Historians credit Irish philosopher George Berkeley, who started a discussion around sensory perceptions in 1710 that has over the years been referred to as this now famous question: If a tree falls in a forest and no one is around to hear it, does it make a sound?
That debate, of whether something that is not physically perceived actually happens or not, has since grown in scope and significance, drawing in other philosophers as well as the scientific community, including such notable thinkers as physicists Albert Einstein and Niels Bohr. The topic is, of course, not limited to Western philosophy, it also exists in Buddhism, Hinduism and other philosophies and religions.
It was many years later, in the 1980s to be exact, that this debate took on a whole new meaning when the American political strategist Lee Atwater said simply and succinctly, “Perception is reality.”
“Perception is reality.”
Lee Atwater
What had been practiced for years in the worlds of marketing, communications and politics was now more clearly and openly proclaimed: reality matters less than people’s perceptions of it, especially when it comes to selling products and political activities.
Israel's judicial reform: A failure to learn that perception is reality
Sadly, this lesson has not been learned by our current Israeli political leadership during these last 15 weeks of protests against the judicial reform package that the government was trying to push through in record time.
Why do I say this? Simply because there is nothing inherently wrong with Israel’s economy. Prior to the start of the current unrest, inflation was under control, unemployment was low, the shekel was the strongest it has ever been (actually, one of the world’s five strongest currencies, according to analysts), people were living generally good lives, the investment community had faith in Israel’s future and Israel was rated as the fourth happiest place on earth.
HOW DID the country go from that position to the current position where in the first quarter of 2023, Israeli high-tech companies raised $1.72 billion (NIS 6.3 b.), a 70% decrease from the first quarter of 2022 according to the IVC-Leumi Tech Review Q1/2023. A survey conducted by Start-Up Nation Central indicates that almost 80% of Israeli company executives reported having investors cancel meetings and 30% reported a complete halt to meetings with investors due to the judicial overhaul debate.
According to the survey, 69% of multinational corporations (MNCs) have expressed a negative sentiment about their activity in Israel as a result of the proposed judicial overhaul. As well, 65% of MNCs expect a resultant negative impact on their interest in piloting, buying or commercializing Israeli innovation.
Over the past weekend, Moody’s dropped Israel’s financial rating from “positive” to “stable” reflecting their concern over the potential effect of the proposed judicial reform.
Nothing at all happened to the economy during these 15 weeks to cause any of this. It was simply a case of the perception of individuals who make these decisions that their reality is different than facts on the ground.
Of course, others will point out that Israeli companies did begin to pull money out of the country and offered to move their employees abroad. Riskified, as one example, announced it was moving $500 million (NIS 1.8 m.) out of Israel and offered to relocate their employees to a facility in Portugal that was being enlarged.
But was this really because of the threat of judicial reform or was this something that was planned well before the current civil unrest but which served as a convenient excuse for the company to take action that it had previously planned?
No way to know for sure but the company’s decision to make these moves takes a lot of planning and is not something that is generally decided on the spur of the moment.
IN MOODY’S case, they slashed the country’s economic outlook from “positive” to “stable,” citing a “deterioration of Israel’s governance” and criticizing the “manner in which the government has attempted to implement a wideranging [judicial] reform without seeking broad consensus.” This, the agency warned, “points to a weakening of institutional strength and policy predictability.”
Again, nothing has really occurred in the economy to cause this reaction other than Moody’s perception that something terrible is going to happen if the reform goes through. And how did our finance minister react to this in his comments on Sunday morning? Here are his words:
“I don’t think economists are great experts in constitutional, judicial law; they don’t hold a doctorate on governmental structure in Israel. The responsibility of Israel’s economy lies on my shoulders, not on Moody’s shoulders, nor on the shoulders of the economists or on the professionals.”
Bezalel Smotrich
“I don’t think economists are great experts in constitutional, judicial law; they don’t hold a doctorate on governmental structure in Israel,” Smotrich said in remarks aired on the Knesset Channel. “The responsibility of Israel’s economy lies on my shoulders, not on Moody’s shoulders, nor on the shoulders of the economists or on the professionals.” Smotrich reiterated that the planned judicial changes will be good for the economy and any damage would be a result of the campaigns against the reform.
However, the fact is that the strength of the Israeli economy is very much dependent on the way economists look at us and their perception of where things will go if an uncompromised judicial reform moves ahead. They don’t need to be experts in constitutional law, nor do they need a doctorate in governmental structure. All they need is to harbor a fear that this will move in the wrong direction for them to voice their concerns and cause an economic downturn here.
Berkeley’s theory was correct, as further developed in the following 313 years. When reality and perception collide, perception usually rules.
The sooner our government understands that the sooner they will address the public relations issues attendant to the planned judicial reform and then seek a compromise that will re-establish stability in the economy. And the sooner the better before we reach the point of no return.
The writer has lived in Jerusalem for 39 years and is the CEO of Atid EDI Ltd., a Jerusalem-based international business development consultancy. He is also a former national president of the Association of Americans and Canadians in Israel, a member of the Board of Directors of the Israel-America Chamber of Commerce and the chair of the American State Offices Association.