Meet Israel's possible next Finance minister, Prof. Manuel Trajtenberg

In exclusive interview, the Zionist Union’s economist argues why his housing plan is best.

February 12, 2015 06:38
Prof. Manuel Trajtenberg

Prof. Manuel Trajtenberg. (photo credit: TAU)

Prof. Manuel Trajtenberg’s entry into politics has been somewhat of a baptism of fire. Since the Zionist Union’s Isaac Herzog and Tzipi Livni announced that he would join their party as a finance ministry candidate, the respected Argentine-born economist has been pilloried from the left as a neo-liberal capitalist and from the right as a socialist. He’s even faced trouble from within his own party, whose top MKs come from a decidedly more socialist worldview; many of them were absent when he presented the party’s socio-economic platform.

In a Wednesday interview with the Jerusalem Post, Trajtenberg fought back on perceptions that the party lacked unity, staked out his economic ideology in his own terms, and delved into the rationale behind his ambitious economic plan, starting with housing.

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“There is a huge difference between infighting and having heated discussions from within,” he said.  “We have to have these discussions. Nobody has a monopoly on the truth, and I believe that it’s good that we have the heated discussion we have.”  The other members of the party, he said, had incredibly important insight into policy given their experience in Knesset, and helped shape his views in the platform through a dialectic.

“Believe me, the plan we presented is not the same draft I presented,” he said, adding “I don’t expect infighting because there is strong leadership.”

Central to the platform is a plan to reform the housing market in Israel to help making housing more affordable.

“The first order of the day is to start from the top, to have a Czar of housing,” he said. There is no “sovereign authority” over the housing market, meaning that important elements are controlled by a variety of different ministries and bodies that don’t communicate or coordinate their plans.

“It’s like a feudal system in which you have all these feudal lords and each has control over its own territory and impedes the other from crossing in, so you have six or seven veto-holders in the process from land to apartment,” he said.

Once the process is unified, Trajtenberg argues for a two-pronged approach.

“The housing problem, contrary to what many people think, is not just high prices,” he said. “Even if prices will come down, the market will still be badly organized, so the idea is to bring prices down and to offer housing solutions to a range of different groups in the population who have different needs and different abilities to pay.”

Poorer families can’t afford a down payment, but making mortgage rules less stringent could risk a subprime bubble.

To offer them an alternative, he wants to strike a deal with land developers, giving them land for free in exchange for a promise to make 30% of the housing they build affordable, long-term rental housing. Everybody wins: the developers still make a reasonable profit from the free land, the buyers have a lower price from greater supply, and those who cannot afford to buy are given long-term rentals that accord with their incomes.

Another interesting problem is that local authorities, don’t have incentives to improve the situation; they have to invest in local infrastructure to build, but get low revenues from residence and much higher ones from commercial building.

“You have to change incentives. You want local authorities on board? You as a government will have to pay for some infrastructure or pay for services or change property taxes. People behave rationally for the most part,” he said.

Trajtenberg does not see much use in Moshe Kahlon’s plan to break up the Israel Lands Authority or Yair Lapid’s plan to nationalize the KKL-JNF.

“It’s a really empty story,” he said. “People confuse the lack of governance with the inefficiency of the bureaucracy. These are two different things.”

He continues: “So you nationalize Keren Kayemet. Suppose that in Israel there wasn’t Keren Kayemet. How does it solve the problem?”

Though Trajtenberg advised Lapid early on and respects him for “good intentions,” he says the former Finance Minister did not pay enough head to his professional advisors.

“You cannot have a minister that antagonizes the entire professional staff of the ministry, that calls them names and puts them down,” he said. Lapid’s 0 VAT policy, he added, was “trying to defy the laws of economics. It’s almost like saying the law of gravity doesn’t apply.”

For all his criticism, however, some of his rival parties offer similar medicine for Israel’s economic ills. Kahlon also wants to create one chief power for housing. Meretz also wants to give small business owners unemployment benefits. Economy Minister Naftali Bennett also wants to reduce red tape. That, Trajtenberg says, is not enough.

“People confuse similarities in some of the policy recommendations with an underlying set of common views and deeper values. These are two different things,” he said. “When I say that a market economy should reconcile itself with pursuing much less inequality and put a human face on it, this is something that people recite, but don’t understand what it takes.”

Far from the left-wing socialist or hardcore conservative other parties have painted him as, Trajtenberg described his economic philosophy as believing in the strength of free market while ensuring they don’t “run amok.”

“One of the greatest features of the market economy is that it allows the natural tendencies of human beings to get manifested,” he explained. “The greatest challenge of our age is to preserve the good features of the market economy but embed it in a more humane approach that doesn’t give rise to extreme inequality, that provides for equal opportunity,” he said.

Trajtenberg is married to the deputy governor at the Bank of Israel, Nadine Baudot-Trajtenberg. Because of conflicts of interest, she would have to step down for him to become finance minister. Asked if they had a conversation about the issue before he decided to run, he replied, “We have a conversation about that all the time.”

“I really enormously regret that my wife may pay a price in that sense,” he said, but added that he hoped it would open up a broader conversation on gender and inequality in the 21st century.

But that may not be an issue. He acknowledges that his party may not have the bargaining power to install all the candidates it has lined up the premiership, finance and defense portfolios.

“I’m not wedded to the idea of being Finance Minister. That would be naive and it would not be right,” he said, promising to pursue his ideas from the Knesset regardless of what happens.

Asked how he feels about political attacks claiming that his party is not Zionist enough, Trajtenberg said he is confident in his credentials.

“Even the strongest contenders acknowledge, with all due modesty, that I am a living example of Zionism from beginning to end. My entire life has been devoted to it, so nobody will say that,” he said.

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