The economy - look to the future

Netanyahu can rehabilitate his standing by abolishing the monopolies that make consumer goods expensive.

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May 24, 2009 22:18
4 minute read.
The economy - look to the future

Ofer Eini 88 248. (photo credit: Ariel Jerozolimski)

Everyone lost in the recent budget struggle. A heavy economic toll will be exacted from the public. Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz paid a heavy political price for giving the Histadrut much without receiving much in return. Does anyone believe that after getting more than it expected, the Histadrut will still help implement difficult reforms in the Israel Lands Administration, the Electric Corporation and the ports, as it presumably promised to do? Ehud Barak's support for Histadrut boss Ofer Eini's outrageous demands exposed his weakness in the Labor party, where Eini is dominant. Eini acted just as any union boss dependent on the militant unions of public sector monopolies would. He extracted on their behalf concessions worth billions of shekels by nixing the government's intention to impose a wage freeze on public sector employees. Even worse are the changes in employment law that the government conceded. If enacted, they will make the already sclerotic labor market weaker still, at a time when an employment disaster is looming large. It is hard to imagine what could be worse for workers than greater rigidity of the job market - except for higher taxes, and we got them too. The highest price for all these distortions will be exacted from the low-wage earners, those whom the Histadrut repeatedly claims it wishes to protect. As for the Manufacturers Association's chairman Shraga Brosh, he simply exploited the crisis to get more handouts from the government for his constituency - the biggest firms in the country - at the expense of medium and small businesses. That is how the Manufacturers Association traditionally behaves: It works on the line to Jerusalem seeking government handouts, rather than on the production line. NETANYAHU APPARENTLY decided that he must focus entirely on the existential problem of a nuclear Iran. He announced before the elections that he would spare no effort to create a wide coalition, including Labor. In a crisis situation it is desirable that the nation know its government takes into consideration diverse viewpoints, and that leaders with Barak's military experience participate in deliberations. It also helps that foreigners - friend and foe alike - know that the prime minister enjoys a broad basis of support when he makes tough decisions. In our chaotic politics, Netanyahu was forced to pay a heavy price for his less-than-ideal coalition and his desire to pass a budget in time. His "partners," mainly Barak and Eini, understood how much he needed them, so their demands knew no limit. They ignored how badly their bargaining tactics, bordering on blackmail, reflected on our politics. They tried to fool the public by describing their harmful sectoral demands as being in the general interest. The huge budgetary overspending they got will exempt privileged overpaid monopoly workers from doing their share of belt-tightening. It will cost some NIS 5 billion a year in additional interest, mandating cuts in welfare, education and security. This is how "they protect the weak" and help the economy withstand a dangerous crisis. THE LITTLE GOVERNANCE ability left in governments was badly damaged as well. The Treasury's Budget Department, a bastion of fiscal responsibility, was not creative enough to offer any growth-oriented measures, any positive vision. It stuck to its focus on securing the government's take from taxes, as if it was sacrosanct, as if profligate government spending justified imposing on an already exhausted public and business sector (the politically weaker small and medium enterprises - big business gets many exemptions) ever more punishing measures. The unbelievably brazen behavior of some of our oligarchs toward Bank of Israel Governor Stanley Fischer, a stellar public servant, also indicates lack of governance. They have contemptuously rejected the demand by Fischer that they take responsibility for almost bringing to ruin the country's second largest bank and resign. They outrageously accused the governor of McCarthyism and of lying, while calling for "restraint and level-headed thinking." These oligarchs acted so because they believe that, as in the past, their highly paid lawyers, their costly lobbyists and their supporters in the media and the government will help them intimidate anybody that dares cross them and call them to heel. BUT WE MUST not get enmeshed in the past. We must urgently prepare for an uncertain future. The global economic crisis is not over yet and may erupt further in immense force and unpredictably. Only economies which are efficient and resilient will be able to weather the storm without extensive damage. Netanyahu can rehabilitate his political standing if he courageously reduces taxes, recently recommended by the distinguished economist Martin Feldstein as the best antidote to the crisis and a stimulus for growth. Netanyahu could also abolish, with help from Steinitz, the monopolies whose huge "monopoly tax" on consumer goods make them so expensive. By introducing competition, prices could be reduced by 25 percent, increasing the purchasing power of low-earning families in particular - even raising many of them above the poverty line. This would save billions in government aid to the needy and ease the grave budgetary deficit. Forge ahead then, Netanyahu.


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