After weeks of massive and often violent protest by the so-called Yellow Vests in France, a few people in Israel got the idea that we should be doing the same thing.
Israeli activists could only be envious of the French working class protesters pouring into the streets by the tens of thousands, and forcing Emanuel Macron to stage the biggest policy climb-down of his presidency.
In Israel, the timing of the protests was fortuitous. The same week the Israeli yellow vests were planning their democracy, the government announced big increases in electricity and water rates. A host of food companies have been raising prices and municipal taxes are due to go up, too.
Elections are on the horizon. It wouldn’t stretch the imagination to see Bibi knuckling under to masses of angry protesters filling the streets and breaking things.
It was a fantasy, alas, that didn’t happen. Only a few hundred people showed up on the street outside the Azrieli shopping mall in Tel Aviv last Friday.
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Even the threat (“Next week, there will be 10,000 people here”) of David Mizrahi, one of the organizers, was pathetic. If people really believed that Israel’s poor and middle class are being crushed by the high cost of living and can’t spare another shekel, there should be hundreds of thousands in the streets, not dozens.
The reality is very different. Israel does have very high levels of income inequality and poverty, but the rates have been falling and by the standards of socio-economic changes, they have been falling very fast.
Mall rats with a peeve
For the Israeli middle class, the last few years have been good ones. Consumer prices have been declining and wages have been rising. Finance Minister Moshe Kahlon has cut taxes, in particular customs and purchase taxes on consumer favorites like smartphones and cosmetics. Shopping on overseas websites, where prices are cheaper than at home and exempt from the value-added tax, has become the national pastime. Thanks to lower airfares from the Open Skies reforms, Israelis are travelling abroad in record numbers.
Even home prices, which have soared to painful levels, have moderated in the past year. In any case, the impact of home prices on consumers is limited. They are a problem for first-time buyers; for the great majority who already own a home or are moving to a different one, rising prices are increasing the value of their assets or are of little consequence.
Consumers are not going to welcome rising costs for electricity, water and food, but it’s not going to drive them into the streets. The middle class families that are the most likely to be politically engaged enough to attend a rally are too busy shopping.
The activists who showed up last week may rail against bigger electricity bills, but what really animates them is hatred of the system. They hate big business and Netanyahu to such a degree that they can’t see what’s happening around them.
But for the great majority of people in Israel or elsewhere if the system is delivering, they are willing to live with its faults. In France and much of the West there is a clear feeling among substantial numbers of people that it is not and that has surfaced in populist voting and the rise of the extreme right.
None of which has occurred in Israel – yet. Israel has enjoyed 15 years of continuous economic growth, which has been the main reason why Israelis are so content.
But there are plenty of signs that we may be reaching the end of an era.
The government’s chief achievements over the era were to coax more Israelis into the labor force and maintain budget discipline while leaving the high-tech sector alone to thrive. What it didn’t do was address Israel’s fundamental problems. These problems are coming to the fore at an inauspicious time, when the world economy and the government’s commitment to tight budget policies are both looking shakier.
Activists like the ones on the Champs Elysees or by the Azrieli Center think big socio-economic problems can be solved simply by government increasing social spending.
In an extreme case of this fallacy, Venezuela’s Hugo Chavez took the country’s oil profits and handed them over to the poor (with his cronies skimming off some for themselves). It helped the poor while oil prices were high; when they fell there was not only no money but no jobs because Chavez hadn’t invested in infrastructure, education or industry or reformed the economy.
The real task for policymakers is to ensure their economies can generate good jobs. In a globalized economy, this means being competitive and innovative. Israel’s challenge in this context is to raise its low productivity levels, improve the caliber of its schools and workforce, and force the ultra-Orthodox into the job market.
Unfortunately, none of this has been pursued with any seriousness and in the case of the ultra-Orthodox, what progress has been made is being lost. The typical finance minister doesn’t have the patience and the public doesn’t have the understanding or appreciation to pursue. Better to cut taxes and increase spending – the public will love you.
A policy wonk by nature, Macron thought he could implement the difficult reforms the French economy needs despite widespread opposition. He is paying the price. Israel’s leaders haven’t been so daring, and the result is that the public will pay the price.