DANIEL DORON 58.
(photo credit: Courtesy)
Israelis, usually free-wheeling spirits, seem to be addicted to government
intervention. Even after many costly failures of government programs, they still
insist that government can become an efficient instrument of social – and hear
this – economic advance.
This is a dangerous conceit. Those who advocate
greater public-sector intervention rationalize it on the basis of a utopian
vision of its future benefits. They ignore, however, the very great damage
already caused by the bureaucratic stranglehold that increased public sector
activity already inflicts, the kind of damage that has undermined several
mega-government attempts “to develop” the Negev and Galilee at the cost of many
billions. For a putative future “vision” they are ready to sacrifice the
Hellenization and enlightenment: Post-Hanukka ruminations Would Milton Friedman have approved?
An impressive conference organized earlier this month by the The
business publication and the Reut Institute demonstrated this unfortunate
proclivity. Reut’s young and intelligent academic activists are determined to
teach this country how to leapfrog into a position of one of the 15 top
most developed economies by building an elaborate system of public-sector bodies
that will “direct” economic development, especially in the
They believe, with no reasoning offered to support this
conviction, that “the public sector creates the infrastructure [whatever this
means] for leapfrog development,” while “market forces cannot create [it] on
their own, because without government involvement and initiative the private
sector will refrain from taking the huge risks of the fast
THOUGH REPLETE with modern sounding catchphrases, the
Reut people seem to be oblivious to modern economic developments. Otherwise how
could they miss the stupendous development of the Internet, only one prominent
feature of a modern economy that debunks their assertion that the private sector
is too risk averse to undertake large-scale development.
Reut’s best and
brightest entertain the ambition to make it “a primary resource for strategic
support for all agencies of the government of Israel.”
They could do it
more effectively if they showed a better understanding of economics generally,
and of what ails the economy in particular.
It is audacious to believe
that without much experience a bright mind can re-engineer an economy without
first understanding what went wrong with it. The Reut people do not seem
to realize, apparently, that it is excessive public-sector dominance that has
been strangling development. Otherwise how could they suggest that this country
make its economy grow faster through greater public sector involvement?
be possible, of course, to teach governments to make long-term plans and execute
them efficiently, as it may be possible to teach an elephant to
dance. The odds, however, are against it. It is hard to imagine why
governments, famous for their ineptness, are suddenly going to become efficient;
it is uncertain that trying to make them so is worth the time and money it will
Reut believes it could make government efficient by better
coordinating its many activities (many of which are contradictory) through a
Knowing how easy it is to coordinate between even two
ministries, Reut’s “central brain” sounds like another conceit that will prove
its impossibility at a heavy cost, as central planning did since Stalin’s
YOU WOULD think that the repeated failures of most macro planning
would teach us by now that they are a manifestation of problems innate in all
political institutions, like governments, that are generally hostile to economic
calculation. To be elected, politicians must satisfy the demands of vested
interests and pressure groups, so they and their institutions cannot be expected
to care about the efficient allocation of resources. It is irrational to expect
them to instigate a leapfrog in economic development that requires cost
The “central brain” inventors must have recognized this
difficulty, so they suggest “the promotion and assimilation of institutions and
processes that support quick social and economic change.”
But as is often
their wont, the Reut people fail to explain who will promote such institutions,
by what means and at what cost.
Institution building is a very complex
and lengthy process, much of it spontaneous and unpredictable. This is
why in real life it is economic development that catalyzes the formation of
institutions in a bottom-up process, as is happening now in China and India, and
as has happened in Europe since the industrial revolution. All we can say
about this spontaneous process is that it works best in an environment of
freedom that allows individuals to fulfill their creative potential, and not in
planned economies that stifle individual initiative with top to bottom
direction, as Reut recommends.
Reut’s is a view common in academia.
Influenced by Marxist prejudices, intellectuals, who protest that they love
freedom, always look for excuses to deny individuals economic freedom. Instead
they recommend that economic activity be “encouraged,” “shaped,” “directed” from
above by an “elite of people in positions of authority, influence and leadership
such as political leaders, professionals, academicians, heads of NGOs,
philanthropists and businessmen” (notice who ends the list) who presumably, like
Reut, “have expertise in identifying strategic opportunities or surprises”
(whatever that means).
It is not clear how such a know-it-all “elite” can
actually generate growth. It is known that attempting to “direct” growth always
leads to enormous waste of time and resources. This is a pity, since even after
the recent gas discoveries the country cannot afford to waste resources and hope
its economy will flourish.The writer is director of the Israel Center for Social and Economic Progress.