The Israeli police conveniently charged the Likud’s treasurer with embezzlement, and silly embezzlement at that: she deposited forged checks into her mother’s bank account. Kadima hit Netanyahu in the soft spot: the touted financial genius didn’t notice millions being stolen from his own party. The police stunt was unnecessary: Netanyahu-the-economist is too hollow to poke.
Bibi had never studied economics in any depth. His degrees are in architecture and management, and he also studied political science when universities already burned with leftism. Netanyahu’s experience in business consulting, admired by Israelis, is negative advertising for him in America, where consultants are recognized as generally worthless, the subjects of myriad jokes.
As Finance Minister, Netanyahu presided over a booming economy, a late spillover from the American boom. Clinton and Netanyahu did not influence the economic successes of America and Israel. Netanyahu the prime minister presided over a bad economy – a consequence, as he ridiculously claims, of the downturn in Russian immigration. In fact, large immigration initially burdens the economy; by the time of Netanyahu’s prime ministry, earlier immigration had already started producing a beneficial effect.
Netanyahu followed the basic precepts of economic liberalism, known to every undergrad: privatization, deregulation, floating currency, decreased welfare, and lower taxes. He privatized state companies without bothering to create competition first. Oligarchic monopolies replaced the state monopolies. State-run companies – ill managed, thus with low profits – were valued on the cheap, and the oligarchs purchased our national assets at low prices. Acting properly, Netanyahu would have first changed the management of state-owned corporations, making them well profitable, deregulated the markets to allow competition to spring up, and only then – privatize. Commercial competitors would offer higher prices for government assets, and manage them more professionally than the oligarchs who lack appropriate business experience. Netanyahu later began breaking up the monopolies, but by then it was too late: de-monopolization should precede privatization.
One type of Netanyahu’s privatization was catastrophic: Jews and Arabs held about equal amount of land in private property, while the government controlled the rest. In 1997, Netanyahu opened up large-scale privatization of land in the Galilee and the South. The move uncritically served the ideals of economic liberalism and rationally catered to Netanyahu’s investor friends. Jews predictably didn’t rush to settle the Galilee, full of dangerous Arabs, or the inhospitable South. Netanyahu thus opened the floodgates of land purchases to Saudi-funded Israeli Arab organizations.
Israel also still has to live through banking deregulation. Failures of ill-conceived small banks are more than likely. Netanyahu smelled an obvious fact – that Bank of Israel practices are outdated – but did not know the cure. Instead of painstaking, slow deregulation, Netanyahu forcibly broke the earlier practices without building infrastructure for new ones. His political time horizon was short; he was cramming more reforms into his time in office. The rushed policy was especially dangerous in the small Israeli economy, and amplified stock market and currency swings.
Netanyahu danced to the IMF’s tune, forgetting that the IMF did not improve the long-term economic outlook in any country. On the contrary, countries like Japan and South Korea created closed, heavily, if informally, controlled markets, and regulated currencies, and achieved sustainable growth – and only then slowly opened themselves up to the world economy. Netanyahu’s wide opening of a weak Israeli economy resulted in colonization: foreign investors became major employers in Israel and the added value slipped away. Instead of fostering domestic hi-tech, as Japan and South Korea did, Israel welcomed foreign companies and satisfied herself with being their R&D labs; salaries remained in Israel, but the entrepreneurial profits flowed away. US hi-tech companies pay their employees in India a few times less than Americans for a reason: Indians have lower productivity. Israeli Jews are at least as efficient as their US colleagues, and salaries are lower Israel than in America only because of the Israeli government’s unprofessional economic policies.
The current revaluation of the shekel is a consequence of reckless liberalization. The oligarchic sector of the economy – large export companies and major foreign investors – grows and brings foreign currencies into Israel, while most people are relatively poor and therefore consumer imports remain low. The systemic distortions of the Israeli economy parallel those in other quickly liberalized markets, such as Ukraine: the GDP is concentrated in a few big companies, and income distribution is highly unequal with oligarchs controlling the lion’s share, the poor being extremely poor, and the middle class income outpaced by unusually high and rising prices. Netanyahu concentrated his deregulation efforts on big business, not – properly – on small companies. His target income tax rate of 35% is the highest practical level in developed economies, while Israeli post-socialist economy can only develop meaningfully with income tax of no more than 15%. Low income tax is especially important for developing the middle class’ purchasing capacity.
Netanyahu’s superficial economic policies guarantee a systemic crisis such as that encountered by most countries that observe the IMF’s recommendations.
