If Mitt Romney visits Israel this summer, it's a safe guess that his tour will avoid demonstrations against the government's economic policies. When Mitt and Bibi dine together, the Israeli prime minister probably won't show clips of riot cops dragging away Daphni Leef, the woman who ignited the economic protests, as she tries to re-establish a tent encampment in downtown Tel Aviv. Meeting the media, Romney may mention his old friendship with Benjamin Netanyahu, which dates back to the time when the two of them, fresh from business school, worked at the Boston Consulting Group. Journalists will dutifully ask him and Netanyahu about Iran, ignoring the fact that Israel has an economy and that running it is Netanyahu's passion.
This is a shame, because Israel can be seen as a laboratory where tests have been conducted in managing a country as if Bain Capital had bought it—and the lab results aren't pretty.
To be fair, the Israeli government has followed free-market orthodoxy since the 1980s, whether the Likud or another party has been in power. Left and right came to refer exclusively to favoring a two-state solution or opposing it. Think of how cultural issues sometimes define liberal and conservative in America, drowning out economic positions. Then imagine a much harsher version of that reality, and call it "Israel."
But if other politicians have treated the need for budget-cutting, privatization, and union-squashing as verities you'd look silly denying, Benjamin Netanyahu is a true believer. In two terms as prime minister, and as finance minister in between, he has done his best to eliminate the last traces of Israeli social democracy. A particularly effective step was the tax plan he put into effect as finance minister: a steady, year-to-year reduction of personal and corporate income taxes. Since half of Israeli workers make less than the threshold to pay income tax at all, the benefits went entirely to the well-off, and the wealthiest received the largest windfall.
The corollary is that over years, the share of gross domestic product available to the government dropped. Spending on education and health slid. One means the government has used to cut costs is hiring workers as temps through agencies, thereby denying them standard benefits and job security. Public schools employ teachers as temps. Mess halls at major army bases have been contracted out to private companies, which provide lower-quality food and spend less on workers than the army did on soldiers. By 2010, according to the National Insurance Institute, a central anti-poverty agency, the proportion of Israelis under the poverty line was close to 25 percent, about twice the average for countries in the Organisation for Economic Co-operation and Development.
But poverty figures don't describe the growing insecurity of the middle class, the lack of economic future felt by educated young people. Nor do they show the low results of Israeli schoolchildren on international exams. According to the latest State of the Nation Report by the Taub Center for Social Policy Studies, successive governments have let the Israeli education system "sink to the lowest level in the developed world." Keep in mind that Israel's economy is driven by high-tech industries, which depend on a highly educated workforce. Israel starving its schools is like Kuwait destroying oil wells.
To frame this differently: The government, especially under Netanyahu, has treated its wealthiest citizens as shareholders and increased their dividends. It has treated the rest of the population as employees whose pay can stagnate. And the immediate dividends for the "shareholders" come at the price of long-term investments that will keep the "company" profitable.
Last summer, Israelis finally got mad. Leef, a film editor in her mid-20s, provided the spark. Unable to afford an apartment in Tel Aviv, she announced on Facebook that she was setting up a tent on the center island of the city's Rothschild Boulevard. Within two weeks, Rothschild had become Tent Boulevard, with the encampment stretching for blocks. By early August, rallies around the country drew 350,000 people into the streets on the same night—one out of every 20 Israelis, the equivalent of 15 million Americans marching together.
There's a list of reasons that the protests faded, but they include a tactical retreat by Netanyahu. After appointing a commission to suggest reforms, he agreed to stop the tax cuts. The government promised free preschool education and settled some long-running public-sector labor disputes. A study by the National Insurance Institute, which functions as the loyal opposition within the government bureaucracy, proposed erasing the Netanyahu tax cuts and funding a menu of social reforms. Netanyahu ignored those proposals.
This summer, though, the prime minister faces a double problem. On one hand, he needs to get a new national budget through parliament. Netanyahu hasn't trimmed the defense budget as his own commission recommended; tax revenues are below targets; and the budget has to compensate for inflation. On the other hand, protests are beginning again, making it harder to cut services.
The prime minister's answer is to raise the government deficit. If that sounds like a surprising move for an economic conservative, it shouldn't, says Hebrew University economist Joseph Zeira. Like American Republicans since Ronald Reagan, Netanyahu's strategy is to "starve the beast," Zeira explains. The deficit will rise now. Later, debt will be the political pretext for cutting services or rolling back concessions to the protest movement.
Allow me, again, to reframe this: Netanyahu as CEO has decided to borrow. In the short term, that yields political profits. In the slightly longer term—say, after the next election—the "firm" will have to pay up.
As for renewed protests, the government's strategy is apparently to suppress them quickly this time. In early June, police ordered a number of protest leaders to come in for questioning—not about anything they'd done, but about what they planned for this summer. After objections from civil-rights groups, the national police commissioner said that the summonses were illegal and void, as if the whole matter were a surprise to him. When Leef and other protesters tried to re-establish the Rothschild encampment two weeks ago, enough riot police to field a football team dragged her away, breaking her hand in the process. The look on her face, captured by photographers, radiates pain and terror. In my very personal reading, it also shows the pure shock of a daughter of the urban, educated class, the people who think of themselves as unhyphenated Israelis: First they stole the country from her, then they stole even the right to object.
Actually, I think that deep down, Netanyahu understands that the country is not a company. He is trained to think of companies as disposable, and he doesn't believe that about Israel. Yet he believes that countries and companies can be run in much the same fashion, without much concern for the people who do the work. At dinner in Jerusalem, he and Mitt Romney will reinforce each other's beliefs. Mitt will say warm words about Bainland on the Mediterranean. Later, American voters will decide whether being a CEO is the best qualification to run a country. I suggest looking at the lab results first.
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