'Redistribution' kills growth

No, A.B. Yehoshua, voting for Amir Peretz is not the 'moral choice'.

By DANIEL DORON
Most pundits assert that the coming elections are going to be different because for the first time they will focus on social and economic issues - especially on the question of poverty and the social gap - instead of exclusively on matters of security. Intensified terrorism from Gaza can of course change this overnight. But even if the elections stay focused on a social agenda it may not help Israel grapple with its very serious social problems, because the intensified focus is the result of the takeover of Labor by Amir Peretz, a radical monopoly union boss. He and his many friends in the media exploit the politics of envy, mostly belly-aching about the very real (and damaging) gap between the rich and the poor, and offering stale solutions that have already been tried numerous times and failed. All they can think about is the allocation of more funds for a failing welfare establishment. They call this huge transfer of wealth - a third of our $70 billion budget - a "more just division of the national income." As if this national income was free manna from heaven and our sole concern was how to "distribute it equitably"; as if wealth distribution was disconnected from its production, and we never learned that "redistribution" kills growth. Few pundits or politicians would therefore agree with The Marker editor Guy Rolnik's assertion that the continuation of the dramatic economic changes caused by Binyamin Netanyahu's financial market reform - that were so revolutionary that practically no one "dreamt that the reform would be passed and implemented" - should be the focus of a national debate. This despite the fact that these changes are happening in front of our eyes and have already brought dramatic results. Perhaps because "the full impact of the revolution will only be revealed in years to come," as Rolnik notes, it is difficult for most Israelis to comprehend how the economic revolution, which has already stimulated a 5% annual growth and a promising reduction in unemployment, is affecting their lives. A STELLAR example of the perversity of the current debate was an Haaretz piece by the author A.B. Yehoshua, whose call to vote for Amir Peretz was entitled "The Moral Choice." Yehoshua bases his call on the allegedly incontrovertible fact "that the economic situation of large sectors of Israel's population has deteriorated." But does anybody really know? Poverty statistics are at best a conceit. The Bank of Israel, for example, demonstrated recently that on the basis of an absolute rather than a relative measurement of poverty the number of the poor remained constant between 1997 and 2004. But even if we accept, for argument's sake, Yehoshua's facts, one must still question his contention that the deterioration was exclusively caused by welfare cuts. The much stronger reason why workers earn so little and suffer widespread unemployment is low productivity. And the key reason why so many low-paid Israelis cannot make ends meet is that the purchasing power of their low salaries is cut by about 30 percent to 50% by monopoly imposed costs. But Yehoshua, whose knowledge of economics seems limited, does not even notice these factors. Convinced that a raise in the minimum wage and more welfare (steps that will cause inflation and a reduction in purchasing power) will miraculously work now, he insists that any rejection of Peretz "in the coming elections, with the empty excuses of lack of experience, will not be a political rejection, but a moral one." But supporting a dangerous demagogue is not a moral question but a moral travesty. Peretz pretends to help the workers and the weaker strata while his Histadrut actually protected the privileges of monopoly unions. The general strikes he initiated to protect monopoly privileges did nothing for other workers and the unemployed. The Histadrut and its arguably corrupt, failed enterprises have been the bane of Israeli workers. The Histadrut traditionally supported the worst monopolies (it even owned many) that robbed a third to a half of the measly salaries of Israeli consumers. Peretz and his Histadrut even backed the banking monopoly, that extorted annually hundreds of billions of shekels from wage earners by not paying true market rates on their savings. For decades, they kept backing the banking monopoly even when it stymied growth, thereby squandering practically all of the country's savings. They maintained their backing even when the banking monopoly deepened a six-year recession, causing unemployment to soar above 10% and forcing most workers to earn shamefully low wages. Amir Peretz and his Histadrut keep defending labor laws that have made the talented Israeli worker among the least productive and lowest paid among Western economies. They direct his energies to internal power struggles between labor bosses instead of to increased productivity. No, we should not reject Peretz and his "solutions" because of lack of experience but because experience teaches us that he will extend to the economy the same disasters he brought to his bankrupt Histadrut, where even the workers' pension funds were either squandered or stolen. We should beware of his dangerous promises, even if moralists like A.B. Yehoshua give him their stamp of kashrut. The writer is president of The Israel Center for Social and Economic Progress, an independent pro-market policy think tank. www.icsep.org.il