Just before the Passover holiday, the Central Bureau of Statistics published its selection of economic indicators for January-March, showing a clear picture of an economy in stagnation, or even one headed in the wrong direction. Exports were down by an annualized 14%, compared with the preceding quarter, industrial output fell 2%, and the deflationary trend in the Consumer Price Index continued at a 0.8% annualized clip.
These figures are for a few months, and such trend data are usually accompanied by a warning about the limited time span on which they are based. The problem is that the Central Bureau of Statistics announcement did not reflect a two or three-month deviation; it matches long-term trends in the economy, which can be summed up by a single word: stagnation.
Israel has been mired for several years in a dynamic of low growth, low productivity, and shrinking output. In terms of per capita growth, the Israeli economy has not grown at all in the past several years. The labor market, in the low-tech and services sectors continues to feature low pay and low productivity. If we can believe recent media reports, the startup nation is also in trouble, and people have suddenly become aware of the structural problems of the exits model.
Despite the grave situation, however, and it is indeed grave, no one has yet seen fit to discuss it in terms of a crisis, even though in the not-so-distant past, such figures would have aroused a storm and considerable comment in Israeli economic press and politics. The original headline for this article was to have been "The Quiet Crisis," but on second thought, that would have been misleading. The current crisis is not quiet; it has been hushed up.
Government in Israel, in other words, the Benjamin Netanyahu government, learned an important lesson from the 2011 social protest, followed by the controversy about the natural gas plan. The government prefers that Israeli society not deal with socioeconomic issues. Even the dispute about the gas plan is tolerable, as long as the discourse takes place within the limits of a discussion on monopoly and prices, and does not spread to broader issues of economic ideology, economic policy, and income distribution.
In practice, Netanyahu has decided that he would do well to distance himself from economic policy. Following the 2011 mass social protest, Israel no longer had an economic czar, and the man who pulled the strings in all the important economic decisions took care to make this clear to the entire public. Instead, Netanyahu has been concentrating on "life itself," in other words, "security challenges," while leaving the economic decisions to others, with first Yair Lapid being appointed Minister of Finance, followed by Moshe Kahlon. Lapid lacked suitable knowledge, political experience, and qualifications, while Kahlon has apparently appointed himself housing czar, while neglecting anything unrelated to his housing enterprise.
This is how economic policy has been conducted in Israel for years. It has been confined to a few areas, mainly those concerning the "cost of living" and the "cost of housing," while demonstrably ignoring the enormous challenge of radical changes in key areas. The taxation system in Israel needs an immediate and thorough reform that will shift the weight from indirect to direct taxation. A crisis is liable to develop in the pension system in two decades unless safety nets for the young working population are added to it. The technology sector in Israel will reach a dead end without a structural change that emphasizes the building of companies for the long term.
Above all, the labor market in Israel is in need of absolute change. Instead of a market based on personnel contractors, low wages, and low productivity, the government should push, promote, and strive for employment and social security, encouragement of productivity, and a more just distribution of GDP.
These are tasks that any reasonable government would have taken on itself, in view of the current dismal socioeconomic situation. For years, however, governments in Israel have fled from these tasks. While Netanyahu once spoke openly of his views and aspirations in the economic sphere, and promoted privatization and tax cuts, today he prefers public attention to stay away from any discussion about his outlook in priorities, income distribution, taxation policy, and the labor market.
To tell the truth, it must be admitted that Netanyahu has been aided and abetted in this by the Israeli media. Instead of discussing fundamental socioeconomic questions, we get a thick wad of imaginary sterile cultural wars. Anyone keeping track of the endless reports and broadcasts about "Sephardism," snobbery, "Tel Aviv elites," etc. is liable to conclude that Israel is divided into subcultures and tribes.
On the other hand, we hear nothing about the significance of the growth of a class of young urban workers with a growing proportion of people of mixed ethnic background. Nor do we hear about the enormous significance for Israeli society of the increasingly common phenomenon of working haredim (ultra-Orthodox Jews), who are devising their own ideological order. And what is not heard at all is the existing of a trend among Israeli Arabs of integration into Israeli society and ways of encouraging it.
The economy is becoming the backyard of Israeli public discourse - excluded or exiled from public awareness. Perhaps it threatens what is perceived as the main virtue of the obedient citizenship in Netanyahu's dream - keeping quiet and applauding.
Published by Globes [online], Israel business news - www.globes-online.com - on April 26, 2016
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