Time for Kinder Capitalism

Israel’s social protests require conservatives to make an ideological retreat

 
There was something uniquely Israeli to last summer’s social protest. The jamboree atmosphere in the tents at the foothills of Tel Aviv’s gleaming skyscrapers was so peaceful, and the debates inside them so lively, that foreigners who stumbled there emerged inspired, noting that social protest in their countries was either violent, or ignorant, or both.
 
They are right. The protesters have already made the Israeli economic establishment reconsider its tenets, thus giving rise to what can be called compassionate capitalism.
 
True, some of our protesters’ rhetoric was absurd, most notably the suicidal demand some made to expand the national budget from 43 to 55% of GDP. Those of us who were undergraduates during the economic crisis of the mid-1980s appreciate better than today’s students the shekel’s hard-earned strength, our minimal rate of unemployment, our budget deficit’s plunge from 5.1% of GDP in ’03 to 0.1% by ’07, the national debt’s decline in recent years from 99% to 75% of GDP, and the fact that our growth rate has been among the developed world’s highest for the better part of a decade.
 
Israel is prospering the way it never did. People earn a lot more than their parents did, malls are brimming with merchandise and bustling with customers, gourmet restaurants are crowded, and modern cars jam the roads. Still, Israelis rightly compare their purchasing power to the Americans’ and the Germans’, and their income with that of their high school buddy who made it big in high tech. The Israeli middle class feels it is working too hard and earning too little while being taxed too much.
 
This, in a nutshell, has constituted the material part of the protest, the arguably selfish quest for more money in the bank. And while in Israel, where the middle class gives so much in military service and taxes, these demands cannot be scorned, for conservatives like Prime Minister Benjamin Netanyahu, such grievances are actually easier to satisfy.
 
Netanyahu had said for years before the protest that consumer prices are too high here, whether because of government interference, as in the real estate sector, or due to insufficient competition, as in the food industry. On this front it is the protesters who should join Netanyahu’s conservative quest to flood the market with state-owned land and imported food.
 
Yet the protesters also have another agenda, the moral one, and there the conservatives are the ones who should adapt.
 
Conservatives say social spending should be minimal. That is why Netanyahu cut it sharply when he was Treasurer. Now, however, the demand is that the government spend more on welfare, raise wages of social workers, teachers, doctors, and nurses, create cheaper housing, and make the rich pay more taxes and the rest pay less.
 
This is where 21st-century conservatives will have to make an ideological retreat.
 
The retreat is already underway. The corporate tax, which in Israel was gradually reduced from 36% in 2003 to 25% and was planned to settle at 18% by 2016, a level that would have been the lowest in the OECD, is now in the process of rising again. Capital-gains taxes will likely be raised, here and elsewhere. Defense spending is already in the process of being cut throughout the rich world, and income taxes for the highest brackets will rise, while sales taxes, like Israel’s VAT, will be trimmed.
 
Such measures will be taken in recognition of the need to satisfy popular demand that the haves’ available income shrink and social spending grow.
 
Israel’s economic conservatives, led by Netanyahu and Bank of Israel Governor Stanley Fischer, are rightly determined not to breach the budget framework; at a time when even America’s and France’s credit ratings are lowered, Israel is in no position to provoke global bond markets.
 
However, by changing priorities within the budget they have enough with which to launch public-housing programs, build rented housing, shrink high-school classes, improve pay for social workers, doctors, and nurses, and allocate more funds for single mothers, the handicapped and the elderly, to mention some of the protesters’ more sensible demands.
 
In making such adjustments, conservatives might feel they are violating their convictions. They shouldn’t. Compassionate capitalism will not constitute tax-and-spend celebrations like those that followed the ’08 meltdown and Obama’s election. It would finance social spending not through new borrowing, but from existing sources, and it would not be designed to bandage wounds caused by greed in financial hubs, but to address the needs of millions throughout the world who took to the streets in recent months demanding change.
 
Shifting some of the middle class’ tax burden to the rich and some funds from defense to social causes would not redefine the government as the arbiter of supply and demand that conservatives rightly think it should not be. Rather, it will redefine compassion, once an abstract value, as a tradeable commodity, one that only the public can effectively demand, and only governments can effectively supply.
Adapted from an article published originally by Ynetnews.

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