A Push Toward Capitalism

Begin seeks to join "the family of well-run nations"

First Israeli: "It's simple. We let the Israeli pound fall in value, allow free exchange of dollars, Israeli exports become dirt cheap, and in the long run the economy is strengthened."

Second Israeli: "And in the short run?"

First Israeli: "We starve."

Like those two characters in a Jerusalem Post cartoon, most Israelis last week seemed to be exploring a new economic landscape with little joy, a dash of mordant wit and a surprising lack of panic. It hardly seemed possible, but after nearly 30 years of semisocialism--and all the government controls and subsidies that went with it--the brave new world of laissez-faire capitalism so abruptly introduced by Premier Menachem Begin began exploding before their eyes. The Israeli pound, shorn of its artificially pegged value, quickly plunged 46% against the dollar, from 10.3 to 15.2. Prices of essential consumer goods, no longer kept deliberately cheap by big government subsidies, began climbing in stages that even government economists predict will lead to a 45% inflation rate over the next 18 months. Yet no excessive amounts of capital fled the country, and a flurry of food hoarding ended within a few days. Boasted Finance Minister Simcha Erlich:

"From now on Israel belongs to the family of well-run nations."

Leaders of Begin's conservative Likud coalition correctly argued that Israel was overdue for an economic cold-water treatment of some sort. In the wake of the 1973 war, Jerusalem's annual balance of payments deficit has ballooned from about $1 billion to $2.6 billion this year, causing total foreign indebtedness to soar to more than $10 billion. Meanwhile, an alarming rise in inflation (40% this year alone) has slowed real economic growth, from a 10% annual average to zero in 1977. Any thought of engineering a turnaround by expanding the Labor Party's elaborate, 29-year-old system of export subsidies and import duties was anathema to Begin, who during his election campaign had promised less government interference in the economy. Instead, said Begin's top aide, Yehiel Kadishai, "we are going from a welfare state to a state where workers will fare well."

Yet some drop in living standards will have to occur if the new economic policy is to work. One of its aims is to dry up excessive buying power in order to help stem the tide of imports. The cost of many foreign goods is expected to jump by a prohibitive 45% or more. On the less painful side, the government hopes its measures will stimulate local industry to manufacture previously imported goods, find new markets for exports and attract overseas investment. The Begin regime is also quietly counting on another blessing from a reduced balance of payments deficit: Israel could become less dependent on the U.S.

Despite the general calm, some Israelis actively opposed the new measures. In the ancient southern city of Beersheba, workers marched through the streets shouting "Begin go home!" One-day strikes closed down the postal service in Tel Aviv, the national airline El Al, Tel Aviv's airport and the major seaports of Ashdod and Haifa. Those and other token work stoppages were ordered by the 1.2 million-member Histadrut labor federation, whose Secretary-General Yeruham Meshel warned Begin: "If you have decided on a free economy, we will not agree to keep only wages under controls. We will not agree to have the wages and standard of living of workers go down, down, down."

If the new plan fails, the opposition Labor Party will doubtless reap the benefits at the polls--but not until the 1981 elections. Ironically, one provision of the Likud economic plan might have changed the results of the election that brought Begin to power: the legalization of foreign bank accounts for Israeli citizens. The most prominent violators of the old law banning such accounts were former Labor Premier Yitzhak Rabin and his wife Leah. They admitted keeping $20,000 in Washington, D.C., banks, thus causing Rabin's resignation and contributing to the Likud victory. m -- ,

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