With almost no difficulty, the Israeli government managed to pass one of the worst budgets we have ever known. The social cost is extremely harsh: the unemployed, the poor, the elderly, single-parent families, children, the sick and many others will pay the price for economic cuts, which also herald a desire to eliminate the welfare state in Israel while in no way guaranteeing the minimal conditions necessary for economic growth in the near future.
Anyone who thinks this is a budget for the entire year is either wrong or trying to mislead people. The Finance Ministry is manipulating the data, the deficit is greater than that which is declared, while the deep economic crisis also expresses itself in a reduction in tax income. This increases the "hole" in the budget, and will require the presentation of a revised budget within a few months. The government's policy towards peace and security only suggests a sharpening of the conflict, with all that that implies in the economic sphere, not just in terms of the security budget, which will continue to swallow large sums of money, but also in terms of Israeli and Palestinian lives and a substantial drop in investment and tourism.

Clear Connection

A few months ago, the idea might have appeared to be innovative. But today, many people understand there is a clear connection between what is going on in the Occupied Territories and Israel's economic situation. While the Palestinians are paying the heaviest price, and their economy is to a great degree paralyzed, the deepening recession reminds Israelis that they too are paying a heavy economic price for the current policy.
Israel's economic problems are not due solely to what is happening in the Occupied Territories or to terror attacks in the cities. The war has also exacerbated some of the underlying problems that characterize the Israeli economy. Except for the first nine months of 2000, there has been no economic growth in Israel for the past five years. This lack of growth is no accident. It is a result of the dominant economic policy in the country. The philosophy of the International Monetary Fund (monetary efficiency, balanced budgets, etc.) has become the primary guideline for economic and social activity in Israel. And whatever the architects of our economic policy didn't learn from the IMF, they learned from former British Prime Minister Margaret Thatcher (with her rampant privatization, cuts in social services, etc.).

Both Right & Left for a Market Economy

In Israel, when people speak about "left" and "right," they are mainly refering to different approaches to the Israeli-Palestinian conflict. There is almost no social or economic content to the term, as it is usually understood around the world. The familiar rhetoric about "looking after the poor" can't hide one basic fact: a decisive majority of the political parties today are part of the social right.
Whether one is referring to the "right" of Lieberman and the Likud, or the "left" of Labor and Meretz, all advocate one or another rather extreme version of the "market economy." Both the Israeli public, and the parties that represent it, overwhelmingly belong to the church of believers in the free market. The exceptions are rare.
The wonders of the free market have included the direct import of some of the illusions cultivated in the "global village," and first and foremost the bubble or deception of hi-tech as the new economic panacea. The businessmen marketed this sweet illusion to an eager public, while "toying" with the money and savings of many until the famous bursting of the bubble. Thus it was possible to go to unemployment- stricken areas and to promise 30- and 40-year-olds, who had just been fired, that the technological revolution meant that prosperity in such towns as Kiryat Shemona, Ofakim and N'tivot was "just around the corner." And, if they didn't benefit from it, their sons and daughters - those who were continuing to receive a bad education - would be a part of the revolution.
Alongside this enchanting fraud, which was accompanied by a number of incredible stories about young people who suddenly earned hundreds of millions of dollars, a machine began to function that was supposed to integrate us into the global economy. The IMF-Thatcherite recipes were well known. Professor Joseph Steiglitz, a Nobel Laureate in Economics and until quite recently the chief economist of the World Bank, said that: these were recipes the Americans would have refused to apply in America because they increase social gaps, produce greater poverty and, in Steiglitz's words, are primarily beneficial to some of the Wall Street rich.
Since the 80s, the market economy thesis has gained a foothold in Israel, a tendency that sharply increased during Benjamin Netanyahu's regime. The combination of the Netanyahu government's fiscal policy with the monetary policy of the World Bank was exacerbated by the lack of peace. The region has become less attractive to foreign investors and to economic initiatives. With the outbreak of the second Intifada in September, 2000, this tendency increased. Tourism collapsed, investments declined and the cost of war was reflected in an increase in the security budget.

The Unemployment Example

The cuts in the 2003 budget reflect a continuation of the tendency of the last few years. Since the days of the Netanyahu government, through Ehud Barak and Ariel Sharon, the acceptance of the IMF guidelines was accompanied by cuts in the rights of the unemployed. Today, the Israeli unemployed are much worse off than the unemployed in all other Western countries.
They are always guilty - they are parasites, corrupt, exploiters, etc. The crusade against them has been so successful that the majority ignores the fact that the enemy is unemployment, not the unemployed. Yet, when places of work were created, those "people who didn't want to work" quickly found their way into the work force. And when peace appeared on the doorstep and optimism thrived, quite a few new work places were created, the economy grew and there was a significant reduction in unemployment.
Data on unemployment in Israel demonstrates the connection between the political situation and economic activity: After 1992, the economy grew in the wake of the peace process and the absorption of a wave of immigration. Unemployment declined from a high of 11 percent in 1992, following the wave of mass immigration in 1990-91 down to 6 percent in 1996.
Since then, the political process has frozen, along with the Israeli economy. Unemployment has continued to rise and, according to estimations by the Bank of Israel and the Finance Ministry, it will continue to increase unless a way is found to return to political negotiations and hope for the future.
The high economic growth during the period of the Oslo Accords and peace with Jordan produced a significant drop in unemployment. But with Netanyahu's rise to power and the bloody "tunnel affair" clash in Jerusalem, within a short time the dynamics of the free market began to take their toll.
Since the 90s, another process has also taken place. The first Intifada and the (previous) Gulf War seriously reduced the number of Palestinian workers in Israel. This had a severe impact on the Palestinian economy, and the phenomenon was exacerbated by the outbreak of the second intifada in September, 2000. Palestinian workers were quickly replaced by foreign workers, who today constitute 11 percent of the work force in Israel. They are cheaper, have fewer rights even than the Palestinian workers, and employers in various sectors are gaining billions of shekels at their expense. Their presence has an impact on the entire work structure in Israel. Salaries and social benefits are affected by a combination of their presence, their salaries and growing unemployment
The high level of unemployment is only part of the picture. Many have despaired of finding work. In the Arab communities in Israel, young people aged 18 to 21 aren't considered unemployed. Some people are only employed part time. As unemployment grows, the time it takes to find work has increased compared to the beginning of the 90s. The number of unemployed who have been looking for work for more than a year rose from six and a half percent in 1996 to 12 percent in 2000 and 11.8 percent in 2001.
At the same time, new jobs aren't being created. A comparison of the second quarter in 2001 with the same quarter in 2002 shows that, in industry, 30,000 jobs have been eliminated, while 8,000 jobs have disappeared in the hospitality and food sectors.
Poverty and inequality are getting worse and all calculations indicate the new budget will hurt the elderly, the unemployed, single-parent families and people with guaranteed incomes (from social security) hardest. The figures are even more severe for the Arabs in Israel: about 42 percent of Arab families live below the poverty line (and constitute 28 percent of the poor families). Every second Arab child lives in poverty (compared to every fourth child in the general population). The level of unemployment in the Arab population is also higher than the Israeli average (in 1996, it was lower than the average). Between 1996 and 200l, Jewish unemployment rose 53 percent while Arab unemployment rose 126 percent. This corresponds to other data on unemployment growth among those with a lower education and salary.

General Decline in Economic Activity

The decline in economic activity in Israel has been continuing for more than two years, and all aspects of the economic situation are getting worse; not just unemployment. This is partially due to the external influence of globalization, to which must be added the severe consequences of the ongoing conflict with the Palestinians and the lack of hope for a political solution on the horizon. The industrial manufacturing index, which was 134 points in June, 2000, declined to 123 points in June, 2002. The turnover index in commerce and services, which reached 141 points at the beginning of 2001, had declined by June, 2002, to 135 points. An equally gloomy picture can be obtained from the import-export sector, which has contracted significantly. Exports, which reached $1,800 million a month in June, 2000, declined to $1,500 million a month in June, 2002. Imports also declined from $2,100 million to $1,900 million during the same period. Tourism - a sector that had a large work force - quickly reflected the situation. Three million overnights of foreign tourists in 2000 had fallen to only 500,000 by mid 2002. It is easy to understand why thousands of workers were fired from this sector. These are just some of the figures that reflect the depth and breadth of the economic slowdown in Israel.

Between Economics and Peace

As mentioned before, some of the ills of the Israeli economy are due to an obedient acceptance of the medicine prescribed by followers of the IMF and the free market. This was done within the context of a major blow to the components of the Israeli welfare state. But one point has to be reiterated. There is no possibility for economic recovery without a liberation from the war environment. No one should be under any illusion - the security budget is growing - and this includes massive investment in the settlements during periods when both the Likud and Labor are in power - an important component of the economic crisis. No one likes to travel or invest in a war-stricken area.
The current Israeli government lacks any genuine desire to arrive at a political settlement, and is only using military tools to deal with the conflict. Without a political roadmap that will bring an end to the occupation and see the establishment of an independent Palestinian state, there is no possibility of arriving at meaningful solutions in the economic sphere. As for the peace camp, which poses a clear alternative to government policy in the diplomatic sphere - if it continues to avoid the need for building a more just society, and continues to be a foolish disciple of the free-market economy, it will not be able to act as a genuine agent for change within Israeli society. Pathetic calls for cosmetic changes in the settlement budget are justifiably considered hypocritical and unserious. Anyone who wants to achieve serious socio-economic change will have to try to change the mainstream economic beliefs of most of the players in the political arena.

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