Tuesday, April 07, 2009

Israel's economy

Tuesday -- Jobs over dogma


Back in 1934, US president Calvin Coolidge remarked, "When a great many people are unable to find work, unemployment results." Though economics continues to make great analytical strides, the current global economic crisis leaves us Israelis with more questions - and fears - than answers.

There's been a 70-percent surge in applications for unemployment benefits compared to last year at this time. A record 20,000 workers joined the unemployment rolls in March. From well-paid electrical engineers living along the coastal plain to warehouse workers in the periphery, more than 100,000 men and women have lost their jobs in the past six months. Unemployment stands at 6.8 percent. Thousands more jobs in manufacturing are at risk. Prime Minister Binyamin Netanyahu cautions there may be worse to come.

And yet, a ray of hope: Some 12,000 unemployed have found new work, while the average gross salary has held steady at NIS 8,197.

The Kadima government was unable to get the Knesset to pass a budget, and that will hamper Netanyahu's efforts to tackle unemployment promptly. However, he and Finance Minister Yuval Steinitz have decided to make lemonade out of lemons by pushing the Knesset to agree on a two-year budget, combining 2009 and 2010, in order to stabilize the situation. The catch is that it will take until mid-July to develop a biannual financial plan - and critics, including Bank of Israel Governor Stanley Fischer, argue Israel doesn't have that kind of time. The new government counters that, with the Pessah holidays and the legislature's recess in the offing, there is insufficient time for the Finance Ministry and Knesset to complete the necessary work for a two-year budget any sooner.

While we have great respect for Fischer - as does Netanyahu, his former pupil - it strikes us that a two-year budget, serving more as template than straitjacket, will enhance the country's economic stability and restrict the proclivity of politicians for impromptu, questionable expenditures. A multi-year budget also gives permanent Treasury professionals added influence - a generally good thing so long as someone as economically savvy as Netanyahu is at the helm. In short, it may be worth the wait.

NETANYAHU wants to use the budget as a tool for cushioning the impact on Israelis of the global economic crisis; to do that he will be looking to cut NIS 10 billion in government expenditures in order to augment the National Insurance Institute and provide monies to meet rising unemployment benefit demands. He intends to spend on infrastructure, and bolster businesses in the periphery. He reportedly wants to cancel certain tax exemptions, while freezing public-sector salaries. He's promised to coordinate such moves with the Histadrut Labor Federation.

He also wants to shift more public land into the private domain.

Netanyahu and Steinitz want to lower taxes even though the Bank of Israel opposes such a move. With the budget deficit at NIS 3.3 billion and projected to rise to NIS 40 billion by year's end, Bank officials argue that with revenues down, now is not the time to cut taxes.

While, in the main, we support the premise of shrinking government expenditures and lowering taxes, timing is everything. Netanyahu will want to bring Fischer on board before making such a move.

In a conversation with the Post and in a recent Wall Street Journal article, Amotz Asa-El argued that Netanyahu has not necessarily abandoned his fundamental free-market economic ideology, but sees his most pressing task as buying time until the global economy recovers. By meanwhile collecting allies and co-opting rivals, he hopes to soften the blows that await thousands of workers as jobs, salaries and purchasing power all shrink. The emerging zeitgeist worldwide, Asa-El explains, is to put economic dogma on hold and go with what works.

Stung by critics of his tough-minded 2003 tenure at Finance, Netanyahu needs to find a middle ground that discourages a culture of dependency while guaranteeing a safety net especially for those least able to withstand the current economic turbulence.

In the words of Franklin D. Roosevelt: "In our personal ambitions, we are individualists. But in our seeking for economic and political progress as a nation, we all go up - or else all go down as one people."

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