Left-handed Economics

Organized labor is using the Labor party to fight structural reform which would open up the market for competition and benefit consumers

One of the Israeli economy's most serious problems is its lack of stability. One day, the economy is up, climbing sky-high; the next, it is down, in a menacing recession - like a roller coaster at the amusement park.

In 1994, we experienced rapid growth of 7 percent for the year, and then it slowed down to 2.3 percent in 1999, only to reach an all-time high of 7.7 percent in 2000, which was followed by a crash, and negative growth of 1.2 percent in 2002.

It's the same these days - rapid growth in the first quarter of 2006, at 6.6 percent, followed by serious concerns regarding the near future - because the rollercoaster is now being driven by politicians with a social welfare agenda.

The instability makes the cost of capital increase, and this is poison for investments. It also stops standards of living from rising to fall in line with the norm in the West;, and therefore, Israel lags behind Europe and the United States by 30-50 percent - and all this without taking into account the enormous outlays for defense.

The rollercoaster is man made. Each time the economy manages to get on to the growth tracks, political forces arise and try to ruin the achievements. Currently, this behavior is taking place in the main economic arena - the Knesset Finance Committee.

At present, the committee is working on the national budget, and mostly on the reforms slated for inclusion. These reforms are at the crux of growth. It is possible to reach a 2-3 percent annual growth rate by cutting excessive government expenditures, but anyone who wishes to catch up to Europe, reduce the debt burden and help the needy, must sustain high and stable annual growth of 6-7 percent over the next decade. This can only be achieved by reforms.

We can compare the situation to an engine pulling a very long train. If the weight of the freight cars is diminished (by making cuts in the public sector), the train can travel a bit faster. But if it is to reach a very high speed, the engine must be fed steadily with high quality fuel - and the reforms are the fuel.

They open up the economy to competition, lower prices and improve service; they reduce the power of monopolies and encourage the creation of new businesses and factories, and thus lower unemployment and improve the standard of living of the public at large.

There are many in the Knesset today who claim that society's welfare is dear to them, but actually serve special and personal interests in practice. The most conspicuous among them are Labor MKs, who may have joined the coalition but are behaving as if they are in the opposition. They are competing with each other over who will be more difficult. So far, they have filed 20 reservations regarding key clauses of the budget bill; these reservations all all characterized by the demand for more funding, more expenses, greater government involvement in the economy and a smaller private sector.

It seems that in this coalition, everyone is doing whatever they want. Members of the leading coalition party, Kadima, are also not being helpful. They are keeping mum - because they, too, want to enjoy the fruits of politics.

Coalition whip MK Avigdor Yitzhaki (Kadima) is trying to conduct this orchestra, but there is no harmony. This week he was completely despondent: "We have no coalition," he declared. "We have a semi-coalition, and even that with a pinch of salt."

In Labor, there is fundamental opposition to all reforms; it has always been that way. More important to the Laborites are the votes of the members of the large unions around which the party is centered, and to hell with the economy, the growth and employment. They opposed the opening of the market to imports, which brought about a significant lowering in the prices of clothing and electronics. They opposed the privatization of Bezeq; and if it was up to them, the public would continue to pay today top shekel for cellular or international calls. They opposed competition to the Egged bus monopoly, even though competition lowered the prices of intercity tickets by 25-40 percent! Alas, the list is long.

Now they are opposed to all the reforms at hand - in the Israel Electric Corporation, at the Mekorot water utility, Oil Refineries, the Israel Lands Administration, the defense industries, the Israel Airports Authority, and even the Civil Aviation Authority.

Eli Cohen, director general of the Ministry of Tourism, tried to convince the MKs of the need for an open-skies policy that would increase the number of flights to Israel, make them cheaper, and increase the number of people employed in the tourism industry by 40,000. But the Labor MKs were not impressed. They "don't want to hurt the EL AL employees."

It is difficult to believe what we are hearing. In order to protect a powerful and well-established group of employees, they agree to impose a huge toll on the general public, which continues to pay inflated prices for flights. They don't care if tourists don't come to Israel or that 40,000 people will remain unemployed - and all because at the next Labor Central Committee meeting, they may receive a few more votes from the EL AL representatives.