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August 19, 2011 5:42 am

Social Protest: Reality and Delusion

avatar by Isi Leibler

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We should be celebrating the apparent success of a protest movement initiated by Israelis outraged by an increasingly hedonistic society that displays scant concern or compassion for the underprivileged. After the tents have been dismantled and the protesters return home, there is every likelihood that their exercise in people power will have a longterm impact, creating a new political agenda obliging legislators to ensure that societal and welfare issues are no longer ignored.

These protests cannot be compared to the riots in undemocratic Arab countries, which are largely inspired by the oppressed, desperately poor and unemployed masses.

Nor do they remotely parallel the chaos perpetrated by violent hooligans in Britain.

Our demonstrators were not even influenced by trade unionists, many of whom are themselves fat cats receiving disproportionately higher salaries than those in the streets. Nor, ironically, do they represent the lowest underclass of the community – haredim and Arabs. And reflecting the uniqueness of this movement, the opposition failed to capitalize on the protests.

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Despite the presence of summer vacation drifters and far-left-wing zealots, the protesters primarily reflect the frustrations of educated, middle-class Israelis struggling to maintain a decent standard of living and outraged by their perception of the cynical greed and nauseating rapaciousness of the super-wealthy.

The primary issue of the tent protest is affordable housing. As in many Western countries, young couples struggle to purchase homes, but in Israel the problem is magnified by the monopolistic state control of 90 percent of land by the Israel Lands Authority and its cumbersome and frequently corrupt bureaucracy.

In addition, there are the scandalously low salaries paid to doctors, nurses, police, teachers, etc., despite their crucial contribution to the well-being of society.

Then there is the role of the super-rich, which has enraged the average Israeli.

In his previous term as prime minister, Binyamin Netanyahu’s reforms to break up the bloated state bureaucracy stimulated the market economy. As finance minister during the Sharon government (2003- 2005), his focus on debt reduction and renewed efforts toward privatization enabled Israel to avoid the debt crisis currently confronting EU countries, most notably Greece.

However, at the time, he was condemned for being too harsh on the poorer sections of the society, and it was alleged that his privatization further empowered the megarich.

Since his first term as prime minister, he and his successors of all political stripes have failed to curtail the explosive growth of these new tycoons, to the point that currently 10 of the largest families in the nation allegedly direct or control 30% of the economy.

Their influence extends to the banks, supermarket chains, insurance companies, media and cellular companies. One of the worst consequences of such centralization of wealth in the hands of a few has been a frequent collusion to limit competition, ensuring that the costs of basic consumer goods and services escalate to much higher levels here than in Europe and the US, where salaries are much greater.

Daniel Doron, one of the country’s most incisive economic analysts, observed that in our dysfunctional economic system, it is “the bureaucrats, the oligarchs, the monopoly unions and others with privileged access to power” who maintain the system for their own benefit. He describes these tycoons as “a tiny fraction of the population who use a third of all credit, which they leverage into highly risky investments, mostly in foreign real estate.”

In addition to their disproportionate access to borrowing public funds, it has been outrageous to observe some of these tycoons defaulting on their debt obligations not only to the banks and other lenders, but even to pension funds. They have demonstrated a total absence of moral scruples by refusing to dip into their own reserves to repay public debts that must be borne by the holders of debentures or taxpayers. The Movement for Quality Government rightly urged that those defaulting on repayment of loans from public coffers should be denied access to loans from banks and pension funds for a decade.

Notwithstanding this overview, one must be encouraged by the fact that despite carrying a heavier defense burden pro rata than any other nation, Israel remains one of the best performing economies in the Western world and has one of the finest health systems.

By balancing the budget, limiting the national debt and maintaining fiscal responsibility, Netanyahu averted the greatest economic plague – unemployment.

Today it stands at a 20-year low (5.8% compared to 9.2% in the US).

There are, however, major tax anomalies.

VAT at 16% is extraordinarily high, burdening poorer people with excessive indirect taxation, and must be reviewed. On the other hand, the combined direct taxes (including health and insurance dues) for lowest-income earners only amount to 2.8%, while the highest levels pay 82%. Of course unlike salaried employees, the super-rich, as in other countries, manage to create legal loopholes to minimize their taxation. But one should not accuse Netanyahu of being entirely a stooge for the tycoons. He did succeed in breaking the monopolies of the banks and demanded higher natural gas royalties from the energy companies.

The government must now demonstrate compassion and a willingness to listen to the genuine grievances of the people. But at the same time, it must retain its nerve and avoid being panicked by populists employing “social justice” catch-phrases to justify spending sprees that could undo 20 years of responsible financial management overnight. At all costs,it must avoid a return to direct state intervention or state socialism, which led to the collapse in Greece and other Western “welfare” economies.

Failure would inflict untold suffering on all segments of Israeli society.

We must therefore remain alert to prevent movements for reform from being hijacked by demagogues or political agitators exploiting genuine grievances for narrow partisan political reasons.

Those looking to exploit the situation merely to achieve Netanyahu’s ouster, or insisting that the source of the problems are the “occupation” and settlements would – if successful – make this movement toxic and must be marginalized. Clearly, were significant numbers of settlements dismantled, the cost of resettling the residents within the Green Line would lead to a massive escalation of prices as demand for homes skyrocketed.

Netanyahu has “urged financial responsibility alongside social sensitivity.” His appointment of Prof. Manuel Trajtenberg, who resigned as head of the National Economic Council after Likud won the election, demonstrated courage. On the surface, Trajtenberg seems to have the right approach and will hopefully engage in a long overdue process of social reform, with recommendations of how to reverse the spiral of increasing inequality and high cost of living – especially inflated food prices – provide more affordable housing and stabilize the status of the middle class. He may also suggest a review of the sacred cow – the defense budget – that a number of critics claim is highly inflated with expenses unrelated to genuine security issues and is mushrooming out of control.

There are genuine prospects for reform, but they cannot be implemented overnight.

And in the process, we must zealously ensure that with another looming global economic meltdown, we retain the unique strength of our economy – one of the healthiest and fastest-growing in the world.

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