Troubled Economy of Dreamers

Troubled Economy of Dreamers

The Zionists truly turned Jewish history on its head. For 2,000 years the Jews, often barred from owning land and serving in the military, worked wonders as bankers and merchants. Now we have the Jewish state. The army is among the world's finest, the innovations in agricultural technology are illustrious--and the economy is a mess.

That snippet of typically Israeli black humor rings mighty true. The inflation rate in Israel during 1976 averaged 42%. The foreign debt stands at $10.7 billion--which is roughly the same as Israel's gross national product. By the most generous reckoning the G.N.P. grew by 2.8% last year. And the unemployment rate, which in the past hardly ever rose above 3%, is creeping up toward 5%. Small wonder that the economy is a central issue in this spring's special elections forced by the resignation of Premier Yitzhak Rabin (TIME, Jan. 3).

Israel's economic morass was not always so dense. True enough, in 1949 the year-old nation's imports were nine times as great as its exports. But since then, more than $20 billion of foreign capital has poured in: mostly gifts from Jews abroad, reparations payments from West Germany and U.S. aid. The foreign money spurred growth that has given Israel a G.N.P. only a shade smaller than that of Egypt, though its population, at 3.3 million, is less than a tenth the size.

Sky-High Costs. Then came the October War of 1973, when Israel lost about 100 jets and 800 tanks. Arms purchases abroad since then have totaled $6 billion, swelling the balance of trade deficit in 1975 to more than $4 billion. The outlandish cost of armaments--$25 million for an F-15 today, v. $4 million for a Phantom jet in 1970--along with the rising prices of other imports, pushed the inflation rate into the stratosphere.

Worse still, the government has ruled out most of the measures that might help reduce inflation. Israeli leaders deem it out of the question politically to cut defense expenditures, which swallowed 42% of the $12 billion budget in 1976. Welfare payments ($2.2 billion last year) are another political untouchable. The Histadrut, Israel's all-powerful labor federation, is dead set against wage controls; workers strike like clockwork to protest high prices, and nearly always win raises from management. Last week in the Knesset (parliament), the right-wing opposition party, Likud, pushed into committee four bills requiring arbitration in labor disputes involving various public service workers. The Histadrut set off a thunderous cry, and the bills are expected to die in the committee, which Rabin's Laborites control.

National Joke. Just about nobody is ever fired in Israel; the Jewish state, refuge for the persecuted, does not want to give its citizens a still harder time. Inefficiency, particularly in the public sector (266,600 employees), is a bad national joke. So productivity is low, and growth has been slow.

Unemployment is a special bugaboo for the Israeli government. An Israeli out of work might leave the country--depriving it of a soldier--or, perhaps worse, might vote against the party in power. As Finance Minister Yehoshua Rabinowitz says, "While other countries fight inflation with planned unemployment, we have steered clear of that course because we know that large-scale unemployment here would be social dynamite."

The resulting inflation is oppressive. In 1968 the average family spent 910 Israeli pounds ($242 at the time) on basic living necessities each month; by 1975 that figure had grown to 3,870 pounds ($630 at the rate then). Israelis making more than $13,500 a year are taxed at an average rate of 63%, which makes the inflation hurt more. Fairly typical is Esther Mizrachi, 38, a Jerusalem housewife, who says, "If we can pay for our food and our children's education, we'll feel lucky." Yet the Israelis manage somehow; they overdraw on checking accounts to meet food bills, artfully dodge a tax law here and there. Though a Volkswagen Beetle costs $8,000 (excise taxes nearly triple the price of all cars), the number of private autos has nearly doubled since 1970, to 280,000.

Native ingenuity extends on an even larger scale. Agricultural feats, particularly in the southern Negev desert, have made Israel nearly self-sufficient in food and a leading exporter of fruits and vegetables to Western Europe. A global demand is growing for space-age military and communications hardware made in Israel. Helped by its continuing policy of "creeping devaluation"--just last month the pound inched down 2% to 8.9 to the dollar--Israel increased its exports $800 million last year, helping cut the trade deficit to $3.5 billion.

But though the deficit has dwindled, the inflation has not--and the government seems inclined to trust to a sense of national purpose rather than tough immediate measures to bring it down. Says Defense Minister Shimon Peres, Rabin's chief rival in the upcoming elections: "Vision is worth more than economic study, and the dreamer gets better results than the best professor of economics." One such economist, Tel Aviv University President Haim Ben-Shahar, feels that only a decisive leadership, the kind that would be brave enough to stand up to political pressure groups and cut defense spending, can assure the growth that Israel needs desperately. And when might economic redemption arrive? Israelis like to invoke a rabbinic adage popular since the second century A.D.: "From the fall of the Second Temple, prophecy was taken from the Prophets and given to the fools and infants."

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