12
Friday, February 8, 1985
THE DETROIT JEWISH NEWS
ANALYSIS
(I)
BAUME & MERCIER
GENEVE
Cure For Israel Economy:
Loosen Government Reins
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Special to The Jewish News
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Jim Prenzlauer Sheila Weinbaum Mark Amhowitz Adar Ehrlich
The present Israeli economic
crisis can be a constructive turn-
ing point in the relationship of the
United States and of American
Jewry to Israel. The request for a
fundamental economic revitaliza-
tion plan, in the context of in-
creased American aid for Israel, is
George Shultz' contribution to the
Jewish assumption of responsibil-
ity in history. American ideas,
alongside American money, can
be an enormous help to Israel at
this time because they will help
Israel to help itself.
Prime Minister Shimon Peres
has called on American Jewish
business leaders to increase in-
vestment in Israel and to become
involved in developing the high
technology and productive sectors
of the economy. A positive re-
sponse should include honest
feedback: increased productivity
demands loosening the
stranglehold of bureaucratic in-
tervention and 'restrictive union
work regulations in Israel. In
speaking up for greater free mar-
kets, more deregulation and a
cutback in the swollen govern-
ment presence, American Jews
will be reinforcing the message
being sent by the United States
government at this time.
The single most stifling force in
Israel's economy is the omnipre-
sence of the government and the
cumulative bloating of its budget.
Of 1.34 million workers employed
in Israel in the beginning of 1984,
over 400,000 were employed in
public service. Many of these jobs
were st up to mask unemployment
by creating jobs for people who
had not sufficient skills when
they emigrated to Israel. By the
government's own estimate,
100,000 workers should be trans-
ferred from the public sector to the
private industrial sector. There
are not enough workers engaged
in manufacturing and productive
enterprises and the productive
workers cannot carry the burden
of the 30 percent in government.
The government owns stock in
212 companies. • These
government-controlled corn-
panies do an annual business of $6
billion, or almost one-quarter of
the Israeli gross national product.
Political faactors end up control-
ling appointments to boards of di-
rectors or wage scale's or decisions
to close or open facilities — all of
which cut economic efficiency.
Private businesses are discour-
aged by the combination of access
to government financing and spe-
cial help which these companies
enjoy.
The key to growth in Israel's
economy lies in increasing its ex-
ports. However, the export sector
is being distorted by the govern-
ment's manipulation of the cur-
rency rates. To put it simply: the
government decides at what rate
the shekel is converted into
foreign currency, especially dol-
lars. In many cases, the level is set
artificially as to give a govern-
ment subsidy to the business in-
volved.
The socialist and social justice
traditions of the founders of Israel
have metastasized into universal
involvement of the government
,
on every matter. Subsidies on
basic foodstuffs and transporta-
tion which keep these prices arti-
ficially low — even for the weal-
thy — totaled $700 million last
year.
Ownership of the land is also
concentrated in the government.
True to its socialist legacy, the
government restricts land
availability, which reduces build-
ing of private homes, although
there is a tremendous pent-up
demand in Israel for such homes.
There is also a positive side to
all this government involvement.
When the Ata textile firm was in
trouble, the government put up
money to prevent its bankruptcy
in the hope of selling it to foreign
investors. When there was a crisis
in the building industry, the asso-
ciation of builders called upon the
At a time of calls for
belt-tightening and
cutback, it has proved
easier to set up extra
ministers without
portfolios .. .
government to put up money for a
stabilization fund to prevent a de-
pression in that sector.
Unfortunately, the govern-
ment's role resembles nothing so
muCh as the proverbial giving
Jewish parent who never says no,
but who makes the child depen-
dent and resentful at the same
time. The staggering cost of all
these interventions creates a vor-
acious government appetite for
taxes. Taxes currently take 45
percent of the total national in-
come. The official tax rate is so
high that it distorts the compen-
sation structures. Tax avoidance
meanwhile, is widespread and the
"underground" or black market
economy has grown steadily.
Of course, Israel is an indepen-
dent democracy, and neither the
United States nor American
Jewry has a right to improperly
intervene in the internal affairs of
Israel. However, the extent of
American Jewish philanthropy
and particularly of American
foreign aid removed some of the
normal pressures that would have
led to earlier, more effective Is-
raeli government cutbacks. In a
democracy, understandably,
painful cures that go down poorly
with the electorate are last re-
sorts. With the kind of backing
Israel was getting from America,
the government found the path of
least resistance was to spend
rather than exercise restraint.
At a time of calls for belt-
tightening and cutback, a time
when welfare was being reduced
in a country where it is still des-
perately needed, it has proved
easier to set up extra ministers
without portfolios or deputy
ministers in order to win the par-
ticipation of the many small par-
ties.
By holding back on expanded
.