Opinion |

Coronavirus Has Killed Economic Ideology. So What Do We Do Next?

Israel has been left ideologically empty-handed to manage the recovery

Sami Peretz
Sami Peretz
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A beauty salon opens again for business after being shuttered during Israel's second nationwide coronavirus lockdown, November 1, 2020.Credit: Ofer Vaknin
Sami Peretz
Sami Peretz

A prime minister who extends unemployment benefits from six months to 18 months, who provides state-backed loans to businesses, who urges people to buy locally made products and who from time to time distributes one-time grants to each and every citizen is a socialist by every meaning of the word, including the good old-fashioned socialism.

But Benjamin Netanyahu, who waves the flag of American-style capitalism, has done all of the above. What’s happened to ideology? Just one big crisis and it all goes to the wind?

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It seems that in the midst of the health and economic crisis wrought by the coronavirus, ideology has become irrelevant. COVID-19 has killed it. Pragmaticism has taken its place and now dictates social and economic policy. That shouldn’t surprise anyone when the government is ordering businesses to close down and up to a million Israelis have been out of jobs. The government needs immediate solutions and there’s no escaping that these solutions call for the state to spend massive amounts of money to prevent the worst from happening.

Netanyahu is not doing the unemployed any favor. He’s providing them with the minimum, but at a time when Israel is battling a giant fire it needs to use a lot of water. There’s no time to ask where the water will come from or ponder the resulting environmental damage. Ideology is for another day.

In fact, Netanyahu could have returned to ideology had the government approved the 2021 budget. But that took a back seat to politics and Netanyahu’s need to keep open his option of calling an election by delaying submission of the budget to the Knesset.

There is an ideological element to a budget. It is an expression of the government’s priorities and what direction it wants to take. Does it want to continue its expansionary policies? Is government aid having undesirable side effects, such as creating disincentives to work? How do we build a strategy for exiting coronavirus mode? Are we creating a new socioeconomic reality and if so what will it look like? Or, do we want to return to the status quo ante virus?

These are complicated questions that require a short-, medium- and long-term perspective. But the government right now is busy only on the shortest-term considerations. A longer-term perspective would require it to decipher the new reality it has created and the political consequences.

Here’s an example: During the summer, Finance Minister Yisrael Katz told Shaul Meridor, then the treasury budget director, to issue a grandiose program to cut 45 billion shekels ($13.2 billion) from public sector spending over three years. The idea was that the public sector would pay the heavy price of all the government’s coronavirus spending. In addition, it would help even out the burden of the crisis, which has so far fallen disproportionately on the private sector.

The plan never got past the stage of a press release and a threat by the Histadrut labor federation to oppose it. Meridor, of course, was forced out of his job after a bitter dispute with Katz.

But from the very start there was never a chance that the current government would be capable of making such a difficult decision on such a scale and in such a time frame. The coronavirus could have been a crisis that became an opportunity, but the government right now doesn’t deal in opportunities.

In any case, there’s a certain economic logic in not moving ahead with the Katz plan. A massive cut in public sector pay would have hurt consumer demand just as the economy was trying to crawl out of its coronavirus hole. It is indicative of the difficult dilemmas of the crisis: How to correctly identify the moment when it has created an opportunity to act. The persistence of COVID-19, the second lockdown and the real risk Israel will have to impose a third one make the job of taking new initiatives, much less daring new initiatives, almost impossible.

When the time finally comes – whether it’s this government or the next one – to prepare a budget and reforms, it will have no choice but to address the question of the expansionary policies now in place. A few considerations will determine the quality of its response.

The coronavirus crisis hasn’t affected everyone equally – it requires that those who were hurt less or not at all help those who were.

The decision to go into lockdowns was taken by the government and not by market forces. The government will have to address the damage that has been left in the wake of the lockdowns.

The crisis caused many jobs to disappear – this will require the government to foster the creation of new employment through incentives and investment.

The crisis has raised a lot of questions regarding social solidarity, most notably the differing responses from different sectors of Israeli society to government directives. Should the rest of society, which has followed the rules, be funding the lifestyle of another that doesn’t?

Without a doubt the post-coronavirus world will require major incentives and expansionary policies to enable an economic recovery to happen. Even before the crisis, Israel was already leading the Organization for Economic Cooperation and Development in poverty rates. Although the figure was clearly due to the very high rates of poverty in the Haredi community, the pandemic may well create a new kind of coronavirus poverty. If so, the government will have to develop policies that distinguish between the two types of poor Israelis.

That would be easy enough if it were purely an economic-policy matter, but politics could foil it. We saw how the traffic-light system, which classified towns by the level of local COVID infection, aroused a political storm. As a result, it failed and Israel was forced to go into a nationwide lockdown. This should serve as a lesson about how hard it will be to apply differential policies in addressing poverty in the post-coronavirus era.

The most sophisticated welfare policies encourage people to acquire skills and enter the labor market. They tend to exist in countries where the level of social solidarity is high. A homogenous society is usually one prerequisite.

As it devises policies to ensure an economic recovery and undo the damage of the coronavirus, Israel will need to develop smart welfare policies that encourage growth and productivity while discouraging exploitation of programs. In heterogenous Israel we face a serious question about whether such policies can be implemented. It’s no wonder that the current government wants to kick the can down the road as long as it can.

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