughter and his driver reflect corrupt behavior that is unbecoming for a public figure, especially the finance minister.

Six and a half years ago, former Prime Minister Ehud Olmert appointed Abraham Hirchson as finance minister. Having someone like Hirchson at the treasury suited Olmert. Even then it was clear what kind of a politician Hirchson was, and that was before he was caught with the cash envelopes that landed him in prison.

Appointing Lieberman to that same post would constitute corrupt, Olmertian behavior, regardless of whether he is actually indicted. Israel needs a finance minister who has never been under suspicion or investigation, from whom the public will be willing to accept painful edicts. If Lapid is afraid to take on the job, Netanyahu should appoint a strong, professional minister who won’t mind being the bad guy for the next four years.

Israeli shekels are worth more in euro or dollar terms than for many years.Credit: Reuters
Moshe Kahlon.Credit: Nir Kafri

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