The Truth About Aid

Globes reported in a front page headline on June 5 that Prime Minister Sharon announced that he would postpone all “economic decisions” if the US doesn’t send over $800 million in aid.  

What exactly is Sharon’s threat? That without the US aid, “it will not be possible to carry out some of the economic decisions taken recently, and there will be a need to postpone new plans.” Sharon’s aides said the private-member bills being passed into law in the Knesset would have to be frozen. 

Well. Until now Israel has made the case that it needs this “special aid” to finance defense needs brought on by…well, brought on by whatever happens to be occurring when someone is asking for the aid. Originally the aid was promised by President Clinton when Israel withdrew from Lebanon. In this Globes’ article, mention is made of costs involved in beefing up security at border areas. But Sharon has chosen to speak forthrightly about the aid, and this is to his credit. He makes no bones about it: the aid is necessary to fund private member bills in the Knesset. Such as, for instance, increased child allowances, tax cuts for the Negev, mortgage subsidies for groups close to the government, subsidies for companies close to the government, and on and on. 

IASPS has long stated the obvious, that money is fungible. In other words, whatever aid the US sends Israel to pay for withdrawing from Lebanon, or building a fence along the Green Line, actually goes to fund child allowances and a bloated government bureaucracy. Supporters of the statist economy and the bloated government bureaucracy have often criticized the Institute on this point, even after the late prime minister Rabin once told reporters on an airplane that the peace process was designed to get aid rather than the other way around, and now the current prime minister, Sharon, has been kind enough to make absolutely clear why he wants special defense aid: to fund private members’ bills in the Knesset. 

But one needs to go just a bit further, too. In Ha’aretz the morning after the Globes report, on June 6, the front page of the economic section has two interesting stories: First, it turns out that half the state aid given to hotels, purportedly to pay the salaries of poor and unfortunate people who have been laid off as a result of Israel’s security crises and drop in tourism, and who are now sitting at home with no income, has actually gone to pay employees who continued working as usual; second, the Knesset Committee, with the backing of Knesset Speaker Burg, has decided to support hiking the salaries of high state employees, including judges, ministry directors and of course – the Knesset members themselves – beyond the current linkage to various indexes, which already guarantees these officials higher annual increases than anyone else in Israel.  

This points up the second point IASPS has long made about aid: not only is it fungible, and thus going elsewhere than its purported need, but it is actually detrimental. The aid hurts the Israeli economy. It prevents reform, since with ongoing aid from abroad there is no need to privatize or sell off state land or become more efficient, and it funds “economic decisions,” as Sharon called it in the June 5 report, that do damage to Israel. Increased child allowances? State subsidies for industry? Government channeling of investments into areas it, not business, thinks worthwhile? All these are bad enough, encouraging inefficiency, unemployment, poverty, and lack of growth. And these are the causes which Sharon espouses as justification for the aid! 

But from Ha’aretz we learn that really that’s not the half of it: Actually, fungibility means the aid will fund those higher salaries for bureaucrats and those twice-salaried hoteliers, etc. 

We are not sure Sharon’s threat to cut funding for economically harmful projects is the best way to bolster the claim he is making for aid, but we are grateful for his honesty.

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