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Israel's Socio-Economic Revolt

 28 July 2011

by Yisrael Ne'eman

In Israel this summer the sounds of domestic rebellion over housing prices increase daily. It began with the "cottage cheese" revolt a month ago, quickly spread to the dairy industry in general and is now focused on housing – the most painful issue for young middle class Israelis. And just as an aside we are in the middle of a doctors' strike/slowdown going on for months. Thousands are living in tent encampments from Kiryat Shmona in the north to Beersheva in the south with Tel Aviv supplying us with the largest most activist of all protests with 20,000 – 30,000 joining last Saturday night's demo which in part turned violent. And no, this is not similar in any way to what is happening in the Arab world, but rather here we have a mass civil protest in a democratic society.

Although there are some down and outers, generally we are speaking of Israel's young middle class Jewish population, often professionals or tradespersons where both parents work to support a family of four or five. Government housing no longer exists yet did so into the 1990s. The Likud, as well as the previous Kadima government believe in capital incentive market societies, call it Reaganomics or Thatcherism of 1980s vintage – here in Israel it is the vision of the Likud ideological father Zeev Jabotinsky. So far the only government intervention is the Land Authority reform with the promise to make more government properties available for sale to private interests and "ensure" construction. Few truly believe such a move will drive prices down, but rather that the public will still find housing unaffordable. Contractors will build expensive apartments and the public will have no choice but to buy or remain without a property.

Netanyahu and the conservatives discount the government as a player in the game. Yet government is elected to govern or "intervene", it always being a question of degree. For instance the American "Fanny" and "Freddie" mortgage insanity of almost giving away real estate in some cases (in the short term) is an example of what not to do. No one is entitled to own a home. However working people who pay their taxes and serve in the army deserve a roof over their heads, a roof that does not bankrupt them. Ben Gurion and the Laborites understood this very well, one can say that the Likud's Menachem Begin did as well (remember "Project Renewal"?). What these two great Zionist leaders, yet bitter political enemies understood is that Israel is for all Jews, not just wealthy ones. And taking the analogy further into the democratic sphere, all of Israel's working law abiding citizens, Jewish or not, deserve adequate housing, even if dependent on reasonable rentals and rent control. According to the protesters nowadays the middle class must spend up to half its earnings on housing.

The government does not deny the complaint, but rather points out that there is cheaper housing well outside of the Tel Aviv metro region. The government also claims they built more housing units in 2010 than in any previous years from the time Kadima was in power (2006-09). This is correct, however 56% of all housing went to the ultra-orthodox (haredim), most of whom do not work, pay taxes or do military service. Haredi housing is part of the government agreements with Shas and United Torah Judaism – this reported by Nadav Eyal on Channel 10. The government is correct concerning the outlying regions, but job opportunities are limited in the northern Galilee/Golan and southern Negev regions. And let's face it the protests in Kiryat Shmona in the far north on the Lebanese border undercut all government claims that the periphery is the ultimate answer.

As everyone knows the problems did not begin with Netanyahu's present government. Serious capitalization began in the mid nineties during the Rabin/Peres Labor coalition as part of the Oslo Accords accompanying "peace dividend" but was accelerated from 1996 onwards when Netanyahu took office. For the past 15 years market driven capitalism dominates Israel's economy and the socio-economic gap is now the largest in the Western World and among OECD members. In these times of economic crisis in the US and Europe many on the right such as Foreign Minister Avigdor Leiberman claim these housing and economic issues to be trifling, and ridicule the well educated potentially middle class tent dwellers, the future backbone of Israeli society. They are labeled "spoiled children" whose "problems are those of the rich."

For sure no one has the "right" to live in a gentrifying Tel Aviv – families can move to the suburbs if prices are too high. Yet students do need dorms and affordable housing off campus at Tel Aviv University. Downtown Tel Aviv does not have moderately priced housing and it is true that one can move to the close by towns like Rishon LeTzion, Herzliya or Ramat Gan. The answer is two fold – government housing outside of the immediate Tel Aviv metro region such as Lod, Ramle, Netanya, Bet Shemesh, Modiin, Ashdod and Ashkelon with the accompanying necessary excellent public transportation exemplified by trains arriving every ten to fifteen minutes during rush hour, but such rail service is only a dream. Unfortunately there are many safety problems with the train, it arrives twice an hour in these towns and the light rail system to be built in Tel Aviv never happened because the billionaire tycoon who won the contract Lev Leviyev failed to make the investment. Some things responsible governments cannot leave to market forces, such as infrastructure for essential services. After they are built, and functioning, it can be decided whether to sell them off or not.

Israel's growth rate is a steady 5% or so for several years now, unemployment last month stood at 5.7% and there were $77.4 billion in foreign currency reserves at the end of June as reported by Israel's leading financial newspaper Globes. These figures however are misleading. Unemployment is down because many people have half time (or even less) jobs making minimum wage and are not considered on the welfare roles and the growth rate is heavily impacted by the growth of the technology sector. Israel has a foreign debt worth about the same as its foreign currency reserves, but less that half of the overall GDP (Wikipedia – Economy of Israel). The Governor of the Bank of Israel (Federal Reserve) Stanley Fischer has done a fine job and is recognized as among the best in the world.

However it falls to the government to decide on socio-economic priorities. There is far too much indirect taxation through Value Added Tax and the like. Income tax is constantly shrinking, especially for the wealthy. Another problem with such a small economy is that wealth is concentrated in the hands of a few extended families often called the "oligarchs" and whether there are five, ten or twenty, does not really matter. The promised "trickle down" is dysfunctional. These billionaires are connected to the political powers that be, in particular on the economic right including the Likud, Yisrael Betainu, Kadima and Ehud Barak's breakaway (from Labor) Independence list. And what of the left or social democrats? They barely exist: eight seats for Labor and three for Meretz totaling eleven – less than 10% of the electorate.

The Likud and Kadima are capitalist parties and no one knows what Ehud Barak's Independence party represents (He doesn't know either). But Labor is not to be let off the hook, let's recall they were part of the coalition from 2006-09 and ceded the economic portfolios to Ehud Olmert's Kadima faction. Party chairman Amir Peretz, the former Histadrut labor union secretary general became defense minister instead of insisting on the treasury or the industry/commerce/employment portfolio. He failed as defense minister (remember the Second Lebanon War 2006) while Kadima Finance Minister Avraham Hirshzon continued a full capital incentive policy until he ended up in jail on corruption charges. As finance minister Netanyahu's market policies were greatly welcomed in 2003 when Israel was in the doldrums suffering from the Palestinian Low Intensity Conflict. By 2009 when he became prime minister it was time to reconsider the middle class – in particular as said before - those who work, pay taxes and serve in the security forces, these are the citizens who form the backbone of the Israeli State and to whom the government officials and apparatus owe their existence. 2011 may be the wake-up call for those politicians who forgot the very people who make the state possible.

Israel is in desperate need of a long term, permanent multi-billion dollar government project of affordable housing and mass transit especially on the periphery of the Tel Aviv metro region. Government involvement needs to be limited and flexible, playing a minimal, yet crucial role. When the free market system does not respond to the needs of the people the government is obligated to step in as a player and at time that means major government investment.

In a country overwhelmed by external threats, the last thing we need is an unbridgeable class gap and the even remote possibility of internal disintegration as a result of major socio-economic disparities. The danger is even more blatant when the well educated, up and coming middle class are alienated, many believing they have a diminishing stake in Israel's future. Such a scenario is at least as dangerous as Hezbollah or Hamas. It is time to build a balanced and flexible mixed economy.