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Jul. 11, 2002 Restoring Israel's prosperity by BINYAMIN NETANYAHU There is little disagreement that Israel is facing one of the gravest economic crises in its history. With hundreds of thousands unemployed, factories closing down, investors leaving and prices rising, Israelis are right to wonder how their government plans to help return the country to economic health. Conventional wisdom suggests that we must first bring about an end to terror. While no one would argue that our security situation has had a deleterious impact on our economy, we must not delude ourselves into believing that restoring economic fortunes is simply a matter of restoring security. It was not war or terrorism that triggered the collapse of Argentina's economy. Nor have the serious threats to Indian security prevented that country from continuing to implement the structural economic reforms that make it attractive to investors across the world. Indeed, if fundamental reforms to the structure and management of the Israeli economy are not made, even restoring security will fail to propel it forward. In today's open and transparent global market, where our economy is constantly being compared to that of other countries, confidence in our markets is essential. Our international credit rating, a tangible gauge of the perception of Israel's economic health, profoundly impacts the lives of all of us, from the most senior industrialist to the last person on the unemployment line. In order to restore confidence in Israel's economy and financial markets, our government must formulate a national economic policy. This policy should consider not only substantive reforms that will liberalize the economy (the "what"), but also procedural reforms that will enable the government to better encourage economic growth (the "how"). To address the "what," I believe that we must do six things. FIRST, THERE should be a drastic and immediate cut in taxes.The worst response a government can have to a recession is to raise taxes sky high. Unfortunately, this is precisely what the government proposes to do next year. Second, the government must make cuts in expenditure that greatly exceed the amount called for in its proposed budget. Third, the government must accelerate its investment in infrastructure roads, railways, water, sewage, treatment facilities, etc. by immediately moving both the National Planning Authority and the Israel Lands Administration to the Prime Minister's Office, and by enacting legislation that will expedite a process that has long been mired in bureaucracy. The prime minister must insist that national infrastructure projects are led by experienced executives who have proven themselves capable in either the private or the public sector. Fourth, privatization of government-owned industries should be accelerated, with shares sold to the general public. Fifth, the hi-tech industry must be supported by lowering taxes, allowing pension funds to make limited investments in venture capital funds, and providing tax breaks to those high employment "support" industries that serve the hi-tech sector. Sixth, the prime minister can help the private sector by taking Israeli businessman on economic missions to emerging markets like India, China, and Russia. In concert with economic agreements, these missions can do much to help promote Israeli export industries. But the "how" is no less important than the "what." Here, three things are important. First, the timing of economic reforms is crucial. While the economy is not more important than security, security policy can be changed at any time, but fundamental economic reforms can only be implemented when the prime minister has maximum leverage over coalition partners. Since this normally occurs at the beginning of a government's tenure, economic reform must be the first priority of an incoming government. For example, when the government I headed was established in 1996, I demanded as part of the coalition agreement that I chair the committee on government-owned industries. That demand facilitated a NIS 15 billion privatization effort. Furthermore, the drastic cuts that I made in the government's budget NIS 11b. were made in the first six months of my tenure, with the bulk NIS 7b. coming within the first month of taking office. Second, Israel must establish an advisory body similar to the Council of Economic Advisers in the US. This body, which would be comprised of some of the nation's leading economic and industrial figures, can provide much-needed advice to the prime minister and the economic cabinet. Third, we must shrink the size of the cabinet. During my tenure, I limited my cabinet to the 18 ministers allowed under the law. In the two governments that followed, that law was amended to serve purely political ends. The result has been a bloated government that is incapable of effective decision-making and which serves as a bad example to the public. Our deepening economic crisis demands that we make immediate substantive and procedural reforms in the economy. I believe that the current crisis can help the government persuade the public of the need to support the drastic reforms I have outlined above. We do not have to wait for new elections. The Israeli public expects this type of leadership now and deserves it. The writer is a former prime minister. Previous article Next article |
