In the past two months Israel has lost two of its most distinguished economists - Hebrew University professors Haim Barkai and Marshall Sarnat. They were among the few stalwart supporters of the free market among Israeli economists, most of whom sing the market's praises but prefer to seek market failures that the government can allegedly correct.
Their loss at a time of great change in Israel - change fraught with opportunity and peril, may make the already arduous task of reforming the nation's economy much harder. It has already caused great pain to their families, friends and
colleagues, and to all who admired them for their high intelligence, rare intellectual integrity and unflagging dedication to the welfare of the state.
BOTH HAIM Barkai (81 at his death) and Marshall Sarnat (77) belonged to the founding generations of the Israeli economic community. They were graduates of the brilliant Prof. Don Patinkin, who in 1949 established the Hebrew University's world-famous modern economics department, raising generations of brilliant economists.
Though a graduate of the University of Chicago, Don Patinkin was not of the Chicago School, committed to the free market and opposed to government intervention. He was an avowed Keynesian - a believer in the government's duty, and ability, to counteract business cycles through enhanced deficit spending. His intellectual mentor was not the great Chicago monetarist and free-market thinker Milton Friedman, but the famous Keynesian Paul Samuelson.
Samuelson's influential text Economics became the bible of HU economists. With it they inherited the assumption that government can fine-tune an economy, and that its intervention to accomplish this is justified and even desirable.
Most graduates of the economics department - many of whom were steered by Patinkin to get their PhDs at the best US universities - went to work for government, the public sector or the huge monopolies (especially in banking) that came to dominate the Israeli economy. They were the ones who set the trend - a trend which proved to be so destructive - of government economic domination, believing that only government can define the public good and promote it.
With all their good intentions, they facilitated the growth of the huge bureaucracies that today still strangle the Israeli economy, and were servants of self-seeking politicians and their rapacious big-business partners who have amassed huge fortunes and political power by despoiling the economy and its hard-working consumers.
IT COULD be safely argued that the economic mind-set promoted by these Hebrew University economists - well meaning, decent people - is at least in part responsible for the terrible fact that though Israel's economy was blessed with extraordinary human capital and enjoyed large foreign investments, grants and aid, it has not managed to create a productive system that affords its workers both full employment and decent wages.
The statist mind-set that these economists promoted arrested Israel's economic development, so that hundreds of thousands of families can't make ends meet. Israel is plagued with economic, social and political problems that threaten its viability and make it unable to fulfill its potential.
Ideas do have consequences, and bad ideas have bad ones.
LIKE THE few other Hebrew University economists who are truly committed to a free-market philosophy (chiefly professors David Levhari and Nissan Leviathan), Barkai and Sarnat never worked for the government or the banks. Though they occupied public positions - Barkai as chairman of the advisory board of the Bank of Israel and Sarnat as the expert member of the Bejski Commission (which investigated the manipulation and collapse of bank shares in the Eighties) - they remained independent agents who owed nothing to the powers that be; nor were they cowed by them, as many economists are.
Sarnat to a major degree, and Barkai (because of circumstances) to a lesser extent put themselves at the forefront of the seemingly hopeless struggle to reform Israel's dysfunctional financial markets. It was a 20-year struggle in which the banks, with their enormous and corrupting wealth and political clout, long managed to resist any reform. This time they lost, in great part because of the guidance of Sarnat, Barkai and (may he live long) David Levhari, who without fear, with wisdom and tenacity guided the struggle until the reform went through.
BARKAI AND Sarnat shared many characteristics, but their temperaments and academic interests were quite different. Barkai was a soft-spoken, somewhat shy man. His main interest was economic thought, and the history of the Israeli economy. He recently completed, with Leviathan, a 50th-anniversary volume on the Bank of Israel, which is really Israel's monetary history. He also wrote about the first years of the Israeli economy, and about the economic structure of the kibbutz. His most brilliant contribution is perhaps a long essay introducing the Hebrew translation of Adam Smith's The Wealth of Nations. Titled "Marx Contra Smith," it is a tour de force that put Marx in the corner where he belongs.
The tall, strapping Sarnat was an extrovert, full of curiosity about people and kindness toward them. His work, more pragmatically oriented, pioneered the study of decision making in the allocation of resources to uncertain financial markets, and included, with Prof. Haim Levy's, one of the basic texts in this field.
Two giants. They will be sorely missed.
The writer is an economist. www.icsep.org.il
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