There is a ghost that haunts Israel. It is a ghost that first appeared 55 years ago when this new nation was founded, but it still speaks to the present generation. It speaks with the voice of social democracy and it utters sibilant sounds of kibbutzim, egalitarianism, communitariansim and social solidarity. This is the voice of a utopianism that gave birth to Israel.
Yet despite its influential role in the past – a matter of some dispute I might add – the social democratic ghost is now a significant impediment to an Israel that desperately needs economic growth to survive.
Here is the rub: So wedded to entrenched welfare and union policies is this remarkable nation that it spends more than it can afford keeping taxes high, government large and economic incentives in abeyance.
At the conference in Herzliyah I attended recently this policy schism quickly came to the fore. Bibi Netanyahu, the Minister of Finance, issued a policy statement in which he referred to the need to lower taxes and reduce regulations so that a congenial environment for business might flourish. While this statement struck me as incontrovertible, he was criticized by the leader of the social workers association who said under this plan benefits to the elderly will be reduced and unemployment assistance would evanesce.
Mr. Netanyahu noted that a "rising tide would lift all boats" with more wealth available for the poor and needy. It was a statement that Jack Kemp might well have embraced. But it did not resonate with this audience.
That evening the eminent scholar Shlomo Avineri proceeded to criticize Netanyahu as well. "Should we engage in an experiment that severs the social contract?" he asked plaintively. Professor Avineri took this audience for a trip down memory lane recounting the dreams of Ben Gurion and the founders with favorable reference to the ties that bound Jews to this homeland. "We have lost what we had in the past," he lamented. His is the quintessential voice of the social democrat rising, with dreams of communal unity and omitting economic realities.
However, this vision – whatever one thinks of this romanticized memory – is not consistent with the dictates of a free market and financial incentives. It holds back Israel like Gulliver bound and tethered. It is the ghost in the nation, a form of soft bolshevism now filtered over time into romantic history. Remarkably, a sizable portion of the country cannot let go of it.
Israel, notwithstanding its small size and only 6 million people, can be a technical and scientific superpower. It already has its own version of Silicon Valley in the outskirts of Tel Aviv. It has a host of Nobel Prize winners. The Weitzman Institute is one of the great scientific centers in the world. Jews excel in technical, medical and legal issues. And considering its limited size, it has more pharmaceutical patents per capita than any nation in the world.
Having said this, it is also true that Histadrut – the labor council – is ensconced in government affairs. The welfare system is widely exploited. In fact, a common joke in Israel involves a migrant who meets his friend in Jerusalem and asks "how are you doing?" "Not so well," he replies, "I'm still working." No wonder the system is straining at the seams.
Take this anachronistic socialist system and add to it security demands in Israel's constant fight against terrorism; what you get is a nation deeply in debt. Israel must consider alternatives. To his credit, this is precisely what Mr. Netanyahu has in mind. The question is whether the Minister has the persistence to finally bury the ghost.
Perhaps he should demystify the past. The conditions for building a nation are different from the conditions that will sustain it. If Israel could unleash its creative energy from the shackles of socialist institutions, it would unquestionably be one of the economic miracles on earth. But this is a big "if."
At the moment the fog of nostalgia holds the public's attention. There is widespread dissatisfaction with the economic environment, but most conventional polls call for high taxes and even more stringent regulations. Israel has not yet imbibed the Laffer Curve or come to the realization that lower taxes might generate higher government revenue.
Rene Descartes once described "the ghost in the machine," that mystical force that gives machines an anthropomorphic quality. Alas, the Israeli ghost has the same quality. It speaks through politicians; it mesmerizes the public and it dominates the history of the founding. As I see it, the time has come to send the ghost away. Many will weep with his departure, but they will be living better and earning more without him.
Herbert London is president of the Hudson Institute and John M. Olin professor of humanities of the New York University, publisher of American Outlook and author of "Decade of Denial," recently published by Lexington Books. He's reachable through www.benadorassociates.com.
©2003 Herbert London
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