How not to develop the Negev

The major impediment to Negev development is the government.

negev88 (photo credit: )
(photo credit: )
A renewed determination - especially by Shimon Peres and his superfluous Ministry of Negev and Galilee Development - to undertake yet another massive government effort to develop the Negev, threatens to become a repeat of 50 years of such failed efforts. These involved the sinking of billions into projects that have enriched our politicians and their bureaucracies, but have crowded out private enterprise and left the Negev and Galilee economic basket cases. This is what emerges from a recent Globes Negev development conference initiated by Peres's ministry. It was addressed by Prime Minister Ehud Olmert, Shimon Peres, Finance Minister Avraham Hirchson, mayors and other economic leaders who bemoaned the terrible problems facing the Negev, and waxed poetic about its potential, especially as real estate. Their bottom line, however, conveyed a single message: give us more taxpayer money for Negev "development," and more government intervention. In keeping with the new dispensation about the importance of the private sector all these government initiatives are designed, we are assured, with the strategic aim of encouraging private enterprise. But even the encouragement of private enterprise is conceived, typically, as the encouragement of big business, of "the leading enterprises" and their "foreign investor" partners that specialize in getting huge subsidies from government with little benefit to the economy. Small businesses and their crucial role in economic growth have been, as usual, mostly ignored. This happened despite the fact that in October 2005 a plan commissioned by Daroma-Idan Hanegev (a Negev development NGO including prominent businessmen such as Eitan Wertheimer), that included a section on economic development by the respected consultancy firm McKinsey & Co., was submitted to the government and eventually endorsed by it. THE MCKINSEY team apparently despaired of the possibility that Israel would finally drastically cut its strangling bureaucracy and its anti-enterprise regulation and heavy taxation, or that the government would give up its destructive land monopoly. It therefore designed a clever Negev development halfway house, in which under the benign supervision of the very bureaucracy which its team identified as a major impediment to Negev development, private enterprise would be "encouraged." This could be accomplished, McKinsey seemed to believe, by the government bureaucracy outsourcing its supervisory and encouragement functions, making it possible to "remove market failures and barriers to economic development (e.g. bureaucracy), ensuring attractive environments for high-potential industries (e.g. technology, electronics, chemicals), and capturing spillovers [that] will drive new job creation." It is fashionable for public figures, even economists, to claim that ostensible market failures require increased government intervention; as if government - whose economic failures are so inherent, persistent and predictable, is really capable of correcting "market failures," mostly caused by government intervention in the first place. This perhaps is the reason why in this context too questionable "market failures" were invoked. It is also debatable whether one can expect most growth potential to come from mammoth enterprises, hoping that, as in other parts of the world, in Israel too helping such enterprises will enhance employment. Past experience does not support such a claim. We learned that enterprises such as Vishay and others that received scores of millions in government subsidies have done very little to widen employment in the Negev. They have only provided minimum-wage employment to a relatively small number of workers at huge cost to the Israeli taxpayer. The assertion that by outsourcing certain government functions the anti-enterprise Israeli bureaucracy can be converted into a pro-enterprise force is also problematic. Numerous government bodies established ostensibly to promote enterprise became instruments for politicians to secure jobs and budgets for their cronies. They wasted millions and become a hindrance to enterprise. The McKinsey report is nevertheless extremely important because it clarifies that the major impediment to Negev development is the government, and it tries to come to grips with this fact. This may be the reason why it was shunned aside in the Peres's conference despite of its endorsement by the government. Peres simply stuck to his big government mantras, announcing, "We have a great vision, we have plans, but we lack government budgets, and this is the critical problem of most Negev development plans… the time has come to invest government budgets, and especially to invest private capital in the Negev…" It has never occurred to Peres that the billions governments have already sunk into Negev boondoggles were precisely what crowded out private enterprise. Government "investments" required socialist-type bureaucracies to manage them. They inevitably also involved political favoritism. Both were inimical to private enterprise and economic growth. Since Olmert, an advocate of strong government cooperation with big business, needs Peres to bolster his shaky coalition it is likely that Peres will get his billions to squander on "development." The only glimmer of hope comes from an unexpected quarter, from a new type of involvement by the Jewish National Fund - an organization that by supporting the government's land monopoly has hampered economic development - with private-sector initiatives. The president of the JNF, Ronald Lauder, is an international businessman with a deep commitment to Israel. Should he persevere, the JNF under his guidance may succeed in creating an infrastructure and an environment conducive to enterprise. If this would be coupled with devising instruments for the provision of credit for small Negev entrepreneurs a true turnaround can be expected.