Selected articles concerning Israel, published weekly by Suburban Orthodox Toras Chaim’s (Baltimore) Israel Action Committee Edited by Jerry Appelbaum ( [email protected] ) | Founding editor: Sheldon J. Berman Z”L Issue 8 9 9 Volume 2 1 , Number 3 1 Parshias Shoftim August 1 4 , 2021 Israel’s Current Government Aims to Imitate Benjamin Netanyahu’s Great Economic Transformation By Haviv Rettig Gur timesofisrael.com August 8, 2021 Before the coronavirus crisis, there was the economic Many have expressed surprise that an Israeli crisis of the second intifada. government that holds the narrowest pos sible Knesset In the throes of the 2009 financial meltdown, Barack majority, bickers constantly with itself, and is largely Obama’s chief of staff Rahm Emmanuel famo usly advised managed by political neophytes could have dared to put to “never allow a good crisis go to waste.” Let the crisis, he forward such an ambitious budget. Some have suggested said, be the instigator for a transformative policy shift. that the government’s very fragility may be responsible for The aphorism didn’t begin with Emmanuel. Winston its bold plans. Ministers who fear they may not remain in Churchill was once credited with the insight. Indeed, it’s a office for very long are all the more eager to accomplish a basic truth of politics. A crisis, by definition, is a moment great deal quickly. when the old order no longer provides clear solutions to But there’s a larger phenomenon at work, too, an new conditions and threats, when predicaments proliferate implicit grasp by all parties in the new coalition that the and outcomes are unknowable. From the inadequacy of crisis that now grips the country — the combined effects the old order’s rules and privileges and from the dire peril of the resurgent pandemic and the past two years of of the moment, new ways of thinking are introduced into unprecedented political deadlock — has opened a rare the world. A crisis is a moment of creation. window of opportunity for effecting profound and long - Israel’s cu rrent political moment is no exception to delayed change. that rule. It’s been 18 months since SARS - CoV - 2 arrived In the 1970s, partly sparked by the 1973 war and high on Israel’s shores. It’s been 2.5 years since Israel first defense spending in its wake and then accelerating after embarked on this new era of repeat elections and deeply 1977 during Likud’s first term as Israel’s ruling party, dysfunctional governments. And amid the tur moil – Israel’s economy entered a slow, implacable freefall. From because of the turmoil — the most dramatic budget bill in 1979 to 1985, Israel entered a period of runaway inflation. a generation is now headed to the Knesset. The numbers were s taggering: 133% in 1980, followed by This bill is no mere budget; it’s a collection of deep 101% the following year, then 132%, 191% and 445% in and consequential reforms with the potential to change 1984. The government was at a loss. Prime Minister Israeli society in important ways. It upends the old ways of Menachem Begin cycled through four finance ministers in thinking about the Israeli state’s responsibility for its Arab six years, each tasked with righting the ship, each leaving it citizens; takes a sledgehammer to structural obstructions in worse shape than they found it. that have long plagued the Israeli economy, from Israel replaced its currency twice in that period, protectionist import policies to state price - setting on basic jettisoning the lira in favor of the shekel in 1980, then s taples; reimagines Israel’s public transportation network abandoning the shekel in 1985 in favor of the new shekel, and environmental commitments, including slashing with the new currency’s value set by erasing three zeroes regulation and easing import rules on electric vehicles; off the shekel it replaced. opens the banking system to more competition, especially The turnaround finally came in the 1984 election, online and via mobile apps; dramat ically increases which ended in a national - unity power - sharing government spending on health and defense while cutting expenditures with a rotating prime minister. Labor’s Shimon Peres went on most other things; and promises a major overhaul and first, to be followed by Likud’s Yitzhak Shamir two yea rs streamlining of governmental red tape in a plan officials later. Likud politician Yitzhak Modai was appointed are trying to sell to the public as a “regulatory revolution.” finance minister. Unlike the succession of short - lived It d oes things long deemed politically unfeasible, such finance ministers who came before him, Modai, backed by as raising the retirement age for women and opening the Peres, thought big. agricultural import market to competition. By 1985, inflation was headed past the 1,000% mark. It’s not clear that all those dramatic reforms will The emergency had finally grown gargantuan enough to survive to the bill’s final version slated to come up for a push aside the powerful interests and political partisanship final vote in the Knesset in early November. Opposition to that had previously prevented the kinds of deep reforms some of the most dramatic reforms has been fierce. But that could rescue the Israeli economy. even if it is watered down, it will still constitute the most It was an extraordinary moment. Israelis in 1985 knew dramatic and comprehensive set of governmental and they were s afe from their external enemies in a way that social reforms in a ge neration. It’s been two decades, in the Israelis 20 years earlier had not known. But as the inflation 2003 budget law advanced by then - finance minister crisis wore on and the government’s reform efforts Benjamin Netanyahu, since anyone has seen a bill that repeatedly proved fruitless, they began to wonder if Israel even aspires to such feats. itself hadn’t become its own worst en emy. F o c u s o n Is ra el August 14, 2 0 21 Page 2 It was only when the crisis became sufficiently acute dependent on the Israeli economy — and was flourishing that Peres and Modai found themselves working because of it. Israelis could safely travel in Palestinian cities harmoniously across party lines; that a Labor - led in those days and had developed a habit of buying cheaper government finally brought itself to brow - beat the labor Palestinian goods and services, from car parts to dentistry, unions into accepting salary freezes and maj or industries valued at hundreds of millions of dollars annually. into accepting price controls, that public spending could Together with overseas tourists, they dropped half a billion be drastically cut, that the Bank of Israel’s ability to lend dollars annually, equal to over 10% of the Palestinian money to cover deficits could be made illegal, and that GDP, at Jericho’s c asino. Palestinian unemployment many government - owned companies long treated as the dropped in the Oslo years from nearly 25% to 10%. About special preser ve of political apparatchiks could finally be 150,000 Palestinians, or nearly a fifth of employed privatized. Palestinians, held jobs in Israel earning higher salaries than The crisis wasn’t, at its root, merely the unavoidable could be found in the Palestinian economy. Palestinia ns aftermath of the 1973 war, Israeli leaders came to were the most highly educated Arab people at the time, understand. It was driven by a deeper and older structural constituting double - digit percentages of Hebrew problem. The inefficiencies of an economy long managed University’s student body, and Palestinian per capita by statist ideologues and institutions had reached the income was the highest of any non - oil - producing Arab breaking point, and the Peres - Shamir government of 1984 country. was wise enough to take advantage of the opportunity to The Palestinian economy needs Isra el to thrive. That’s make a clean break with the old ways of doing business. as true today as it was then, as true under occupation as it The result was an unmitigated success: inflation will be in a Palestinian state, and as galling to today’s dropped to 20% within two years, growth resumed, and Palestinian ideologues as it was to the ideologues of a the Israeli economy was humming along toward present - generation ago. day levels of stability and growth by the time the Russian - But Israel’s economy needed the Palestinians , too, at speaking immigration wave began in the early 1990s. least in those days. As they grew wealthier from trade with I t is hard to exaggerate the importance of Modai’s Israel, Palestinians became eager consumers of Israeli reforms to Israel’s future strength and prosperity. The products, with some 1.7 billion dollars in Israeli exports to Bank of Israel was freed from government control by law, the PA annually, or 7% of total Israeli exports excluding enabling it to set monetary policy independent of the diamonds. P alestinian labor drove the Israeli agriculture government’s immediate cash - flow needs. The and construction industries. government’s iron grip on vast swaths of the economy was The onset of the Second Intifada reversed those shaken loose through privatization, setting a precedent that trends, hurting both sides deeply and in interconnected would accelerate throughout the 1990s and 2000s. But ways. A flourishing customs - free trading area that was perhaps most profoundly, the old debates between pushing Palestinians ever upward and helping to drive socialists and liberalizers wer e settled, and free - market - Israeli economic growth was suddenly, in the terror wave oriented economic policy became the baseline for judging and the resulting regime of curfews and checkpoints, government spending from 1985 onward.