Commentary Magazine


Topic: Israeli economy

The Markets Vote For Netanyahu

Israelis go to the polls tomorrow and, as we’ve noted previously, there’s not any doubt about who will lead their next government. The voters appear poised to give Prime Minister Benjamin Netanyahu a qualified endorsement, and while his own party appears to be getting fewer votes than expected, the factions that made up his current government will collectively get what amounts to a landslide victory over the prime minister’s left-wing and Arab critics in the Knesset. But the financial sector’s approval of his performance in office appears nearly unanimous. As Bloomberg News reports, the country’s bonds have gone up 36 percent in dollar value since he took office in 2009 as opposed to a 22 percent average rise for global government debt. The shekel has also gained 13 percent against the dollar in that period and is, according to financial experts, the second-best performing currency in Europe, Middle East and Africa during this time.

That’s a message that gets drowned out by complaints about the rise in the cost of living that generated street protests in Israel in the summer of 2011. Yet for all of the country’s problems, including a deficit that is fueled by Israel’s need to spend a disproportionate amount on defense, there’s little doubt that Netanyahu’s administration has been economically sound and that the country’s economy has grown by leaps and bounds under his leadership. His commitment to maintain the Jewish state’s commitment to a free-market model and the stability that his leadership has given the nation are not the only factors behind the growth numbers, but Israel has become an even better bet for investors in the past four years. The near-certainty that he will stay in office will ensure that this will continue.

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Israelis go to the polls tomorrow and, as we’ve noted previously, there’s not any doubt about who will lead their next government. The voters appear poised to give Prime Minister Benjamin Netanyahu a qualified endorsement, and while his own party appears to be getting fewer votes than expected, the factions that made up his current government will collectively get what amounts to a landslide victory over the prime minister’s left-wing and Arab critics in the Knesset. But the financial sector’s approval of his performance in office appears nearly unanimous. As Bloomberg News reports, the country’s bonds have gone up 36 percent in dollar value since he took office in 2009 as opposed to a 22 percent average rise for global government debt. The shekel has also gained 13 percent against the dollar in that period and is, according to financial experts, the second-best performing currency in Europe, Middle East and Africa during this time.

That’s a message that gets drowned out by complaints about the rise in the cost of living that generated street protests in Israel in the summer of 2011. Yet for all of the country’s problems, including a deficit that is fueled by Israel’s need to spend a disproportionate amount on defense, there’s little doubt that Netanyahu’s administration has been economically sound and that the country’s economy has grown by leaps and bounds under his leadership. His commitment to maintain the Jewish state’s commitment to a free-market model and the stability that his leadership has given the nation are not the only factors behind the growth numbers, but Israel has become an even better bet for investors in the past four years. The near-certainty that he will stay in office will ensure that this will continue.

Those who only know Israel through stories about the conflict with the Palestinians see the country through a prism that doesn’t take into account the amazing progress it has made in recent decades, as it was transformed from a third-world economy to one of the most dynamic markets in the world. It may be that not all of this has trickled down yet to many of Israel’s citizens who rightly complain about crony capitalism and high prices. But Israel’s strength is not only measured in the vaunted abilities of its armed forces. If it has been able to shrug off the disappointments of a peace process in which the country traded land for more terror rather than peace, it has been because its start-up nation economy has become a model for the world in terms of innovation.

This happened for a number of reasons, but the chief one was a commitment by its leaders to shedding the old socialist Labor Zionist model that helped create the nation but ill prepared it to compete in the global economy. Netanyahu played a key role in this change during his first term as prime minister in the 1990s and his years as finance minister under Ariel Sharon. But as prime minister he has continued this progress, keeping a steady hand on the tiller and avoiding many of the problems experienced elsewhere in a challenging environment.

Stuck in a region with neighbors who won’t make peace and still besieged by terrorist movements that launch missile barrages into the country whenever they want to heat things up, Israel doesn’t have a normal economy or a normal political culture. But in spite of that, Netanyahu has received good marks for keeping the economy sound and largely resisted the demands to reverse course. That might have appeased some of his critics, but it would have set the country back. That took exactly the sort of political courage that, according to Jeffrey Goldberg, President Obama thinks he lacks. As Netanyahu embarks on his third overall and second consecutive term in office, the one certainty amid so many variables is that Israel’s finances are in good hands. 

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America’s Not a Kibbutz; Neither is Israel

Mitt Romney is catching some flak today for a statement made yesterday and first reported on BuzzFeed in which he contrasted American society and its economy as being very different from a socialist model. He told the crowd at a Chicago fundraiser:

“It’s individuals and their entrepreneurship which have driven America,” Romney said. “What America is not a collective where we all work in a kibbutz or we all in some little entity, instead it’s individuals pursuing their dreams and building successful enterprises which employ others and they become inspired as they see what has happened in the place they work and go off and start their own enterprises.”

This is being represented in some quarters as a knock on Israel or at least showing that, as BuzzFeed put it, his friendship for the Jewish state, “only extends so far.” But anyone who tries to represent this as somehow qualifying Romney’s backing for Israel or showing disrespect for it doesn’t know much about the real life Israel as opposed to myths from Leon Uris novels. While the kibbutz is an iconic symbol of the state’s beginnings, the collective farm movement is a dinosaur in modern Israel with only a minuscule role in its economy. Many of have gone bankrupt while others have become hotels or factories more than farms. Indeed, Israel’s current economic success is based on its transformation in the last generation into a first world economy rather than one handicapped by the socialist ideology of its founders.

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Mitt Romney is catching some flak today for a statement made yesterday and first reported on BuzzFeed in which he contrasted American society and its economy as being very different from a socialist model. He told the crowd at a Chicago fundraiser:

“It’s individuals and their entrepreneurship which have driven America,” Romney said. “What America is not a collective where we all work in a kibbutz or we all in some little entity, instead it’s individuals pursuing their dreams and building successful enterprises which employ others and they become inspired as they see what has happened in the place they work and go off and start their own enterprises.”

This is being represented in some quarters as a knock on Israel or at least showing that, as BuzzFeed put it, his friendship for the Jewish state, “only extends so far.” But anyone who tries to represent this as somehow qualifying Romney’s backing for Israel or showing disrespect for it doesn’t know much about the real life Israel as opposed to myths from Leon Uris novels. While the kibbutz is an iconic symbol of the state’s beginnings, the collective farm movement is a dinosaur in modern Israel with only a minuscule role in its economy. Many of have gone bankrupt while others have become hotels or factories more than farms. Indeed, Israel’s current economic success is based on its transformation in the last generation into a first world economy rather than one handicapped by the socialist ideology of its founders.

It is true that the kibbutz is, as Buzzfeed put it, “integral to the story of the founding of the state of Israel.” In pre-state Palestine, collective farms were useful in putting down claims on parts of the country at a time when the Jews were returning to their ancient homeland. They were more defensible than individual farmsteads and survived as much on the Zionist and socialist fervor of their members as their economic value. Though always small in number, their members formed part of the Jewish community’s elite and both before and after 1948, they often were disproportionately represented in the leadership of the Israel Defense Force and its precursor the Haganah.

But while Romney is obviously right that the collective idea has no place in America, it is a falsehood to assert that it still has much, if any, importance in Israel.

While collective farms played an outsized role in the formation of the state and its defense, in the long run they were not part of a viable economic model. For generations they have been subsidized by agricultural policies and direct aid from the state, something those who criticize funding for West Bank settlements often forget. But eventually even that wasn’t enough to keep many of them alive. If anything, they are now more of a symbol of the failed socialist economic policies the Labor Party imposed on the country for decades and which have now been replaced by a free market model that turned Israel into an economic powerhouse. The decline of the kibbutz is something of a cliché in Israeli society, and those farms are as out of place in its economy now as the old socialist and labor union monopolies that hamstrung development and a political leadership that refused to allow television until the 1970s. Though there is some nostalgia in Israel for the past, the idea that the country would return to the old East German model is absurd.

What Romney said was no gaffe. America isn’t a kibbutz. It never was and never will be. And Israel isn’t going back to them either.

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