Protesters in Israel demand a more just economic system

jerusalem  |  The wave of protests sweeping Israel is about much more than the lack of affordable housing: It’s a grassroots demand for the major redistribution of the nation’s wealth.

In social terms, the protesters are calling for a more caring government attuned to the needs of young, middle-class citizens who serve in the army, pay heavy taxes and provide the engine driving the country’s burgeoning economy.

In economic terms, it is a call for the reversal of nearly three decades of fiscal conservativism at the expense of social services such as education, health and welfare, as well as an appeal against eroding salaries and rising prices.

In other words, the protesters are demanding that today’s thriving free-market Israel use its wealth to create conditions for a restoration of at least some elements of the long-defunct Israeli welfare state.

An estimated 150,000 people demonstrated the night of July 30 in 12 locations across the country; the largest demonstrations were in Tel Aviv, Jerusalem, Beersheva and Haifa. Then on Aug. 1, municipal employees throughout Israel went on a one-day strike in support of social justice.

Some of the student protesters in Jerusalem Aug. 1 hold a sign that reads “Welfare state now!” photo/jta/flash90/miriam alster

Although the protests remind some of the student revolt in Paris, there is one difference: no violence. Instead, there was a veiled, largely unspoken threat: If the government fails to act and middle-class people continue to struggle to make ends meet, many more of the best and brightest would leave for countries where it’s easier to make a living.

As the protests entered their third week, the great Israeli paradox loomed large: Never has the country been economically stronger, yet never have so many of its young people felt so frustrated at their own personal financial status.

The current situation is partly a result of a constitutional lacuna.

In the mid-1990s, a number of basic laws were passed — together they are eventually meant to form the basis of a constitution for Israel. One of the laws, on the dignity and freedom of man, enshrined property rights, but a balancing companion act on social rights continues to be held up. It would deal with issues such as the right to housing, education, and health and welfare — and set parameters of state responsibility for their provision.

The bill again is on the agenda, promoted by Meretz Knesset member Zahava Gal-On.

But the country’s current socioeconomic predicament goes much deeper than any law. It is the result of more than two decades of a virtually consistent small government economic policy.

In 1985, with inflation running at more than 450 percent annually, it became clear that Israel could no longer afford to maintain the old-style, government-subsidized welfare state, and the economic buzzword in the 1990s became privatization.

When he first became prime minister in 1996, Benjamin Netanyahu had a strong ideological commitment to free- market forces, privatizing government companies and outsourcing social services.

An accelerated handover of services to the private sector, however, was accompanied by a weakening of trade unions and an overall erosion of working conditions and salaries.

The result? Owners and a select few mega-salaried executives became richer and the middle class relatively poorer. It also led to the rise of the Israeli tycoons, who control a great deal of the country’s wealth and power. Banks, energy companies, supermarket chains and media properties all were concentrated in the hands of a dozen or so billionaire families.

Netanyahu’s economic philosophy also entailed a reduction of corporate taxes. Big companies paid 5 to 20 percent income tax, while the middle class saw the prices of everything from food to cars to apartments rise considerably. The system produced impressive economic growth but left wealth in the hands of the few; there was no trickle-down effect.

The upshot was that by May 2010, Israel’s economy was robust enough for Israel to be admitted to the Organization for Economic Cooperation and Development — the exclusive club of the world’s strongest economies. But Israel also was the OECD member with the biggest gaps between rich and poor.

Some blame preferential spending on settlements in the West Bank. Others focus on welfare for the growing haredi Orthodox population in Israel. Still others point to the limited taxation of the tycoons.

For years, middle-class discontent simmered under the surface, as peace and security inevitably took top priority.

Until now.

And because there is a strong sense that none of the traditional parties represents their interests, the protesters have taken to the streets. Most of the protests have not been focused, but now the leaders are formulating a list of concrete demands and principles for change.

These are expected to include demands for public housing on a large scale; major tax reforms that would increase taxation of the super-rich and lower indirect taxes on the general public; a shift in budgetary priorities, transferring part of the defense budget and the increased tax money from the rich to fund social services; and demands for Israel to comply with OECD averages when it comes to the numbers of doctors, policemen and firemen per thousand citizens, and the number of children in classrooms.

Netanyahu said he will form a committee to address the country’s economic challenges — a team of ministers and experts to listen to representatives of the protesters and to submit a plan. Also, rumors point to Finance Minister Yuval Steinitz losing his job.

A bill to keep the Knesset in session through the summer to deal with the financial problems failed Aug. 1 — and the Knesset adjourned until Oct. 1 —  but down the line, Netanyahu almost certainly will produce a new economic plan.

But will it be enough?

Also, will this have an impact on the next election, scheduled for 2013? That depends on how pressing security issues are around that time and whether these protesters can sustain enough momentum to translate a street movement into real political power.