CARPE DIEM

Netanyahu tries twisting Israeli economy into shape: His revolutionary crash program called a boon for some, disaster for others (Greg Myre, July 20, 2003 , New York Times)

Benjamin Netanyahu is racing to revolutionize Israel's economy, and he considers it a sprint, not a marathon.

In just over four months as Israel's finance minister, he has cut the top income tax rate to 49 percent from 60 percent, winning cheers from the wealthy.

He is making sweeping reductions in social programs, provoking protests from the poor. He is trying to raise the retirement age to 67 for all, from the current age of 60 for women and 65 for men, prompting demonstrations by older workers, and he has revamped the pension system, drawing praise from economists.

The national airline, El Al, is being privatized, and Netanyahu plans to reduce greatly the state's role in the telephone, electricity and banking industries.

"We are doing two things -- making drastic reductions in the public sector and stimulating the private sector," Netanyahu said in an interview. "The country will undergo a short period of hardship as we
decelerate from the old system, and then there will be a great spurt of growth." [...]

Israel's economy is an odd combination of the socialist ethos, which dates to the country's founding in 1948, and an entrepreneurial, high-tech sector that flourished in the late 1990s.

The government sends a monthly check directly into the bank accounts of all families with children, regardless of financial circumstances. But Netanyahu has reduced financing for the child-allowance program -- perhaps his most controversial cost-cutting move.

A family with five children -- not uncommon in Israel -- has been receiving $440 a month. That will fall soon to $340 and eventually to $167.

Such programs are part of a public sector that accounts for 55 percent of the Israeli economy, and has been growing, compared with the 45 percent for the shrinking private sector. Netanyahu has compared it to a lean, fit man obliged to carry a heavy man on his back.

"The guy on top needs to go on a diet, and the guy on bottom needs to be cut loose," he said. "If we don't change the scenario, pretty soon we would collapse."

This is in many ways a more important project than the "road-map", because the end of that process is foreordained--it ends in a Palestinian State, while the moments in history at which a liberal democracy has an opportunity to dismantle significant portions of the welfare state are exceedingly rare. We failed to take advantage of one such moment at the end of WWII, propping up socialist Europe with Marshall Plan money and getting ourselves bogged down in the Cold War. Let us hope that the Israelis stay the course. Posted by Orrin Judd at July 20, 2003 12:07 PM