Market mayhem

The social protests may be over, but the debate over the role of the state in the economy must continue.

By GABRIEL BACALOR
October 11, 2012 16:15
4 minute read.
Moshe Silman, who set hemself afire in Tel Aviv.

Self-immolator Tel Aviv fire protester Moshe Silman 390. (photo credit: Asaf Kliger)

 
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"The State of Israel stole everything from me. It left me with nothing." Those were the last words of Moshe Silman, 57, whose death started a tragic trend of self-immolation during the social justice protests.

Silman died a few days later and the example he set was replicated in subsequent days with immolations by 3 more Israeli citizens, including Mafaim Akiva, an IDF veteran.

Beyond verbal rhetoric, the government's factual response was similar to that of the Eurozone governments’ and equally blunt. New budget cuts and tax increases that’ll help the treasury save money on the $3.5 billion delegated for 2013’s budget.

While neoliberal logic does not yield, the social effects of policies contracting public spending are felt in the pockets of workers in low-income sectors. Recent polls show that most Israelis are fluctuating between indignation and disappointment, and are expressing serious doubts that the current restrictive measures are the right way to reduce the high cost of living and provide greater social justice.

Economic concentration and wage inequality

Aligned with the international trend, the degree of economic concentration in Israel is synthesized in the control of national savings by seven billionaires, whose companies determine the fates of over $500 billion invested locally on the Tel Aviv Stock Exchange.

Given the investors’ undisputed dependence on institutional macro-structures, the fate of Israeli families has been subject to wage stability and robustness, which now exhibit growing disparities.

In apparent contradiction to the notions of a welfare state that gave rise to Israel over 60 years ago, two out of three employees earn less today than the average market wage - estimated at $2,215 per month, while one in four Israelis report an income that is below the legal minimum wage ($1,020 per month).



According to information provided by the Israeli Tax Authority, 50 percent of workers earn below $1,450 monthly. The relationship between that value – known as “median” – and the average wage means that half of Israeli citizens earn up to one-third less than the average wage. To put this is context, this is the same rate as the emerging post-crisis labor market in the US, which is also manifesting dire structural inequalities.

In short, with over 3 million workers within a population of 8 million, the wage gap in Israel is putting unprecedented levels of pressure on families to find sustainable sources of income and to ensure control and access to real-time reserves.

Alternatives to the crisis

The global economic crisis which began in August 2007 and led to the bankruptcy of over 50 banks and financial institutions changed the pattern of household savings of Israel. The losses in the banking systems and stock markets, both local and foreign, reverted Israeli investment portfolios back to the tradition – i.e. focusing primarily on bonds, commodities and real estate.

The housing shortage in Israel, represented by the existence of just 1.05 homes available per household, (compared to 1.55 in Spain and 2.36 in the US market), makes buying rental properties an attractive option for both local and foreign investors. Currently, the immediate availability of the ROI coupled with various exemptions and tax credits that the government offers in this area is generating greater regression in income distribution among different segments of society, while otherwise allowing leverage consumption for property-owning families.

Unfortunately, the government revenue of over $1.5 billion that the housing sector provides annually to the treasury makes it highly unlikely that it will ever correct the inequities within the housing market. As such, the government's policy of promoting property sales through the end of 2012 creates incentives for those who already have capital or property. In other words, property owners will benefit to the detriment of those wishing to buy their first residence, whom, in the absence of the initial amount needed to obtain a mortgage, are forced to continue renting.

Zionism versus Neoliberalism

Stripped of all sentimentality, the economic diagnosis is not good. The immolation of Silman and his followers are symbolic indications of the notable absence of the state in Prime Minister Binyamin Netanyahu's biased agenda. The solidarity that characterized the country during its emergence from the ashes of the Holocaust has deeply declined in the decades since; as such, Israel today faces the challenge of renewing its commitment to the global economic and financial system within the context of increased social justice.

The popular protests that just over a year ago persuaded half a million people to take to the streets of Tel Aviv are also clearly indicative of the consequences resulting from current policies. For the sake of Zionism’s historical and moral identity, the citizens of Israel cannot allow the government to implement the failed neoliberal measures adopted in other countries.

In the words of George Soros, "Markets are designed to allow individuals to look after their private needs and to pursue profit. It's really a great invention and I wouldn't underestimate the value of that, but they're not designed to take care of social needs." It is for this reason that markets cannot simply be allowed to run their course, but rather require the guiding intervention of leaders whose priority is their citizens' best interest.

The writer is Managing Director of Bacalor Strategic Consulting: www.bacalor.com

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