Time
to Think Again About Aid
Yuval Levin, IASPS Adjunct Fellow in
Political Studies
Israeli officials in Washington could hardly contain
their glee this week when the Bush Administration confirmed that it would
abide by an American-Israeli agreement hammered out by the outgoing Clinton
team by which U.S. military aid to Israel is set for the next 8 years,
rather than going up for renewal each year. Boaz Raday, Israel’s Economic
Affairs Liaison in Washington, told one reporter: “We wanted to prevent
renewed debate on aid every year, so that some Administration official
won’t say, ‘let’s think about that again.’”
But “let’s think about that again” is exactly
what some Administration official should say. Rather than continuing in the
footsteps of its predecessors, footsteps which point toward the precipice
for the Jewish state, the Bush Administration should take another look at
American policy in the Middle East, and American aid policy would be a good
place to start.
The time has come to tell the truth about aid. American
economic assistance, while well intentioned from the outset, has been a
disaster for the Jewish state, and has done harm to American interests as
well.
The economic impact of aid should be familiar to anyone
who knows the logic of welfare dependency. Each year, Israel receives
several billion dollars in ‘free money’ from abroad, the bulk of which
is a $3 billion grant from American taxpayers. This infusion of cash acts as
a disincentive to self-sufficiency and economic liberalization, and as such
has held back the Israeli economy for decades and allowed Israel’s highly
statist system to resist reform. Between 1950 and 1973, the pre-aid age for
Israel, per capita GDP grew at an average annual rate of 5.59 percent – a
very healthy rate for a new nation developing in difficult circumstances.
But between 1974 (when sizeable U.S. aid began) and 1999, Israel’s per
capita GDP grew at an average annual rate of only 1.51 percent.
The causes of this sharp decline in growth have had
much to do with the habits of dependency that have developed around the
unearned infusions of funds that flow into Israel by the billions of dollars
each year. Under their influence, the Israeli economy has ceased even to
strive for self-sufficiency, and the nation has ceased to depend on its own
productivity to support its standard of living. The costs – in real terms
and in lost potential income – have been enormous.
Aid funds have also allowed Israel to avoid a very
necessary liberalization of its state-controlled economy. A cessation of aid
would necessarily undermine – indeed it would dismantle – the socialist
system, which nourishes the bureaucrats and politicians who now run the
country. Aid, therefore, is not
only a way to avoid paying the bills, it is a way (in truth the only way) to
keep Israel’s socialist system alive, and with it the power and positions
of Israel’s elites.
In this way, dependence on aid has both harmed the
Israeli economy and put up barriers to repairing the damage. Israel is not
only unproductive; it does not strive for productivity. It not only lacks
economic freedom, it has no desire for such freedom. It desires only aid,
and it constructs its policies accordingly – and not only its economic
policies.
Indeed, the perverse incentives created by aid funds
have much to do with Israel’s strategic policies and its approach to the
peace process. Moving ahead with the peace process meant more and easier
access to American funds, and thus played to both the personal and
ideological interests of Israel’s leaders, with each confirming the other
in a circular cycle of errors. This cycle – by which the desire for aid
strengthens the faith in peace process logic and vice versa – has brought
the personal interests of Israel’s governing elites into conflict with the
interests of the nation as a whole, and they have failed to see it, blinded
by the luster of aid funds. The result has been a greatly weakened Israel
– both economically and strategically.
Supporters of aid point to Israel’s defense needs and
to the fact that most American aid is designated as military assistance. But
that military aid package, just like its economic counterpart, takes the
form of an annual grant to the Israeli government, with few strings
attached. Money is fungible, and thus aid marked for defense is still
general economic aid, since each dollar of it allows the government to spend
a dollar of its funds elsewhere. Israel could certainly maintain its defense
at current levels without aid – what it could not maintain is its
inefficient statist economy. Close strategic cooperation between the U.S.
and Israel should continue because it helps both nations, but direct
financial assistance should cease, because it helps neither one.
Israel’s growing reliance on aid, and the attitudes
of dependency and defeatism which have resulted, have led the Jewish state
down a dangerous path which in time may prove fatal.
It is no surprise that the Clinton Administration would
have suggested staying on this path for eight more years. This ‘last
gift’ of the Clinton team for Israel fits nicely with their earlier gifts,
including weakening Israel’s bargaining position, yielding to Palestinian
obstinacy, handing Arafat the violence card, and other generous
contributions which misguided Israeli leaders encouraged and accepted with
pleasure.
But the Bush Administration should set a different
course. It should take a realistic look at the politics of the region, it
should help Israel save itself from its self-inflicted wounds, and it should
act to strengthen the only democracy in the Middle East. A fresh look at aid
policy would be an excellent start.
