Activists Are In, Economists Are Out

Unfortunately, the laws of economics still work. Economic growth declined to a low of 2.5% annually, investors are not coming, export is backtracking, and, when unemployment rises in turn, the social activists will start shouting.

Israelis holds-up banners as they march in the centre of the coastal city of Tel Aviv on July 30, 2011, to protest against rising housing prices and social inequalities in the Jewish state.

That’s it. The era is over. It started in 1985 and ended now. The economists can say what they want, but no one will listen to them anymore. The profession commands no more respect, no admiration for its collective knowledge. The social activists rule today. They know the entire gospel, even if they didn’t spend one hour learning macroeconomics and didn’t do a single exercise in the law or prices.

In 1985, the economists reached their pinnacle of power. It was at the height of the enormous , scary economic crisis, when hyperinflation reached an all-time high of 450 percent and the currency reserves were running out. Then they brought in the best economists and built a plan that pulled the economy out of the mud. The plan revolutionized the economy’s structure. We graduated from a poor, concentrated, socialist economy characterized by absolute government control and high taxes, to a more open, more competitive market that follows the market economy, attracts foreign investments and raises our standard of living.

It happened thanks to a long series of economic reforms. They included reducing the government’s share of the economy and lowering taxes, opening the economy to competitive imports, liberalizing the capital market, removing foreign currency supervision and an extended process of privatization of government and Histadrut-controlled companies.

But all this stopped in 2011, when the social protests (in and of themselves important) cast fear on the politicians, and they stopped leading. There are no politicians today who dare implement necessary economic reforms. There is no one to say what Ben-Gurion said: “I don’t know what the people want. I only know what is advisable for the people, and that is what I fight for.”

The government changed direction in 2011 and began increasing its expenses at a fast pace. It started raising taxes in 2012 and increased the regulatory burden, while the social activists were bashing and humiliating entrepreneurs and businesspeople. Just this week the Finance Ministry announced that it will tax global Internet companies like Google, Facebook and Amazon.

So everything is possible. It is possible to raise the tax burden further and it’s also possible to chase after international corporations that bring here the forefront of technology. But it is impossible to force them to operate in Israel. If we go too far with our demands, they will close their local branches, they will fire hundreds of workers and they will stick to operating strictly abroad.

The founder and CEO of Check Point, Gil Shwed, said this week things that should have shaken people up. He said that business conditions in Israel have deteriorated significantly recently. He complained about raising the tax burden, which is making companies “flee from here.” He spoke of “more bureaucracy and too much regulation.” He talked about “a feeling of unjustified harsh criticism of all the companies in Israel, which raises the question – what do I need this for?” He added, “We will probably move Check Point’s operations to other countries, slowly and without making much noise.”

So yes, I can already guess the social activists’ answers. They will slander him and they will rush him to get up and leave. What do we need him for anyway? They indeed have said similar things to other successful people. They don’t recognize the laws of economics.

To them, businesspeople are the embodiment of evil. They hate them and wish for their downfall. It is the neo-socialist way: to sever the heads of successful people, such that everyone will be equally poor and wretched.

But the laws of economics still work. It is a fact that economic growth declined to a low of 2.5% annually, the investors are not coming and export is backtracking.

In a little while, when unemployment rises in turn, the social activists will start shouting. They won’t understand the connection between raising taxes, excessive regulation, despising the rich, the recession and unemployment. Indeed, they know better than all the economists.