Lawmakers Hail Netanyahu Plan For Economy

By Ori Nir

Published November 21, 2003, issue of November 21, 2003.
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WASHINGTON — Republican senators are hailing the plans of Israel’s finance minister, Benjamin Netanyahu, who is seeking to heal Israel’s war-ravaged economy with a set of reforms modeled on those of Ronald Reagan and Margaret Thatcher.

Last week, Netanyahu impressed a crowd of 10 senators and dozens of congressional staffers on Capitol Hill by describing his campaign to undo the last vestiges of Israel’s socialist heritage. He told the supportive crowd that he had come to Washington to submit a progress report to American legislators. Earlier this year, Congress granted $9 billion in loan guarantees to Israel on the condition that it would adopt economic reforms.

“Those loan guarantees were a vote of confidence in the Israeli economy, but that confidence has to be earned,” Netanyahu said.

Alluding to former British prime minister Thatcher’s battle against her country’s labor unions and former President Reagan’s cutting of taxes, government expenditures and welfare benefits, Netanyahu said he would vigorously pursue the same goals in Israel through aggressive reforms. His address so wowed the crowd that at its end Senator Trent Lott, a Mississippi Republican, joked that Netanyahu could now teach former secretary of Housing and Urban Development Jack Kemp a thing or two about the virtues of “supply-side economics.”

Kemp, one of America’s biggest advocates of cutting taxes and benefits to the unemployed to stimulate productivity, is considered by many to have been the one who most inspired Reagan to adopt such policies.

The lecture, sponsored by Senator Jon Kyl, an Arizona Republican, was described in invitations to members of Congress and their staffers as a non-partisan event. All 10 senators who attended were Republicans, however.

Armed with a computerized slide show, Netanyahu demonstrated to the legislators how he set out to generate growth in an economy shrunken in the past three years by unending rounds of Palestinian terrorism. He described the economy that he inherited when he assumed the finance portfolio eight months ago as having crashed in a “Bermuda Triangle” of inefficient monopolies, swiftly growing welfare costs and ever-increasing taxes.

During the second quarter of this year, Netanyahu boasted, he has already cut government expenditures, cut wages of unionized workers, cut welfare entitlements, reduced the number of foreign workers in Israel to open up more jobs for Israeli citizens, privatized Israel’s national carrier El Al, and legislated the breaking up of Israel’s national electric company’s monopoly, all while speeding up the income tax reform to effectively cut taxes and introduce a drastic pension-funds reform.

Next year, Netanyahu said, he will break up more monopolies, which will likely escalate his conflict with Israel’s Histadrut labor-union federation. “The unions can talk to us about how they adjust to this transfer, but they cannot stop this movement,” Netanyahu said, declaring: “we will break up those monopolies, no matter what.”

He also vowed to further decrease the number of welfare recipients, which he pointed out, grew by 600% during the past 12 years, while the population growth was only 30%. Israel’s generous welfare laws, Netanyahu said, allowed many citizens to choose either not to work and legally receive allowances or to defraud the system outright. To drastically reduce the burden of welfare allowances, a Wisconsin-like “welfare to work” program has been introduced, and it will be further tightened next year.

Netanyahu described his campaign as decontrolling a controlled economy to produce growth. “When you remove the iron boot of regulation and government involvement,” he said, it is as if you have released a spring, which “invariably results in growth.”

A day after Netanyahu’s speech, Yediot Aharonot journalist Sever Plocker, one of Israel’s leading economic analysts, described the former prime minister’s “free market radicalism” as a sweeping revolution that is crumbling Israel’s welfare-state system.

Addressing Middle East experts at Washington’s independent Brookings Institution last Thursday, Plocker said that Netanyahu’s policies in effect force Israel’s poor to bear the economic brunt of the Palestinian intifada, more so than the middle class or upper-middle class. “The poor are paying the highest price for terrorism,” he said. As a result, Plocker pointed out, Netanyahu’s popularity is shrinking.

It is widely believed, however, that Netanyahu has not given up on making a comeback as Israel’s premier. Observers say he sees the Finance Ministry as a powerful launching pad to conquer the premiership.

Plocker, who is close to Netanyahu, said that Netanyahu has come to the conclusion that he can do that without the solid support of low-income voters. The key voting block in the foreseeable future in Israel is the modern, westernized, secular middle and upper-middle class, Plocker said, people that Netanyahu views as “Israeli Republicans.”

Plocker, who handles poll analysis for Yediot, said that Netanyahu’s economic policies are popular among this sector. He said this segment of the population contains the most likely swing voters and is thus the most prized voting bloc.

Since he became Israel’s economic czar eight months ago, Netanyahu has driven home the message that the cause of Israel’s economic woes is not the intifada but rather the economic system. Economic reform could serve as a path leading to the resolution of other Israeli maladies, Netanyahu has been telling Israelis.

Last week, addressing the congressional crowd, Netanyahu spun this thesis as “a new approach to achieving Middle East peace.” So far, he explained, the prevailing assumption was that a political peace accord would bring about security and economic prosperity. That approach, he said — which was the underlying logic of the Oslo accords — has failed. Netanyahu’s approach stipulates first achieving security through a combination of offensive and defensive means, such as Israel’s West Bank separation fence, then pursuing economic growth for both Jews and Arabs, and only at the end — on the basis of security and economic stability — trying to pursue a negotiated accord.

One way of achieving that, Netanyahu told the legislators and their aides, is to build a railroad track between the Gulf of Eilat and one of Israel’s Mediterranean ports, to compete with the Suez Canal as a route for goods shipped from Asia to Europe. Such a project, at the cost of $500 million to $800 million, could be shared between Israel, Jordan and the Palestinians, Netanyahu said, contributing to cooperation and economic prosperity. Netanyahu pitched the idea, which is not new, as “a project that could inject hope into the Middle East.” In his address to the Senators, as well as in meetings with senior Bush administration officials, Netanyahu urged the United States to support the project morally, politically and financially.

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