At the recent Herzliya Conference, the question was raised whether the Israeli
economy should be “managed” according to the principles of social justice or of
the market economy.
As a “vision,” Social Justice – a codeword for the
welfare state, undoubtedly trumps capitalism.
Social Justice is
indefinable so it can mean anything: from free tuition to subsidized housing. In
contrast capitalism seems niggardly.
For Capitalism – the dirty word Karl
Marx, a brilliant propagandist, attached to the market economy – can make no
unlimited ideological promises. The market economy is merely a process of
production and distribution of goods and services, the best we know in a world
of imperfect people.
Yet capitalism created “values” when it freed
humanity from crushing poverty, from the need to labor hard just to keep body
and soul together, when it immensely improved human life in any parameter
imaginable from longevity and health to the status of women and
Many are unmoved by the astounding freedoms that capitalism
created, the ability to pursue happiness and self realization, because they do
not guarantee absolute equality (an impossible task, really, since people so
differ in their abilities, circumstances and even needs). But they get excited
over Socialism’s enticing vision: “from every person according to his abilities
and to each according to his needs.”
They do not realize that it is
difficult to balance our capacity to produce with our needs, which will always
exceed our abilities. Even more intractable are the questions about who will
determine what our “abilities” are, and what are our “needs.” Politicians?
Experts? Or perhaps the kibbutz’s general assembly or Daphni Leef, Stav Shaffir
and their wise councilors?
The question of whether the principles of social
justice or of the market economy are best for “managing” our economy is really
meaningless. Economies cannot be managed from above. Furthermore, while the
achievements of a market economy can be measured, it is impossible to assess
“Social Justice.” How do you compare a very complex reality with a nebulous
“vision”? So instead of debating vague abstractions, why not examine certain
concrete problems facing the Israeli economy and decide what offers a better
Let us first tackle the problem of excess political and
economic concentration in Israel. It is increasingly acknowledged as the
underlying reason for the failure of the Israeli economy to realize its immense
potential, to provide economic security to all its citizens, and become one of
the richest countries in the world.
That only a few family-owned
conglomerates control most assets in Israel, and use most of its credit, makes
the Israeli economy highly uncompetitive and consequently very inefficient. The
capable Israeli worker produces only two thirds of what an American worker does,
and his salary, therefore, is miserably low. Lack of competition is also the
reason Israeli consumers pay prices on everything often inflated by 100 percent
to 300% over world prices, and why about half their salaries are literally
plundered by our oligarchs who can charge such prices with impunity.
over 30 years, people have spoken up about how the weaker strata are most harmed
by our system.
But the self-proclaimed social lobby and champions of the
poor had nary a word to say about how the poor are exploited by our distributive
political system that enriches the politically powerful at the expense of the
weak, by self-seeking politicians, public sector bureaucrats, rapacious captains
of industry and commerce and their conglomerates and monopolies, by the
Histadrut labor federation and by the banks.
For decades they just
demanded more and more money to fund failing state systems, including the
government’s educational monopoly that managed to make Jews nearly illiterate
and a judicial system that cannot deliver justice.
Until Itzhak Elrov and
his colleagues launched “the cottage cheese rebellion” last summer most
Israelis, especially our elites, lived in denial of the fact that hundreds of
thousands of Israeli families can hardly make ends meet while there are many who
live in great luxury by exploiting all the rest; those who Guy Rolnik called
“the connected,” and I named our “Hevrocracy” (the “Hevre” being the “in”
In the 2006 Herzliya Conference, our think tank, ICSEP, presented
a plan to radically reduce poverty in Israel.
First, competition must be
encouraged by breaking up monopolies and cartels and fully opening Israeli
markets to imports. Much lowered prices would enhance purchasing power,
especially of the low income strata that devotes much of its income to
Low prices will generally boost demand, employment,
productivity and wages, as was the case when telephony was made
Second, we suggested a gradual lowering of housing costs,
the biggest expense of Israeli families.
Housing costs are highly
inflated by the government’s land monopoly (owning over 93% of all land) by
exorbitant taxes, by cumbersome regulation and by private (such as cement) and
labor monopolies. Reducing housing costs can ease the lifelong yoke of high
mortgages, and free resources for productive investment.
Last, but not
least, the inflated Israeli public sector (employing every third person) must be
cut and made efficient, leading to many billions in savings and possible
reduction in punitive taxes.
Powerful vested interests that exploit
poverty made sure the plan was not implemented.
So there is our choice:
an efficient, growth-inducing market economy or a welfare state meaning a huge
government that actually harms the poor and generally inhibits
prosperity.Daniel Doron is the founder and director of the nonpartisan
Israel Center for Social and Economic Progress (www.icsep.org.il).