For the past two months, hundreds of thousands of Israeli “social justice” demonstrators have jammed the streets of the country’s cities to register largely inchoate demands for more government spending and an end to the free market economics that have over the course of the last two decades transformed an economic basket case into the “start-up nation” that is the envy of the world. While there are aspects of the protests that have merit, the argument for a return to the Jewish state’s socialist past took another hit today when Standard & Poor’s announced it was raising the State of Israel’s credit rating from A to A+.
The S&P boost was a tribute to the wise stewardship of Israel’s economy by the team of Prime Minister Benjamin Netanyahu, Finance Minister Yuval Steinitz and Bank of Israel Governor Stanley Fischer. At a time when other countries in the developed world are experiencing instability and a worsening debt crisis, the Jewish state has managed to maintain both fiscal discipline and economic stability. But if the social justice protesters have their way, that could all change.
The clamor for social justice reflects genuine disgruntlement on the part of many Israelis with the lingering effects of the country’s former East German economic model, particularly the crony capitalism that allowed industries that were formerly state-owned to pass into the hands of a few families and companies at bargain prices. Yet much of the rhetoric emanating from the protests reflects a faux nostalgia for a socialist past whose inequities and glaring failures have been either forgotten or ignored. The solution to the problems of high prices and the scarcity of affordable housing is less government involvement in the economy and more free market reforms. The last thing Israel needs is a return to the nightmare of socialist economics that made it routine for a family to have to wait years to have a phone line installed.
But the nightmare of instability and debt is exactly what awaits Israel if the government allows the protests to start dictating fiscal policy. More government spending and subsidies of products and services leads in only one direction: the sort of debt crisis that brought countries like Greece to its knees this year. Unlike the nations of the European Union, Israel cannot afford such a collapse. It must also maintain a large military due to the ongoing threats against its security.
Were Israel to sacrifice its credit rating in order to satisfy demands for “social justice,” it would soon find it had neither justice nor a healthy economy. The demonstrators should heed the message they have just received from S&P. Israel’s government should stay the course on the free market.