Economic freedom has had a difficult time establishing itself in Israel

Economic growth has the highest strategic significance – for a stronger national defense, a higher standard of living for all Israelis.

By ROGER HERTOG
May 25, 2019 22:51
4 minute read.
Economic freedom has had a difficult time establishing itself in Israel

An electronic board displaying market data is seen at the entrance of the Tel Aviv Stock Exchange, in Tel Aviv, Israel January 29, 2017. (photo credit: BAZ RATNER/REUTERS)

 
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The conference on Israeli Conservatism sponsored by the Tikvah Fund drew 800 people to its inaugural event on May 16 in Jerusalem. The conference was built around ideas, because ideas drive history forward. We brought like-minded individuals – political activists, policy makers, intellectuals, journalists, rabbis, politicians, philanthropists, and concerned citizens – to work together to influence Israel’s future.
 
Preparing for our conference made me take stock of the miracle that is Israel today. Who could possibly have forecast what this country has achieved? The Jewish state is stronger than it has ever been in its history. 
 
Whether this miracle continues to unfold depends on us. I focus now on economic policy, though economics is not the only thing conservatives should be concerned with. The conservative political tradition is a broad one, concerned with the health and strength of our nation, our religion, our families and a responsible government. 
 
The ideal of economic freedom has had a difficult time establishing itself in Israel. Israel was born as a socialist country, with heavy taxation, heavy regulation, and cartels and controls that continue to this day. The Israeli economy consistently suffers from weak growth in many sectors.
 
But economic growth has the highest strategic significance – for a stronger national defense, a higher standard of living for all Israelis, and the creation of better opportunities for Israelis irrespective of age and education.
 
Consider a couple of basic numbers. If the Israeli economy grows at about 2% a year, it will take 36 years to double in size. If the growth rate is 4% a year (and there are examples where national economies have sustained that kind of growth rate) it will take only 18 years for the annual product of the country to double.
 
True, Israel’s annual growth rate is already approximately 3% – and just look at what’s been achieved in the technology sector! The question is, why has technology been so successful, and can its success be reproduced? 
 
The technology sector accounts for 12-15% of Israel’s GDP, employing 200,000-300,000 people. Israel has more companies listed on the NASDAQ, most of which are related to technology, than any other country in the world except for the United States. 
But the rest of Israel’s domestic economy, which employs about three million people, has grown more slowly. Why is there such success in one part of the economy and not in the other?
 
Part of the answer is in the work of Friedrich Hayek, an Anglo-Austrian economist, philosopher and Nobel Prize winner. One of his most important conclusions is summarized in his final book, The Fatal Conceit. He explained that centrally-planned economies – administered by a select group of highly-educated and largely well-intentioned bureaucrats who determine the priorities of a nation’s resources – will never be able to gather enough reliable information to manage an economic model for sustainable growth. 


HOW DOES this economic theory apply to the small companies in Israel’s tech sector? Market information matters to the success of growth businesses. Some companies will fail because of a bad business model, while others will succeed because they adjust their strategies to account for competitors or customer preferences. Another important advantage is that the tech sector is principally export-driven, and its entrepreneurs work without much burdensome government regulation and bureaucracy. 
 
But a large portion of Israel’s domestic economy is held back by “The Fatal Conceit” – government oversight, unions, price controls, excessive tax regulation, cartels, and protectionism. As with other countries worldwide, this slows growth and impedes innovation.
 
What can we do to stimulate the domestic economy? How can we help unleash the capabilities of the Jewish people to substantially increase Israel’s economic growth rate? 
 
This is where the rise of conservative politics in America and other economically-free countries becomes relevant. 
 
At the end of World War II, the United States lacked anything resembling the modern conservative movement. Republicans and Democrats alike favored socialist economic policy – rather like Israel today.
 
In 1955, a brilliant young public intellectual and conservative, William F. Buckley, founded the small but influential National Review magazine. As Buckley would later recount, his great challenge was how to fuse together the many different weak and bickering groups on the political Right: libertarians, religious, social, and economic- and neoconservatives. 
 
His task was to persuade them that they had enough in common so that they could in good conscience come together; creating a powerful political movement that became known as modern conservatism. 
 
It took approximately another 20 years before a great political leader put these policies into practice. When Ronald Reagan ran for president in 1980, he remembered the lesson he had learned from reading National Review: that in order to win the presidency, he had to build a large tent of conservatives. And he did. And it’s important to say that it too hasn’t been a complete success.
 
If conservatism is to succeed in Israel, in terms of becoming a political force and changing the economic life of the country, disparate groups here too will need to see that it is in their interest to come together.
 
Israeli conservatives will need to create a unique synthesis that is right for this country – a synthesis embracing all aspects of national life, of which economics is only one. The task at hand is especially difficult because much of the elite intellectual life in Israel is quite unsympathetic to any kind of political conservatism.  
 
On the road to conservative victory, ideas and the promulgation of ideas play a vital part. But to prevail, ideas must manifest themselves in the cultural and political processes that will shape Israel’s destiny. That is the challenge facing conservatism in Israel.

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