A Five-part Economic Primer for Israel’s New MKs

A wave of first-time MKs is about to enter the Knesset, creating a rare opportunity to wash away the vested interests infecting Israel’s economy. Here are some tips to get the decontamination started.

Guy Rolnik
Guy Rolnik
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Guy Rolnik
Guy Rolnik

Nobody's happy.

The left is miserable that Benjamin Netanyahu will be building another government. It sees another four years of passivity, exaggerated security threats and avoiding reforms that would require taking on powerful interest groups. Meanwhile, the upheaval in the Arab world is offering a wealth of opportunities.

The right is unhappy because Netanyahu and Avigdor Lieberman lost a third of their power base; for all the grousing, the Labor Party has grown in strength under Shelly Yacimovich's leadership, and Yair Lapid's Yesh Atid party is shaping up to be a real threat, unlike various upstart parties that rose only to vanish, like Dash or Shinui, led by Lapid's father, Tommy Lapid.

But there's a catch. Israeli politics can't be divided neatly into left or right any more. Nor is the division between socialism and capitalism very relevant. The results of the elections for the 19th Knesset reveal new realities.

Netanyahu’s weakening and Yacimovich and Lapid’s rising, and Naftali Bennett’s too, reflect the same thing – a yearning among voters for genuine change. They don't buy the fog of security threats any more. They want a new agenda.

They have come to realize that security threats serve mainly as a smokescreen, hiding the unreasonable cost of living, worsening inequality, deteriorating school, welfare and healthcare systems and crumbling infrastructure.

They have come to realize that scare-mongering on the left and right and mushrooming defense budgets mainly serve the argument that until peace can be achieved, the state of the economy and standard of living can't be improved.

Yet the last election showed that the people aren't buying the lie any more

The social-justice protest that exploded in the summer of 2011 and the gradual change in the public discourse over the last three years have dramatically impacted Israeli politics. Politicians have gradually come to grasp that they have to leave their comfort zone of the threat hanging over Israel and the incessant peace process going nowhere.

It’s true that some media outlets still allow politicians to wring their hands and bellow, but the people aren't interested any more in Tzipi Livni's response to something Saeb Erekat had to say to some news anchor. The people want their elected representatives to start learning economics, however deadly boring it might be. They want their representatives to understand interest rates, smog, polluted lands and rivers, prices at the grocery store, illicit ties between big money and petty officials, traffic jams and of course the state of the job market, all of which affect us no less than an anti-Semitic cartoon in the Sunday Times.

The 19th Knesset has terrific potential to change things, not only because the public debate has changed but also because it has a huge number – around 50 – of untried new Knesset members, who owe nothing to any interest groups.

But the window of opportunity is narrow. The tycoons, the bankers, Big Union and everyone else with a vested interest will be bombarding these neophyte politicians with sticks and carrots, handing down the rules of the game – whom they should be talking to, whom they should never talk to and who is untouchable. They will suggest pet projects for these dewy-eyed newbies – hip, kicky philanthropic works that look terrific in the press and don’t threaten the distribution of resources.

It's said that a new government has 100 days to make its mark. Most of the members of Yesh Atid, Habayit Hayehudi and Meretz and members of the Labor Party are brand-new to the halls of power. Their edges have yet to be ground down by politics. Most of them vaulted into politics with amazing speed, without becoming dependent on the powerful interest groups that help run the government.

Most of these MKs, some of who will become ministers and committee chairmen, still don't owe allegiance to anyone in the public sector or the private monopolies. They haven't promised any cushy jobs and haven't joined the cycle of being obligated to people who can advance them politically in return for their noninterference with these centers of power.

The greatest challenge for these new MKs is to attain a thorough understanding of the structure of the Israeli economy without relying on the major pressure groups that benefit from the existing order and want to maintain it to control the economic and social situation.

Independent learning and critical thinking are complicated. Some of the MKs will prefer to get right back to the comfort zone: television interviews, attacking the left and the right and shouting the usual slogans – "occupation, territories, diplomatic process, there is a partner, there is no partner” – without affecting the quality of life here and, most importantly, without really rocking the boat.

But some of them – and this is the surprising opportunity – will understand the importance of the moment and are likely to act with determination to bring about real changes in the economic structure. They will be aware that any significant change will take years of confrontation and that there is little chance of quick and major achievements, like the revolution in the cellular phone market initiated by former Communications Minister Moshe Kahlon.

For the benefit of the new MKs who will embark on their Knesset careers next week, here are the five main avenues for change in the Israeli economy, which could lead to a coalition of most of the political parties, including those in the opposition – a coalition for the benefit of millions of ordinary Israelis who cannot fight against vested interests.

1. Strengthening the free market, entrepreneurship and competition: In recent years the public discourse, economic policy and press have been dominated by a small group of businessmen with connections to government and financial institutions, whose power and profits come from the centers of power in the economy. These are small business groups that don't create value or employment but only benefit from what already exists.

These dealers in used goods, with the help of the press and politicians, have managed to portray themselves as the leaders of the economy, to affect economic policy and to complain about the unfair targeting of business or the rich. Their only defense is their use of the term "populism," and they try to arouse sympathy for their plight on the cocktail-party and conference circuit.

But the truth is that these businessman don't want a free economy, but one in which the government manipulates the rules of the game so that they'll benefit from monopolies and cartels, franchises and tenders and easy terms on loans and funding from the banks and insurance companies. At the same time, they prevent new competitors from entering the market.

Most of the parties would support an end to these monopolies and financial behemoths: Yair Lapid’s Yesh Atid, Zahava Gal-On’s Meretz, Shelly Yacimovich’s Labor and Naftali Bennett’s Habayit Hayehudi. Getting rid of these groups would save the free market, entrepreneurship and competition. It would lower the cost of living, give rise to new businesses and jobs and create an economy where proper administration, efficiency, productiveness, entrepreneurship and innovation are more important than the right connections.

2. Protecting all the workers rather than the strong workers' committees: In the Israeli economy most workers are thrown to the dogs if they don't belong to strong interest groups. Workers are protected only if they are members of certain groups in certain places of work. If you're an electrical engineer in the Israel Electric Corporation you're in good shape. But with the same education and the same job in the private market you have no job security and you depend on luck. If your manager makes a mistake, your place of work may be closed. At the electric corporation and in the ports, the management has given up on avoiding mistakes and is just trying to avoid confrontation with the workers' committees.

If you work for the Airports Authority you're a king and your children and set for life. If you're a contractor at the airport you're nobody. If you work for the defense establishment with a budgetary pension, you'll retire at the age of 46 with a pension of NIS 2 to 6 million. If you're an electrical or software engineer in the private market, when you retire or are fired at the age of 45 to 50, you'll have insurance or a pension fund worth a quarter or a fifth of what any minor army officer, who did nothing but office work, will receive.

Israel needs a revolution in its economic and social structure – it must start to protect the ordinary worker. Every worker in Israel – even those who have lost their jobs – must receive a basic and high-quality basket of services, including decent welfare, unemployment compensation, professional training, low housing prices, free education, inexpensive health care, low food prices and advanced infrastructure.

That is the only acceptable way to protect the workers. The present system, in which workers are protected based only on their place of work has created two classes – the connected, who benefit from tenure, high salaries, pensions and good conditions, and the unconnected, millions of people who, the moment they are fired from their jobs, suffer from the high cost of living and the lack of social services and whose standard of living declines drastically, with no political party, committee or lobby standing up for them.

3. Eliminating the sources of waste and corruption: To increase productivity and provide good services to all workers rather than to a few hundred thousand with the right connections, we need a revolution in the public sector. We have to close down unnecessary units and create an economy that attracts outstanding people and gets rid of the dregs.

Anyone who declares that we have to "strengthen the public sector" and then attacks those who want to improve it is either a hypocrite or naïve and unaware of the situation in most of the major organizations. Most Israeli citizens know – although it's unpopular to say so – that the public sector is largely inefficient, extremely wasteful and uses an organizational policy that undermines service to the citizens.

Anyone who really wants to help the weaker elements of society and to create a decent society with equal opportunities has to adhere to long-term policies to streamline the public sector and promote excellence. It's complicated and politically volatile, but if we don't do it, Israel will never be a good place to live and will continue to pursue a self-destructive policy.

But this extravagant waste is not limited to the public sector. The private sector is rife with owners of large and small businesses who are able to overcharge because of the monopolistic nature of the Israeli economy. The importers of luxury cars and agents of luxury real estate are assisted by accountants, lobbyists, public relations directors and law firms. It's not enough to tax the rich to deal with the inequality in the State of Israel. Such a tax doesn't differentiate between leeches and people with talent and initiative. All those who have been living at the expense of others – monopolists, real estate sharks, those with connections in the local authorities, the tender stealers in the public sector and the thousands of cartels in the private market – must be rooted out.

4. Cutting the defense budget: The budget has almost doubled in the past decade and continues to grow even as our Arab neighbors, Iraq, Syria, and Egypt, have suffered economic and political collapse. Israel is a huge power in a crumbling Middle East where Iran remains the sole hostile power and is also undergoing economic deterioration. The problem is that because of the structure of the defense budget and the opaque nature of the defense establishment, nobody has any incentive to streamline so as to release resources for civilian purposes – health, education and social welfare.

Some politicians talk about a change in the order of priorities, which is a kind of lie, because what's needed in the defense establishment is not a change in the order of priorities. As in any huge, opaque and secret organization there is a tremendous waste of money that has nothing to do with security or priorities. Nobody has the courage to touch the "sacred" defense budget.

5. Reducing housing prices: The first major revolution can be implemented without additional budgets and even when there are deficits. The price of housing can be lowered by 20 percent to 30 percent within two or three years. The main obstacle is not the bureaucracy but the opposition of strong interest groups that don't want to see a drop in the value of their real estate.

But as long as young couples are taking out mortgages to the tune of NIS 50 billion and buying apartments and houses that are far beyond their means, there is an increased risk of a future economic and social crisis, due to the hundreds of thousands of families who have mortgaged their financial future by giving their money to the real estate sharks. All the parties in the coming government and Knesset, whether right or left, have an opportunity to tackle this problem together. All of us – the new and determined MKs and we the public must ensure that they do so.

The 19th Knesset has an opportunity to shake things up.Credit: Knesset Spokesperson

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