Equality or prosperity?

Israel survived the 2008 global economic crisis intact, becoming a byword for economic success in news stories around the world. While countries from Europe to the United States were spending themselves into bankruptcy, Israel was smart enough to keep government expenditures under control and reduce its budget deficit.

Four years later, the over-spenders are crying for bailouts, their citizens are out of work and their economies are still not growing. In contrast, Israel has a relatively low unemployment rate and an expected rate of growth of 3.2 percent. Israel’s success was based on fiscal discipline and a simultaneous liberalization of the economy.

Why, then, would our government suddenly decide to join the European over-spenders on the road to increased deficits? It surely sees that these are the policies that have brought Spain, Greece, Italy and Cyprus – the list is growing – to economic disaster.

The government argues that the budget deficit and higher taxes are necessary to attain “social justice,” to finance programs geared toward reducing poverty and economic inequality. Poverty is of course a bad state and there seems to be general agreement in Israel that efforts should be made to lift the poor out of this condition through work participation and income support when necessary.

With inequality so often mentioned together with poverty as the enemy, the public has been forbidden to examine its assumptions and ask: is inequality such an evil concept? Inequalities exist in all areas of life. Some people are smarter, more beautiful and more athletic than others.

Should society restrain them because these inequalities of character or nature create economic inequalities, as suggested by Kurt Vonnegut in his satirical story “Harrison Bergeron,” which describes beautiful people being forced to wear masks, athletic people having to carry weights, and intelligent people forced to have radios in their ears to interrupt their thoughts with loud noises? FEW WOULD give their assent to these drastic punishments.

So why do they adopt that attitude toward individuals who are economically successful? The question of course refers to people who attained their wealth honestly; crooks belong in jail, for the protection of society.

But being rich is no sin, at least not according to Judaism. As Rabbi Issac Lifshitz, a senior fellow at the Shalem Center, put it, “economic success is considered a worthy aim, so long as one achieves it through honest means,” and “Judaism holds a fundamentally positive view of individual wealth.”

The handicapping of the smarter, stronger and more intelligent members of society will obviously prevent them from succeeding. Higher taxes for people who succeed are a similar disincentive to excel. We should be asking if the equality is more important than economic prosperity. And we should ask if people are suffering because some of their compatriots are richer than they are (inequality) or because they cannot afford basic items (poverty)? The creation of wealth benefits society at large but it will not benefit everyone in the same way. Israel’s rich got richer but few would argue that poor Israelis are worse off than they were 30 years ago; the poor also got less poor.

Income and expenditure survey data from the Central Bureau of Statistics shows the average income of the lowest decile (poorest 10 percent) was 1.77 times higher in 2010 than it was in 2004. The same survey also shows that poor people have gained access to goods such as cellphones, computers, air conditioners and DVDs. True, poor people can buy less than wealthy people, but they can buy more than they could have five years ago.

THE CHALLENGE Israel faces today is not to weaken those doing well, but to strengthen those who are left behind. As economist Gary Becker, winner of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, pointed out, “It would be hard to motivate most people if everyone had the same earnings, status, prestige, and other rewards.”

Equality of opportunity should be Israel’s goal, not equality of results. Equality of opportunity means fair competition and the elimination of arbitrary discrimination in access to jobs, housing and loans. As of now, 70% of loans in Israel are given to 1% of borrowers because the government has refused to reform the bank sector by introducing competition.

Housing is also rationed, by the Lands Authority, which refuses to release enough land for construction; this keeps real estate prices artificially high and limits access for many. High paying jobs are also difficult to get, especially given that the highest paying jobs are in government controlled or protected monopolies like the Electric Company, the railway, the water company, the ports and so forth.

One exception to this dark picture is the hi-tech sector.

Because it is based on incentives and rewards, talented people can make it to the top regardless of their lack of family ties and “proteczia.” Needless to say, it is Israel’s most dynamic economic sector. The government could do much to increase equality of opportunity by continuing on the path of liberalization in other sectors.

This may be a bigger challenge than overspending, and it may even be counterproductive in an election year, but it would be the responsible and mature decision to make.

The writer is co-founder and director of the Jerusalem Institute for Market Studies, an economic policy thinktank.