Democracy, here and there

By Ira Sharkansky

Somewhere in the American side of my brain is a memory of hearing that America is safe only when Congress is on vacation.

The feeling may not be appropriate this week, when members of Congress are trying to do something along with the White House to loosen their collective hands from the throat of the world’s largest economy, and via globalization on the rest of us.

Leaving America aside for the time being, the view of danger when a legislature convenes fits Israel, especially this week when the Knesset returns from its summer vacation, and begins scaring us with wall-to-wall demands for change, repeated and magnified by like thinking media personalities.

It’s a great opportunity for demagogues, who appear in Israel as well as in other places, and a tough time for analysts inclined to ask how much will it cost?

Is it worth the price, which includes what we may have to give up in order to pay for what you demand?

How serious is the problem you identify, i.e., how many individuals are affected, and are there ways of dealing with the problem other than by adding to government programs, increases in taxes or borrowing?

And what about the opponents, who may object to higher taxes, or giving up programs that you think are superfluous?

Israel is one of the more desirable places, but falls short of the paradise that various advocates would prefer.

In this, it’s a typical democracy.

It also has the special problem of being Jewish, which means on the one hand that others want to liquidate it, and on the other hand, that its politicians operate in the tradition of Biblical prophets, for whom the sky is not the limit, and feel themselves to be speaking for the Almighty.

The well-known security problem means that wealth produced by the younger generation of scientists, engineers, and technicians, especially in the burgeoning field of IT (information technology) cannot be used as in other democracies. Israel spends more than six percent of its resources on security; comparable figures are less than five percent in the US, and from three to less than one percent in other western democracies.

Several things have coincided with the Knesset’s return that add to the emotions of its members, activists, and media stars.

One is a downturn in the fortunes of Teva, the country’s most prominent corporation and a major actor in the field of medicine. The patent is about to expire on one of its best selling, non-generic creations, widely used in the treatment of multiple sclerosis. Thus, Teva, a leader in the production of generics, is about to be hurt by generics produced by competitors. Some might see that as fair play, but Teva has announced a downsizing for the sake of efficiency, with projected dismissals of some 5,000 worldwide and perhaps 800 in Israel. 

What is exciting the politicians is that Teva is a major recipient of Israeli tax concessions. The simple calculation is that, in exchange, Teva’s Israeli employees should be outside any plan to downsize. 

It sounds right, until the economists wade in with their explanations of tax concessions, meant to attract or keep as much as possible of Teva, Intel and other industries in Israel, especially those that can relocate to places where conditions—including taxes—are more attractive than they are here.

There are also demands that the heads of Teva, along with the heads of banks, insurance companies, and other prominent firms give themselves smaller salaries and pension benefits, or at least pay a higher rate of taxes on what they take.

Americans tuning into these demands might think them familiar. American states compete with one another and foreign sites for industry by way of tax concessions. There are also long traditions, here, there, and elsewhere, of attacking the benefits of those who are unusually rich. Often it seems justified, especially when their companies are given special benefits, and seem to be losing money despite their highly paid executives. However, Americans should also know that Israeli taxes are already higher than theirs, both for the rich and the not-so-rich. For example, our marginal income tax rate is 33% on incomes over about $74,000 a year, and 48 percent over about $140,000. Those rates are about half-again higher than U.S. rates. What’s left to an Israeli after income tax is subject to an 18 percent sales tax, along with social security and property taxes comparable to those in the U.S.

We’re also having one of our periodic squabbles over the cost of housing and food, and the availability of public housing for the poor.

It is not difficult to find cities where the cost of housing is cheaper than in Tel Aviv, or countries where the cost of certain food is less than in Israel. Two summers ago there was a wave a demonstrations, largely by young Israelis with higher than average income and education, chanting that they could not afford the kind of housing they wanted, where they wanted to live; and that the cost of cottage cheese had increased. Dairies and other food producers responded with media campaigns emphasizing price reductions, which reached even to the vending machines that sold soft drinks in the Hebrew University. Politicians on the right, led by the Prime Minister, promoted their proposals to reduce the approvals necessary to allow contractors to begin building. Leftists then complained that this would give too much freedom to builders. 

There has not been a wave of social protest since the summer of 2011, and prices for food, housing, and other products have gone their way with only occasional notice, including a return to the status quo ante at Hebrew University vending machines.

Several years ago, one of Israel’s most fiery Knesset Members campaigned to enact a law to allow long term residents in public housing to purchase their apartments at highly subsidized prices. He argued that poor folks should be entitled to own property that they could pass on to their children. His campaign promised to use the proceeds to build additional public housing for subsequent generations of Israel’s poor. However, with the price of construction increasing, and large discounts offered to those purchasing existing public housing, the arithmetic could not produce a substantial number of new units.

Now Knesset members are demanding increased spending for public housing, while competitors who would rely more heavily on the market want to stay with existing programs that give the poor a welfare supplement for housing. They argue that it is better to help poor people manage in the market than building public housing where land is cheap, which is likely to mean housing the poor a long way from job opportunities.

Social programs are not the only issues on the Knesset’s calendar and in the media. Politicians and commentators are concerned about a recent increase in the incidence of Palestinian violence against Jews (after a decline over several years), and the discovery that Gazans have been building tunnels that reach under Israel and may provide the wherewithal for attacks and kidnappings. There is also criticism of the Obama administration for reducing aid to the Egyptian regime, which is less than ideally democratic, but active in combating Islamic extremists, expectations that Obama will be soft on Iran, and criticism that Prime Minister Netanyahu is overly windy but ineffective in his campaign against Iran.

Israelis are no more at the mercy of their politicians than are Americans or others who live in democracies. Knesset Members can enact what they want, but the Finance Ministry is famed for holding back on the shekels. Also, virtually all laws are enacted in general terms, with implementation depending on the rules to be crafted in the ministries. It is not unusual for activists to wait a long time for those rules. Sometimes they never appear. And they may gut what those passionate for reform said they were enacting.

There is, alas, a place for rational assessment in modern government. It is seldom done under the spotlight of intense public interest, and not by activists who avoid concern with costs, the gritty issues of designing criteria for beneficiaries, and training administrators who must use their judgement about individual cases.

For those who are disappointed in what the bureaucracy allows, there are courts for people feeling themselves deprived, and the media to generate yet another campaign of reform.

Ira Sharkansky is professor (Emeritus), Department of Political Science, Hebrew University of Jerusalem.