The Taub Center’s “2013
State of the Nation Report – Society, Economy and Policy in Israel” reveals,
albeit unwittingly, why despite years of pouring billions into transfer and
welfare payments (about NIS 55 billion out of the 400b. that was last year’s
budget), the grave problems of poverty and income inequality in Israel are not
only unresolved, but seem to have grown worse.
The Taub report
illustrates how ideological presuppositions, ostensibly supported by “research”
based mostly on questionable premises and faulty data, have generated government
policies that pursue ephemeral goals via impossible-to-implement means at an
extremely high cost to hard-pressed Israeli taxpayers.
repeated failures of these policies, some of the economists who exposed them
still insist that by pouring more money into such failed policies, we will
somehow manage to get better results.
If Israeli welfare policies fail to
tackle the country’s intractable social problems successfully, it is in part due
to a refusal to learn from the many years of their failure, and to a reluctance
to take a fresh look at the challenges facing Israel’s society and economy,
which could help us adopt more serious and effective policies for stimulating
rapid economic growth.
Only rapid growth could create a “rising tide that
can lift all boats” as US president John F. Kennedy famously
Although it arguably possesses the best human capital in the world
– as George Gilder persuasively argued in his The Israel Test – and although it
benefited from over $300b. in foreign investments, the Israeli economy still
cannot fulfill its enormous potential.
The productivity of Israeli
workers is only two-thirds that of Americans, and their salaries are much
The Israeli economy is highly politicized and
The public sector is the largest employer and buyer in the
economy. Extensive government interference and heavy bureaucratic regulation
kill competition, reduce efficiency and breed nepotism and
Israeli politicians have encouraged the formation of huge
monopolies, most of them dangerously leveraged.
They have erected
insurmountable entry barriers.
Small businesses, the engines of growth in
any economy, are choked by taxes and regulations and starved for credit (which
is the chief reason the Negev and the Galilee remain economically backward).
Politically connected big businesses use their monopolistic clout to hike prices
of most consumer goods and services by 100 to 300 percent, making it nearly
impossible for most families to make ends meet.
Our tycoons, and their
tens of thousands of enablers – politicians, big-shot lawyers and accountants,
PR and media persons, academicians, and the many who keep them all in clover –
shamelessly demand astronomical salaries and bonuses, even when they fail and
destroy wealth – mostly people’s pensions – in the billions. The Hebrew language
has no word for “accountability.”
This has created in Israel perhaps the
greatest income gap in the Western world. This unconscionable gap has inflamed a
destructive politics of envy.
It pits interest groups against each other
in a permanent struggle to gain government favors. It has launched an obsessive
drive for a putative equality that has been used as an excuse to further extend
Dependence on welfare, which never seems enough to its
advocates, even though transfer payments and welfare policies consume about 14%
of the government budget, was perhaps an unavoidable necessity in the first
years of the state when Israel had to absorb masses of impoverished
While perhaps helping the poor to keep their heads
temporarily above the waters of inflated prices, it also spawned armies of
well-heeled bureaucracies and a costly “welfare lobby” with many advocates in
academia, research institutes and the media.
THIS WELFARE culture, with
its incessant drumbeat of “equality” and annual anti-poverty festivals exacts a
punishing cost from the poor. It has helped fashion a distorted, laggard
economic system of the kind that government-run welfare systems inevitably spawn
(extensive welfare cannot be managed without heavy bureaucratization and high
taxes that shift resources from productive to anti-productive uses). It has been
denying the poor the opportunities offered by a thriving economy, the
opportunity and dignity of earning their own livelihoods. It has condemned them
to perpetual penury and dependence for three generations now, and is still doing
so, with all the attendant social pathologies this implies.
welfarism, which succeeded decades of even more disabling socialism and the
nationalization of almost everything (including land, water and electricity),
has perpetuated an economic culture where people prosper and become
millionaires, even billionaires, not by serving people’s needs, as in a
competitive market economy, but by using political connections to get unlimited
unsecured credit and to build rapacious monopolies that rob consumers. It has
turned Israel’s financial sector into a great destroyer of wealth, and Israeli
industry – with the exception of its hi-tech sector – inefficient and
non-competitive (hi-tech prospered within a sort of competitive market bubble by
getting most of its financing from abroad and selling its products there, while
enjoying the privilege of not being unionized).
Labor markets have been
extremely politicized by monopolistic public service unions that dominate the
Histadrut Labor Federation. They extort very high salaries and benefits at the
expense of all other workers. As for housing, with government controlling 93% of
land and the building industry dominated by monopolies and cartels, a few
real-estate wheeler-dealers became billionaires and most contractors
millionaires, while young Israelis have to spend 130 months of salary to buy a
YOU WILL find none of the above – not a word about
these grave problems – in the Taub Center report, though it claims to “provide a
big-picture perspective of Israel’s society and economy.” This, despite the fact
that for the last few years, the policy community and the media have been shaken
by studies that exposed the great perils of excessive concentration in the
Israeli economy and its dangerous ramifications. Perhaps the Taub Center report
should have been renamed “The State of the Welfare State Report.”
the Taub Center is supported by the Joint Distribution Committee – a
welfare-dedicated institution – it is perhaps not surprising that its report
opens its macro picture section with a 68-page discussion of “Poverty and
Inequality Over Time: In Israel and the OECD” (it is a mystery why Israeli
policy makers would want to emulate the OECD, as they so eagerly do, considering
the less-than-stellar performance of most of its constituent economies – Spain,
Italy, France, Greece, Ireland, etc.). It then follows with a 15-page macro
perspective that focuses almost exclusively on “developments in the government
budget,” as if government is the only significant player in the
It then immediately reverts to what runs like a red thread
throughout the report: its single-minded preoccupation with inequality among
various groups, and in education and health. It considers these as “primary
socio-economic issues,” but totally ignores their etiology in the economic
distortions and handicaps we enumerated.
AFTER MANY years of ignoring the
low productivity of Israeli workers while incessantly harping on a distorted
picture of unemployment in the haredi and Arab sector (the statistics on these
two sectors are totally unreliable, since much of their economic activity goes
unreported), the Taub researchers at long last discovered that low Israeli labor
productivity crucially affects Israeli prosperity. But they got the reasons all
wrong by totally ignoring the anti-competitive and inefficient structure of the
country’s economy, plus the politicization of the workplace, ascribing low
productivity to mostly one factor: lack of equality in education.
education does indeed impact employment negatively, but not mostly for lack of
equality; rather it is because a “national” – namely government – system, run by
a huge bureaucracy and dominated by monopoly teachers’ unions, has destroyed the
excellent semi-private (and therefore competitive) high-school system that made
Israel a leader in science and technology. Meanwhile, the social sciences and
humanities departments in universities, which have been captured by stale
neo-Marxists and postmodernist dogmatists, have produced hundreds of thousands
of worthless (employment-wise) diplomas, acquired at great cost to the students
and the taxpayer (who subsidizes education).
The obsession of welfarists
like the Taub researchers with the false ideal of income equality, by which they
measure social advancement, is what skews the Taub Report so badly. It causes
them to recommend policies that have badly hurt the economy and its people.
Income equality is an impossible-to-realize, false ideal. There is no way a
complex economy that wishes to encourage creativity and excellence can avoid
rewarding people with different skills and productivity differently. Nor is
income equality the major factor in securing equality among people. Luck, innate
talents and evolving abilities, where a person was born and when, often play a
much greater role.
Yet the pursuit of a pie-in-the-sky equality makes the
Taub researchers promote policies that damage economic growth, thus depriving
the poor of their best hope – a growing share in a prosperous economy, even if
it is not an equal share.
More must be said on the devastating results of
this unfortunate conceit, this misleading ideology. More must be said on the
role played by our good American brethren who have contributed since the
beginning of Zionism to the transformation of the Zionist enterprise, meant to
make Jews a productive people, into predominately a welfare project. But this is
another opera and must wait for another occasion.
The writer is founder and
director of The Israel Center for Social and Economic Progress, an independent
economic think tank. www.icsep.org.il.