The welfare state

Rather than aiming to bring down the government, the outcry is for changing the system.

By JPOST EDITORIAL
Nordau tent city chilled_311 (photo credit: Ben Hartman)
Nordau tent city chilled_311
(photo credit: Ben Hartman)
Israel’s trendy summertime “social justice” protests, which radiated countrywide from the prosperous Tel Aviv hub, send out different, often contradictory messages.
The majority, which chimed in with the commotion after its inception, appears less radical than the original instigators.
Rather than aiming to bring down the government, the outcry is for changing the system. Many interpret this catchphrase as a code for returning to the welfare state, perhaps as we once knew it, or – more enticingly – for adopting certain European models.
Our welfare state’s glory days were in the 1960s. By the 1980s we were beset by monster inflation that made the later much-maligned privatization unavoidable. The Histadrut labor federation’s conglomerates – oversized, inefficient and often corrupt – collapsed. They were sold off, and eventually so were the quasi-nationalized banks.
This wasn’t an ideological whim but a reaction to a national emergency. The public sector, and with it the Treasury, teetered on bankruptcy’s brink. The welfare state was widely perceived as an unaffordable burden. Indeed, among the most enthusiastic new class of emerging tycoons were many who boasted pronounced left-wing orientations.
Welfare advocacy was thereafter relegated mostly to the ultra-Orthodox or Arab sectors, each with in-built problems of its own. The near economic breakdown of 2002-2003 bit further into welfare allowances.
Promoters of today’s welfare-state nostalgia aver that collecting more taxes from the rich will pay for government largesse to benefit broad segments of society, including the middle class.
Analysts are quick to counter, however, that this is more in the realm of demagoguery than reality. Even draconian income-tax increases for the top-earners won’t cover the reductions in indirect taxes (in the value-added tax, for example) recommended by the protesters. How will the rest of their extravagant demands be financed? The neo-welfare lobby advises deficit spending, which it insists isn’t as unthinkable as the government makes out.
This is where the European models appear. The higher tax burdens imposed in notable European welfare havens such as Sweden, Denmark, Austria, Belgium, Italy and France are proposed as models that Israel ought to emulate. All the aforementioned states collect proportionately higher taxes than Israel, yet enjoy admirable standards of living alongside well-developed social welfare networks.
This sounds eminently plausible except that ironically, Israel’s welfare state warriors appear to sound their clarion call just as the welfare state elsewhere writhes in unprecedented throes. The seemingly successful coexistence of the good life with extensive welfare services comes at a great cost. These countries are eating up their resources and amassing tremendous national debts.
In some European welfare states the per capita debt averages almost NIS 350,000, versus some NIS 40,000 in Israel.
In America, contending with record deficits, the per capita debt is nearly NIS 160,000.
Mega-debts are the reasons the recent travails hit some Eurozone countries as hard as they did. Others, although hardly basket cases such as Greece, Portugal and Ireland – or as potentially troubled as Spain and Italy – are by no means healthy, enviable economies. France is foremost among the not-so-healthy.
There’s no way around it: Only very affluent economies can simultaneously sustain high standards of living and truly generous social welfare outlays. Moreover, even ultra-privileged economies, well-situated, blessed with established infrastructure and natural resources, cannot ad infinitum meet the expense of social munificence, laudable as it may be.
This applies not only to Europe’s newly troubled economies, but even to Scandinavian models, where on the surface everything remains in proper working order. Sweden, Denmark and Norway are on many lips in Rothschild Boulevard. Nonetheless, were Israel to opt for their welfare models, it would have to assume no less than an additional NIS 60 billion in debt annually. Tax reforms alone, no matter how drastic, cannot cover such bills. Within a couple of years at most our economy would crash.
Assorted better-off European countries may for a time luxuriate in ideological eccentricities and spendthrift habits.
Israel’s smaller, considerably more vulnerable economy, with a lower credit rating and negligible natural resources, cannot countenance this. We haven’t even mentioned our huge defense concerns or the fact that we don’t have anything like the friendly EU to back us up in the event of acute crisis.