If someone had reported at the beginning of 2020 that Israel, like other countries, was about to carry out steps such as nationalizing an airline, increasing the health and welfare budgets, extending the period of unemployment benefits, subsidizing loans, protecting local products, paying a basic income to the unemployed and postponing mortgage payments to banks – we would have said that a social-democratic revolutionary had swept the country. Had they told us that this package would also include closing borders, creating an autarkic tourism economy and increasing the surveillance of civilians by the security services, we would have said (quietly) that our leader is a totalitarian revolutionary.
All these things took place here without any change of leader, type of government or ideology. The fact that all these steps were taken in Israel, and most of them in other countries as well, tells us something about the power of economic ideologies in times of crisis: They are defeated by the pandemic.
These ideologies are fine for ordinary times, when one can conduct learned discussions about a free market, the depth of government intervention and so on. When there’s a crisis – certainly of such magnitude – it’s like the transition from summer to winter: The codes, the norms and the existing discourse are stored in one closet, while from another closet we pull out protective suits for the coming season. And this is not happening thanks to some sort of in-depth public discussion, just as a transition between seasons is not a subject that’s decided upon by committees.
We received a similar lesson in 2008, when governments and central banks the world over channeled trillions of dollars into rescuing financial institutions – while nationalizing them – in order to prevent a serious and prolonged recession. Each of these two different crises has exposed in its own way the importance of governments in conducting economic policy, but no less than that – also the fragility of many businesses and their dependence on government decisions.
The steps adopted by governments in this country and elsewhere are not testimony to the collapse of capitalism and a return to socialism; they reflect realism and pragmatism. Without them economies would collapse and regimes would disintegrate.
The prevailing assumption is that the coronavirus and its economic ramifications will remain with us in the coming year. What does that say about the socioeconomic system that will remain here afterward? Anyone who has to deal with this crisis – from the politicians to the self-employed whose businesses were harmed, to the salaried workers who lost their jobs – would sign off now on the option of returning to the previous situation. Going back to the summer wardrobe.
But that won’t happen so fast. Preliminary Bank of Israel forecasts that mention an unemployment rate of 8 percent until the end of the year seem unrealistic when that rate is currently 21 percent. Many businesses are closing down and many others are discovering that they can manage with fewer employees. This crisis has granted legitimacy to many organizations to downsize.
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The result is that in any case we will be seeing a high unemployment rate in the medium term, which means a serious social crisis. Unemployment benefits may solve some of the problems of the unemployed that are related to earning a livelihood, but not difficulties relating to maintaining one’s job competence, or social and family-related problems stemming from jobless individuals’ frustration and feeling of worthlessness.
This situation will demand that the government maintain certain compensation mechanisms and social safety nets for the unemployed for a long time to come, to prevent the social crisis from blowing up in its face. The only way to do this is to “import” two additional components from the social-democratic model: raising taxes in order to pay for the heavy expenses, and ensuring that the job market remains flexible (mainly in the public sector) and competitive, so that there will be a source for collecting higher taxes.
That is the social experiment Israel faces: Is it capable of caring for victims of the crisis over the long term and creating the social and economic mechanisms that support them, without causing the wrong people to exploit them and thereby give solidarity and mutual responsibility a bad name?