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PDF FormatThe success of popular groups such as Keshet reflects a growing trend in the public debate to challenge the entire idea of market reform. “Thatcherism” has become something of a dirty word in many circles, synonymous with cruelty to the weak, lust for profit at the expense of all else, and the rupture of society’s sense of unity.21 A typical example of this was a feature article in the daily newspaper Ma’ariv last fall, entitled “The Iron Lady’s Victims,” in which reporter Dafna Vardi launched a no-holds-barred assault on the policies of Margaret Thatcher, and on Prime Minister Benjamin Netanyahu’s looking to British economic policy of the 1980s as a model. Britain under Thatcher, writes Vardi, was a country where “compassion and hope were words without meaning to many thousands of people…. Anyone who lived in Britain during the era of Thatcherism will remember the tremendous divide which opened up between those with the highest incomes and those with the lowest….”22 In order to leave no doubt as to how the editors felt about it, Ma’ariv chose to publish the piece in its special Yom Kippur supplement, with a subtitle making deliberate reference to the Yom Kippur confessional liturgy—“For the Sins Which We Have Sinned: Hurting the Needy.” Appended to the feature was an opinion piece entitled “To Hell with Society, What Counts Is the Numbers,” a blistering attack on Thatcher and Netanyahu written by none other than Shlomo Ben-Ami.23
The social lobby’s success, therefore, has been driven not only by the traditionalist impulse of Shas or the windfalls to smaller parties resulting from the new election law, but to a large extent by an overall shift in the public discourse. As memories of the economic turmoil of the early 1980s recede, a new generation of leaders has emerged which does not recall the urgency of those days, and seems to lack any idea of why the reforms were needed in the first place. In their eyes, Israel has become uncaring, polarized and plagued by income disparities, and they are seeking to correct this through a massive increase in welfare spending, let the chips fall where they may. In the last three years, they have made troubling strides toward realizing their vision.
IV
In recent years, the social lobby has become the bane of economic reform, effectively thwarting efforts to hold the line on government spending. Its role has been especially problematic in light of the difficult economic circumstances which faced the Likud-led government of Benjamin Netanyahu when he took office in mid-1996. The preceding government had pursued an irresponsible fiscal policy, pumping up expenditure to prolong the economic boom of the early 1990s. This increased Israel’s budget deficit and current account deficit (the difference between the economy’s earnings and its expenditures of foreign currency), both of which exceeded five percent of Israel’s GDP in 1996.24 At the same time, excess government spending undermined the efficiency of the economy as a whole, preparing the way for the boom of the early 1990s to end in a recession. Economic growth began to falter in the summer of 1996, just as the new government took power.
The Netanyahu government was faced with a difficult task: Even as the recession began to bite, the government needed to cut its expenditures to balance the budget, and take steps to increase the economy’s efficiency. Good policy required convincing politicians to sacrifice present outlays for the sake of future growth. But this prospect was made next to impossible by the stunning success of the social lobby in the same elections. The new coalition relied heavily upon social-lobby parties: Shas (ten seats), Gesher (five) and Yisra’el Ba’aliya (seven). Thus, even as Netanyahu was elected on a reform-minded platform, including privatization of numerous state-owned enterprises and deregulation of a variety of economic activities, the lack of political consensus on reform meant that it would be far more difficult than in previous years.
On privatization, the government did make more progress than any of its predecessors. On deregulation, the government promised little and delivered less. It was in the area of fiscal policy, however, that the greatest threat to the country’s economic future emerged.25 Soon after entering office, the Netanyahu government adopted a multi-year deficit reduction program. Its objectives were quite moderate but they required a fairly large cut in expenditure of about 2.3 percent of GDP in 1997 and another cut of up to one percent in 1998.26 The fiscal objective in the 1997 budget was to cut expenditure by about NIS 7 billion. In the end, only five billion was cut; the other two billion was to be raised in extra taxes (despite the government’s pledge to leave the tax burden unchanged), a development particularly regrettable at the start of a recession.27 These included excise taxes on commonly consumed products such as tobacco and fuel, measures that hurt the poor disproportionately.
In December 1997, the government’s economic program for 1998 was also effectively sabotaged by several of its coalition partners, and the outcome that year was even worse. In August 1997, the government had settled on a target of NIS 2.3 billion in cuts in the 1998 budget, but when the budget finally passed on January 5, 1998, it included over a billion shekels of new, unfunded commitments to various elements of the coalition, to be balanced by vague, unspecified cuts.28 In other words, the government failed to meet its targets for cutting domestic spending in both 1997 and 1998, and it managed to keep within its stated goals for the budget deficit only by virtue of unforeseen windfalls in overseas receipts.29
The year 1997 also saw the passage in April of an amended minimum wage law, increasing the minimum wage from 40 percent to 45 percent of the average wage in the economy. Backed by Gesher, this measure also received the strident support of Labor Minister Eli Yishai of Shas, who had initially sought a much larger increase. The increase that did pass was only the latest in a series of increases since 1993, which together raised the minimum wage by 60 percent, in dollar terms. As the law’s opponents predicted, the latest increase led to widespread firings of workers in marginal, low-wage industries, wreaking havoc on the social-spending parties’ own constituents in development towns across Israel—and greatly contributing to the rise in unemployment in 1998.
Another sign of the erosion of economic discipline was the Histadrut strike of December 1997. In the summer of that year, the Histadrut, Israel’s massive labor federation, decided to challenge the government’s reform program, even though the union had not made economic reform a significant issue in advance of the 1996 election.30 From August 1997 onward, the Histadrut made several attempts to precipitate a nationwide strike. On December 3, 1997, the Histadrut seized upon the issues of proposed pension reform, privatization and economic reform, and succeeded in leading 700,000 public- and financial-sector workers out on strike.31 Within days, despite the strike’s general unpopularity and the strikers’ defiance of a court injunction, the government felt constrained to bring the strike to an end by making far-reaching concessions on pensions. The government received nothing substantive in return; the Histadrut merely agreed to negotiate other pending issues, reserving the option of resuming the strike if they were not resolved to its satisfaction.32
The strike represents the first time since the reform of 1985—which had been undertaken with the Histadrut’s cooperation—that the labor federation successfully opposed a major element of an Israeli government’s economic reform program. Both the issue on which the Histadrut won its victory and the manner in which it did so are significant. For the time being, all further economic reform must be considered hostage to the Histadrut.
Although the strike itself was unpopular, the position the Histadrut claimed to be defending was not. Many of the factions constituting the government’s coalition had staked their political future on posing as advocates of social policy, which they interpret as increasing government expenditure for their pet constituencies and opposing any cuts in social programs. Ten years ago, the conventional wisdom in Israel accepted that economic reform, with its sometimes painful consequences, was in their own long-term interest. Today, attitudes have shifted. The Histadrut’s rhetoric of class conflict enjoys a new legitimacy, which it did not create, but does not hesitate to exploit.
In 1998, the budget debate took an even more pronounced turn, as the social lobby grew more confident, and therefore more avaricious, in its demands. In the midst of the budget debate, with the coalition on the brink of rupture, Netanyahu called for new elections, which are scheduled for May 1999. Few things are worse for fiscal prudence than an election. At one point, the Likud’s erstwhile coalition partners among the small parties were demanding a total of NIS 5.5 billion ($1.35 billion) in additional spending, as the price of their votes to pass the budget. Netanyahu turned in desperation to the Labor opposition for support in passing the budget with no additional spending. Only the threat of getting nothing at all convinced the smaller parties to moderate their demands. The 1999 budget was finally approved, five weeks into the new year.
