The Bottom Line / A Lesson in Economics

Who is about to stop the economic turnaround in its tracks? Who is about to choke off the signs of recovery? Is it the weakening dollar? Or is Finance Minister Benjamin Netanyahu giving up on making the ports competitive? Or maybe these cruel tidings are expected?

No. Although these may all be unhappy events (should they happen at all), the person who is really ready to strangle growth and send the economy back into recession is someone with a wealth of experience, Yuval Rachlevsky.

Earlier this week, the treasury wages director said that if we want to attract talented people into teaching, then we must raise teachers' wages by 30-40 percent and also make them work longer hours to carry out extra tasks. Now that is the last thing a wages director should have said. Has he already forgotten what happened in 1994-1996? Back then, officials also said that teachers' wages, and only those of teachers, needed correcting. But the rest of the public sector wouldn't accept it and demanded parity. The result: the great public sector wage burst that caused an enormous budget deficit in 1996 forcing then-prime minister Netanyahu and his finance minister, Dan Meridor, to make deep cuts the following year, thereby causing the 1997-1999 recession.

To justify the increased wages, Rachlevsky suggests that teachers work longer hours. It sounds good at first, but eventually the good teachers, currently enjoying comfortably-short working weeks, will leave for better employment elsewhere. When someone chooses a career, he looks at more than just wages. He considers vacations, conditions, public standing. So if teachers were forced to work till 4 P.M. , the comparative advantage of working at a school disappears, a true shot in the foot. As it stands, even with the current working schedule and wage, there is an oversupply of teachers.

Maybe Rachlevsky thinks that he'll fire some teachers as the wages of those remaining rises. But that shows he really misses the whole set-up. Once the wages director mentions the word "increase," the rest is all kishkes. Any dismissals will be postponed to a later date, and in any case, everyone, including the education minister, knows that the real problem in the education system is its inefficiency, a surplus of pen-pushers, inspectors and regional bureaucracy, and an inflexible school management - and all of these could be dealt with.

In the past year, Netanyahu has managed to create a new era in wages. Instead of workers' committees campaigning, as is their tradition, for higher bonuses, they are finding themselves fighting to keep their pay from falling. This public pay cutback, which is scheduled to last only till the end of the year, is what is allowing the economy to grow, since every government expenditure reduction equates to a transfer of resources to the private business sector. But the moment the wages director talks of pay increases, he brings the old order back into play, giving the go-ahead for union leaders to get up on their hind legs and demand more. And presto, we're back in the trauma of the mid-1990s.