There has been a lot of talk in the past few years about the government's organized assault against the purchasing power of the middle class. Systematically, unprofessionally, and with an utter lack of understanding about economics, the government has attacked the purchasing power of the national bulwark. It has raised VAT, income taxes, the companies tax on small and mid-sized businesses, and is continuing and even expanding the profligate exemptions awarded to many of the country's biggest companies.
It is doing this through a wave of price hikes on basic goods, such as electricity, water, fuel, and food, by continuing to turn a blind eye to the wave of mergers and cartels which have turned Israel into one of the most uncompetitive countries in the world (ranked 81st in domestic competition worldwide), and in collusion with the Bank of Israel, by cutting the interest rate to create an unprecedented inflationary real estate bubble. Prime Minister Benjamin Netanyahu has broken all of his promises made before the last elections.
The result of this failed policy, a kind of chronicle of a death foretold, is a harsh economic slowdown, a severe deterioration in the economic condition of the middle class, a further plunge in the standard of living of the poor, who already among poorest of their peers in the West, and finally a massive crisis in Israel's business sector.
It seems that no one has yet written about the direct, immediate, and fundamental link between the failed economic policy and the recent collapse of many businesses, large and small, in Israel. There has been a lot written about the collapse of business pyramids, beginning with IDB Holding Corp. Ltd. (TASE:IDBH), due to their failed conduct. But it is a fact that were Israel to grow at its full potential of 5-6% a year, as it should have were it not for the Netanyahu government's decision to destroy the middle class, many of these companies would not have crashed, despite their infuriatingly failure in conduct. Were Israel growing at its full potential, IDB might have been able to avoid collapse.
Netanyahu frequently manipulated disproven international comparisons about Israel's relatively good economic shape. The usual technique was a misleading comparison between apples and oranges, especially about growth and unemployment figures. At the start of his term in 2009, in the aftermath of the global economic crisis, Netanyahu boasted that Israel was an island of stability, and linked this to his ostensibly successful policies. In practice, the global economic crisis had little effect on Israel.
The fact is that the global crisis mostly affected Israel's exports, which account for 45% of its GDP, but every dollar in exports brings in $0.70 in imports, so the net effect on GDP will be only $0.30. This means that the net effect of the global crisis on Israel's GDP was only 15%. More than 85% of GDP is affected by domestic demand, primarily private consumption, which mainly depends on economic policy and its quality.
The global situation has stabilized and slightly improved. In contrast, the Israeli economy has been hit by the failed economic policy of the Netanyahu government, which has seriously damaged domestic demand by its assault on the national purchasing power. These economic mistakes have caused the worsening slowdown that we are experiencing today.
The old spin, "an island of stability", no longer works, and the tune has been changed. According to the new spin, Israel's economic situation has deteriorated because of the global situation. The fact that the global situation has little impact, and has improved during the four years of the government's term, does not addle the government. Now the world is to blame and the government bears no responsibility. In any case, and as always, the government bears no responsibility for the failures and disasters.
What is the point of leaders who shake off all responsibility? The government has even threatened that if it is not allowed to continue its failed policy, Israel's economy will collapse.
The Labor Party under chairwoman MK Shelly Yachimovich has offered an economic plan to restore Israel's full growth potential by reversing Netanyahu's wrong-headed policies of the past few years. No more organized attacks on the middle class, but the opposite: an understanding that the middle class (families and small and mid-sized businesses) is the group that will rescue us from the economic crisis that the Netanyahu government has bequeathed us.
No more tax hikes on salaried employees, consumers, and small and mid-sized businesses; and conversely, no more profligate exemptions for big companies and tycoons, no more immense tax breaks on multimillion shekel options given to former officials who joined public companies - sometimes the same companies they regulated a year or two previously - with the complicit silence of the government. No more cover for the waves of cartels and mergers which have turned Israel into a heaven of oligopolies and thieves; conversely, active, initiated, and determined intervention to ensure competition in the sectors of the economy.
A refreshing face among Israel's leaders
Yes, also against the big unions. No more subjugating monetary policy to needs of credit and the shekel-dollar exchange rate of giant companies; conversely, an understanding that without ending the inflationary bubble in real estate, Israel cannot grow. No more evading responsibility and fictitious finger pointing, but the acceptance of responsibility, the setting of clear targets, and the rewriting of Israel's socioeconomic vision.
Astonishingly, although a large part of the business sector is about to pay the price of the economic crisis, as IDB has paid and as the middle class is paying, many in the business sector are attacking the Labor Party's economic plan with a flood misbegotten words. I cannot in a single column refute the pointless criticism; anyone who wants elaboration is invited to view my lecture last week on the plan on YouTube. But I can make three brief comments.
First, I support the plan's main points, and I believe that it has the power to restore Israel's robust growth in 2014. Second, Yachimovich's taking of responsibility in advance, with no ifs, ands, or buts, is a refreshing innovation in the Israeli leadership landscape. Third, if the business sector continues herd mentality in following the current economic policy, it will be punished. The middle class has already been punished, and your turn is coming.
The author, a former accountant general of the Ministry of Finance, is the dean of the Kiryat Ono Academic College Business School
Published by Globes [online], Israel business news - www.globes-online.com - on January 14, 2013
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