City of Sin or Village of Fools?
Rozenman, Eric
BOOKS City of Sin or Village of Fools? Israel's Dilemma by Ezra Sohar Shapolsky, 1989. 263 pp., S15.95 Reviewed by Eric Rozenman Did Israel waste the gains of its 19851986 economic reform...
...Israel enjoyed "fairly rapid growth" during its first 20 years, Stein says...
...Eric Rozenman is publications editor for the Washingtorvbased Jewish Institute for National Security Affairs...
...Then came Sohar's deliciously-titled Sedom or Chelam—City of Sin or Village of Fools...
...Also born in war and desperation in 1948, Taiwan now can boast that its citizens have tens of billions of dollars in the bank, says Sohar...
...However, Stein added that growth alone "won't have irrevocable effects...
...It's a good goal....it just takes a lot of effort...
...Inflation, previously rocketing upwards at 450 percent annually, was brought down to 20 percent...
...Israeli embassy economic counselor Gal Almog has little patience with the analogy to Taiwan, a country that has mastered the market before democracy...
...It seems to me that [Israel] ought to get up to 5 percent...
...Approximately 60 percent of the work force is employed by the Histadrut (national labor federation), government-connected organizations such as the Jewish Agency or government-owned or government-granted monopoly firms...
...Unemployment reached 9 percent, very high for Israel...
...And he finds the notion of Israel as a nation of socialist screw-ups, common among some Americans, BOOKS "more than a little simplistic...
...But after the Yom Kippur War and subsequent Arab oil embargo, "the whole world slowed" economically...
...Not for nothing, says Sohar, is the tangled Israeli pay slip known as the "noodle...
...The Common Market's deadline looms for an economically unified "Europe 1992" and Western Europe is Israel's major export market...
...Israel may not have much time to restructure economically...
...Some newly non-communist countries in Eastern Europe, with educated, relatively low-cost labor forces, may compete with Israel, Stein cautioned...
...Sonar's critique is a bit extreme, a bit obsolete already, insists Gal Almog, economic counselor at the Israeli Embassy in Washington...
...He ascribes Israel's 1988-1989 recession to "the delayed effect of the 1985 [reform] program....Remember, 1987 was a great year, with 5.5 percent GNP growth and basically no unemployment...
...Workers with more political clout than productivity nevertheless improved their lot through the innumerable slowdowns and strikes that disrupted industrial plants, schools and hospitals...
...I've been to Taiwan....I wouldn't want Israelis to live and work in the same style," he says...
...Israel's feeble economy, he asserts, is the result of "governmental interference" based on a "common denominator: socialism...
...Meanwhile, a political party, Labor, controls the...
...But changing the structure might...
...Almog believes the economy "is performing more efficiently" and that the "3.5 percent to 4 percent boost in employee productivity was really very important...
...When Likud came to power in 1977, it played by the old rules: Vote-getting outranked efficiency and profits...
...With productivity divorced from pay, output per worker remained stagnant from 1974 to 1984 while the cost of labor rose 65 percent, the highest increase in the Western world...
...Industrial giants like Koor, a Histadrut holding company, "didn't react properly" to the reform plan and found themselves facing bankruptcy...
...Too soon to tell, suggests Herbert Stein, a former chairman of the President's Council of Economic Advisers and a member of the team then-Secretary of State George Shultz put together to advise Israel on economic matters...
...Sohar, a professor of medicine at Tel Aviv University and an authority on genetic-metabolic diseases, first blasted the Israeli political-economic system in a 1974 book, In the Pincers of the Regime...
...The fact they got inflation from 400 percent to 19 percent and have kept it there for four and one-half years was very unusual, a great achievement...
...So did local governments and numerous individual firms...
...The results, according to Sohar, are: • Israel's gross national product (GNP) is unnaturally low at around $40 billion...
...He lined up the requisite investors but, he says, vested political-economic interests killed the project...
...High domestic prices, inflation and repeated currency devaluations followed...
...Of course not...
...Taiwan's defense burden and lack of natural resources resembles Israel's...
...Extensive government economic intervention meant high taxes and low base salaries imposed through nationally negotiated wage agreements...
...Creative fringe benefits proliferated...
...Even the marginal advantage of Israel's high-tech exporters diminished when hidden compensation was added to the high tax rate...
...Moshavim (cooperative settlements) and kibbutzim (collective settlements), which went heavily into debt in the high-spending, triple-digit inflation of the early 1980s, had to pay their bills...
...dollar—to which the new Israeli shekel is linked—and the intifada, which began at the end of 1987 and cost 1 percent of GNP, helped slow the economy...
...Among them, Israel Chemicals, Teva Pharmaceuticals and Elbit Electronics...
...Meanwhile, dependence on imported oil—mostly Middle Eastern— is rising again...
...Most called on the government— the taxpayers—for rescue...
...To capitalize on economic stabilization, Israel must launch its take-off phase soon...
...Sohar fought back, turning author and starting a party dedicated to deregulation and a politics-free economy...
...From 1980 to 1987, its GNP grew at an annual average of 2.2 percent, according to Stein, while all highly industrialized countries averaged 3.7 percent...
...263 pp., S15.95 Reviewed by Eric Rozenman Did Israel waste the gains of its 19851986 economic reform program and the accompanying $1.5 billion in United States emergency aid...
...Histadrut-affiliated enterprises, often government-favored monopolies or cartel members, produce one-quarter of the GNP...
...In any case, Ve always thought that [stabilization] was to be phase one...
...Israeli operations of IBM, Motorola and Digital Equipment also made progress, and Almog points out, "they are in Israel to make a profit, not because of Zionism...
...Will Israel be left behind as its major trading partners in Western Europe unite in a barrier-free market in 1992...
...Will Israeli politicians prove unable to restrain themselves if the new wave of Russian immigration continues, and will they use the multibillion dollar absorption program as one more opportunity for electorally motivated economic manipulation...
...Nevertheless, the government budget totals more than $30 billion, giving the Jewish state the highest bud-get-to-GNP ratio in the industrialized West...
...This was powered in part by large-scale immigration—the introduction of "human capital...
...March 1989), The Jerusalem Post, International Jewish Monthly and other publications...
...Yes, unless electoral reform gets the politicians out of the economy...
...In charge of the only Israel Defense Forces field hospital in the 1973 Yom Kippur War, he tried afterward to improve the country's medical system by starting a private hospital to compete with government institutions...
...While "there is no evidence inflation is going back up," Stein noted that the Israelis recognized that the object was to get to the 5 percent-or-less range common in the United States and Western Europe...
...High interest rates maintained by the Bank of Israel, a weakened U.S...
...When you look at 1989...you see positive developments—including a decline in the balance of trade deficit and the balance of payments," Almog adds...
...His message inspired others, however, including Daniel Doron, who established the Israel Center for Social and Economic Progress, a small but audible Tel Aviv think tank...
...Instead of maintaining a social-welfare system on the back of a large private sector, Israeli politicians manage the economy as a welfare program...
...GNP growth, nonexistent in 1988, totalled 1.1 percent in 1989, mostly in the last six months...
...When Israel makes the necessary reforms, freeing its capital markets, privatizing most government businesses, lowering tax rates, clearing out the bureaucratic-regulatory underbrush, then economic improvements "will stick...
...Even in the recession, properly managed firms grew stronger, Almog says...
...Inefficient industries required subsidies and protection from imports...
...His freelance articles about Israel have appeared in moment ("If Israel Is a Homeland, Can a Refusenik Be a Refugee...
...Israeli's have tens of billions in debts—plus $20 billion or more in foreign accounts and $5 billion or more in the underground economy, withheld from the existing system but ready to multiply in a free market...
...Phase two "would be a revival of growth...
...Israel began to limp...
...By the mid-1980s the disciples had eclipsed their guru...
...federation...
...Sohar compares Israel to Taiwan...
...Herbert Stein, now a senior fellow at the American Enterprise Institute, says Israel's 1985-1986 economic stabilization "was important...
...Yes, warns Ezra Sohar, author of the 1987 Israeli best-seller, Sedom or Chelam, revised and translated as Israel's Dilemma: Why Israel Is Falling Apart and How to Put It Back Together...
...He ran for the Knesset and lost, overwhelmingly...
Vol. 15 • June 1990 • No. 3
