What's Behind Israel's Middle-Class Revolt?

By Ran Baratz
Wednesday, August 17, 2011

Amid the flood of press comments about the "middle-class" protests that have been roiling the Israeli scene over the past weeks, a particularly cheerful note was struck by the American political philosopher Michael Walzer. In a New Republic essay titled "Why the Protests in Israel Are Cause for Hope," Walzer hails this "massive uprising," as he dubs it, both for its choice of targets and for its alleged aims.

The targets, he asserts (while confiding that "few will say it" openly), include Israeli settlers in the West Bank and ultra-Orthodox Jews, two domestic constituencies that place a heavy drain on state subsidies, plus the social inequities caused by the market-friendly reforms introduced almost a decade ago by then-finance minister Benjamin Netanyahu. These, according to Walzer, have led to what he deprecatingly refers to as Israel's "successful neo-liberal regime."

As for the movement's aims, the young Israelis camped out on the streets of Tel-Aviv desire, in Walzer's words, to "recapture an older, more egalitarian, more idealistic country," a country characterized by the sense of social "solidarity" that their parents' generation inherited and then lost. To Walzer's immense satisfaction, the protesters have rolled back the settled feeling that "a whole generation of Israelis had turned away from political action in search of the pleasures of private life." Hence, he concludes, this is a "time of unexpected hopefulness."

In complicated ideological moments, even renowned professors are prone to argue inconsistently and commit errors of fact. For instance: how does one reconcile the claim that poor ultra-Orthodox Jews and settlers living in remote and imperiled villages receive generous amounts of government aid with the assertion that Israel today is a "neo-liberal"—that is, capitalist—"regime"? The contradiction looms even larger when one takes into account another heavily subsidized group that Walzer conveniently neglects to mention: Israeli Muslim Arabs (roughly 16 percent of the population), whose share of welfare benefits rivals that of the ultra-Orthodox. Indeed, across the board, Israel's welfare spending as a percentage of GDP ranks comparatively high. Walzer may take issue with this welfare model (I do, too, no doubt for different reasons), but for better or worse it is much closer to socialist than to "neo-liberal" convictions.

Another instance: many positive things can be said about the idealism of the early socialist Zionists, but "solidarity" is not one of them. Theirs was a highly polarized view of the world, in which the cohesiveness of the Ashkenazi secular Left was based on and sustained by discrimination and exclusion. The list of the excluded was quite comprehensive: Sephardi newcomers (promptly sent off to ma'abarot, transit camps), religious Jews of various stripes, Israeli Arabs, and anyone suspected of being tainted by right-wing associations. It is a legitimate point of national pride that today's Israel has in many respects overcome this entrenched culture of discrimination. 

And yet some aspects linger on, and one of them has been on fitful display in the slogans and social composition of the current protests. The cries for "revolution" and the smashing of "privatization," the chanted demands for "social justice," do indeed seem reminiscent of a bygone leftist hegemony—which may explain why a visitor like Walzer was so moved at hearing folk songs dating back to the 40's, and by an encounter with members of a Marxist youth movement he had thought long vanished from the scene. 

A final instance, perhaps the most telling of all, concerns the core demand of today's protesters: namely, better housing for less money. How this translates in Walzer's mind into a greater interest in "political action" than in "the pleasures of private life" is beyond my conceptual apparatus.

But let us leave aside Walzer's fanciful report, and view this protest in its historical and political context. For it is hardly an unprecedented event, or one without a highly significant political element.

That element is the deep financial and strategic involvement of the New Israel Fund (NIF), a left-wing "social-change" philanthropy largely funded by American donors. In its own words, NIF has seeded innumerable "cause-related progressive NGOs" in Israel, and through Shatil, its "action arm," has provided them with the money and the "know-how to grow and prosper." Through the instrumentality of the latest protests (which it may not have initiated but rushed to exploit), NIF is now conducting its third campaign against Benjamin Netanyahu.

The first campaign was launched in 1999 when Netanyahu was running for re-election as prime minister against Ehud Barak. Immediately after Barak's victory, NIF's director in Israel, Eliezer Yaari, boasted in an internal letter to his board and staff that "it is impossible to see what happened without seeing the clear, courageous fingerprints of NIF and Shatil." The second, in 2003, was aimed at the efforts of Netanyahu, then serving in Ariel Sharon's government, to overcome a financial crisis. Israelis remember a single-parent mother by the name of Viki Knafo who led a "spontaneous" national protest against budgetary cuts. The media lent their support, numerous NGOs joined in, protesters occupied tents in Jerusalem, and the carefully manufactured socialist message anticipated the one said by Walzer and others to be emerging from the present demonstrations. As subsequent studies revealed, much of the campaign was orchestrated and paid for by NIF.

In the current housing protest, NIF's "clear, courageous fingerprints" are once again abundantly visible. Many of the main figures are closely connected to extreme left-wing NGOs supported by NIF, and Shatil is circulating an activist's "guide to the tent struggle" detailing means and ends. After one activist admitted in a radio interview that the NIF was supporting the protest, the organization itself acknowledged its role in what its Israeli executive director has called "a dream come true."

In short, and like its predecessors, the current protest began as, and in significant respects remains, the work of the extreme Israeli Left, backed vociferously by Israeli media—themselves so highly biased that, as one reporter astutely remarked, they do not so much cover the protest as lead it. The genius of the organizers has been to co-opt a genuinely middle-class complaint and identify their own aims as coincident with it, thereby enabling the protests to hit a large public nerve.

Historically speaking, that complaint, too, is hardly new—and hardly without merit. An old joke has it that in Israel there is a division of labor: one third of the populace pays the taxes, one third serves in the military, and one third upholds the law; the trouble is that it is always the same third. I cannot remember a time when middle-class Israelis weren't complaining that their salaries were insufficient to get them through the month. Worse: since, by almost any criterion, their standard of living has risen steadily in recent decades, middle-class Israelis feel all the more keenly that they are permanently falling behind.

In order to understand and address the problem, one needs to identify it more clearly. Yes, the Israeli middle class suffers from an unreasonable financial burden; but what is its source? The burden is not the result of direct taxation on income. Taxes are heavy in Israel, but highly progressive, with the top 20 percent carrying 82 percent of the load and the lower 50 percent entirely exempt. Unemployment is at less than 6 percent, growth is at about 5 percent per annum, the shekel is strong, and the average salary rises slowly but constantly in rough proportion to inflation.

These numbers are rightly the cause of world-wide envy. So it is not income or the taxes on it that are the source of the worry but rather expenses, also known as the cost of living.

What makes the cost of living in Israel so relatively high? Indirect taxation on several key products offers only a partial explanation: in themselves, levies on consumption are not heavy enough to account for the problem. No, the main reason for the high cost of living lies in Israel's economic history. Other than in the relatively new high-tech industry, the country has not successfully completed the transition from a socialist economy to a free, decentralized economy marked by substantial competition. As almost every study shows, in many areas—including banking, agriculture, and low-tech industry—competition is relatively low to absent, government interference obtrusive, monopolies or oligopolies an oppressive fact of life. 

So is the government to blame? Not entirely. Israel is a democracy, and representative authority is answerable to the people's will. But when it comes to economic matters, public discourse remains, to say the least, naive and uninformed, with ordinary Israelis woefully unaccustomed to asking hard questions like who will pay for what. Outside the high-tech realm, entrepreneurship, too, lags far behind. True, all this is partially the result of governmental constraints and interventions, but Israeli citizens as a whole have not yet broken the habits of looking to government to take the lead, accommodating its will, and hoping to reap a share of its largesse.

To NIF and its allies, the solution is clear: more statism! More welfare! But that will hardly help the middle class. To the contrary, as the experience of every Western country attests, it will cripple the economy further and end by harming not only the middle class but everyone aspiring to join it. Only the development of a more truly entrepreneurial culture and the assumption of private responsibility will enable the growth that leads to more widely shared prosperity.

The government has now established a committee to study the issues and to pacify the protesters. The initial suggestions made by this committee, as reported by the press, are problematic at best, governed by the old socialist belief that governments can effectively control the market and that central planning can efficiently manage prices. Any decisions made in conformity with these ideas are bound to yield diminishing returns for their supposed beneficiaries.

Better by far, for the middle class and the Israeli economy alike, would be to follow the logic employed by then-finance minister Netanyahu in 2003: cut taxes by spending less (mostly on welfare), free the markets, and create incentives for individuals to start businesses and therefore improve their own lot and that of many others. This is the logic that has kept Israel growing while the rest of the West entered a recession in 2008 from which it has yet to emerge, and it is in general the well-known key to economic success: relying on a free, agile, and upwardly mobile middle class.

Israel is blessed with dormant economic forces equal in intelligence, ingenuity, and industriousness to those in high-tech. They need to be liberated, for the benefit of all and especially the middle class of today and tomorrow. That would indeed constitute a dream come true—as opposed to the nightmare being promoted by the ideologues of the New Israel Fund and old-guard Israelis who still repose their trust in economic systems that have consistently yielded less freedom, more poverty, and deeper and deeper levels of dependency and misfortune.

Ran Baratz, a Ph.D. in philosophy, is the executive director of the Tikvah-Bar Ilan summer program in political thought, economics, and strategy.

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