Big labor and big business come up with a plan for bigger government.
By DANIEL DORONjerusalem light rail 298(photo credit: )
The advent of spring and Pessah, evoking the spirit of renewal and liberation, must have stimulated would-be reformers to launch ambitious reform plans for the Israeli economy.
First was the controversial scheme advanced by Shraga
Brosh, head of the Manufacturers Association, and Giora Eini, head of the Histadrut Labor Federation. It called for a legislated tri-partite Economic Council comprising of government, The Manufacturers Association and labor. The council would formulate an annual economic plan and propose a government budget. Its initiators propose that its decisions be legally binding, as they claim was the case in the successful Irish model.
Next came "Israel 2028 - A Social and Economic Vision and Strategy in a Global World." This ambitious plan was formulated by several groups of experts and public figures directed by David Brodet, former director general of the Treasury, and chaired by Eli Hurwitz of Teva fame. Its 20-year plan (remind you of something?) is "a wide-ranging plan for the attainment of national goals, fast and balanced growth and diminishing social gaps... so that Israel will be among the top countries in the world in economic achievements and quality of life."
WHILE THE first plan was designed to cut the power of a Treasury that stands alone against powerful special interests, such as the Manufacturers' Association and The Histadrut, the second plan recommends greater government involvement in the economy by increasing the annual rise in the government's budget from an original 1 percent (heroically instituted by Binyamin Netanyahu when he was finance minister) to beyond the current 1.7 percent, to as much as 5 percent. This will not only make government more meddlesome and destructive but will also further inflate our already bloated and growth-inhibiting public sector.
In "The Model That Was Not" (The Marker, April 19) Nehemia Shtrassler exposes the huge difference between the real Irish model, and the mythical model that Brosh and Eini want us to emulate. He noted that Ireland enjoyed a budget surplus in the last decade - namely, a smaller government. Brosh and Eini push for an increased government budget, ignoring its negative repercussions on monetary stability and on growth. The Irish model of cooperation strengthened its government's ability to fight monopolies and increase competitiveness, to lower taxes and open labor markets. Brosh and Eini want to limit competition and extend the monopoly power of large business in cahoots with the Histadrut.
A DETERIORATING economic environment due to increased government economic involvement will also result from the 2028 reform plan.
Despite some pious suggestions to break up monopolies, increase competition, and to make government - God help us - more efficient, the concrete recommendations of the 2028 plan require a larger, more involved government and imply more government benefits for our oligarchy. They will perpetuate, alas, policies that have prevented Israel from attaining the high growth that the formulators of Israel 2028 think we must attain.
There are many pointers in the plan indicating what its true purpose is - over and above the outrageous recommendation for a five-fold rise in the annual increase of the government's budget, a growth that would obviously benefit all those accustomed to government largesse.
There is, for example, a recommendation that the government help large Israeli businesses become major international players. It ignores the fact that government has never had the ability to pick winners, since its choice will always be dictated by counter-productive political considerations.
But perhaps the plan's formulators had the Teva model in mind. Teva has grown so spectacularly not only because of its audacious entry into the generic drug niche but because for decades it was a granted virtual monopoly status in the importation of drugs to Israel, amassing a great fortune.
'ISRAEL 2028" fails to even clearly define the major problems plaguing the Israeli economy; its solution are therefore not promising. It correctly states that Israel has a dual economy; its successful, productive high-tech sector and its low productivity traditional sector. It mentions the growing gap in income and the social tensions it generates. It points out that Israel suffers from low growth and laggard response to globalization and concludes by bemoaning the low participation of Israelis in the workforce.
But it mentions only passingly, in later subsections of the plan the major cause underlying all these ills: the incomparable intervention of government in the Israeli economy, choking entrepreneurship and growth; the huge concentration of economic and political power that spawns costly anti-competitive, inefficient monopolies; the huge growth of the anti-productive public sector that employs every third person and squanders over half of our GNP; the welfare regime that consumes a third of the government's budget, rewarding non-work; and the forbiddingly high taxes necessary to finance all this distortions and waste.
It must be either naivete or cynicism that allows "Israel 2028" recommend a reform that will make government a larger and a more efficient instrument for economic growth. Its savvy framers must know that an anti-growth government is, under our present system, politically unavoidable. As the numerous failed efforts to reform government prove it cannot be easily changed.
They must know that the only way to get a better government is to drastically cut it and make it manageable. If they still call for enlarging government it must be because they do not really mind the perverse system it spawned.
It worked extremely well for them, it seems.
The writer is director of The Israel Center for Social and Economic Progress.
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