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Quarterly Report
Fall 1999
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The Director's Column
By Dr. Alvin Rabushka
Director, Division for Economic Policy Research
Back in the USSR
The sub-title for the first part of my column is taken from a recording by the Beatles, whose music captivated the world in the early 1960s. Please feel free to sing along.
Flew in from Miami Beach BOAC
Didn't get to bed last night
On the way the paper bag was on my knee
Man I had a dreadful flight
I'm back in the USSR
You don't know how lucky you are boy
Back in the USSR
Been away so long I hardly knew the place
Gee it's good to be back home
Leave it to tomorrow to unpack my case
Honey disconnect the phone
I'm back in the USSR
You don't know how lucky you are boy
Back in the USSR
No, I wasn't back in the USSR. In fact, I've never been there. Thankfully, the "evil empire" collapsed of its own dead weight in 1991. The inefficiencies of its socialist economic system overwhelmed the Communist Party's ability to sustain it any longer. The newly established Russian Federation and other independent countries that emerged from its collapse have tried to build market economies. Progress has been slow, disappointing their citizens and international friends. These countries have a long way to go before they join the community of Western market economies. Despite the lack of progress, it's difficult to find any respectable Russian who will defend his country's socialist economic history, or clamor to
re-establish the former regime.
I returned to Israel this past October after a four-year absence. I was, metaphorically, back in the USSR. Socialism is alive and well in Israel. It is so well that Ha'aretz, Israel's leading newspaper, reported on November 1, 1999, that Prime Minister Ehud Barak will become vice president of the Socialist Internationale. He replaces the former prime minister, Shimon Peres, who becomes an honorary president. (By the way, a Mr. Gilon, appointed by Mr. Peres to head his Peace Institute, is the very bureaucrat who successfully lobbied to postpone the Avner car insurance reform. The reform, which would reduce insurance premiums for Israeli motorists by ending Avner's monopoly, was due to take effect this coming January. That scheduled reform was based on Koret Fellow Bar Dadon's Policy Studies on the subject.) Socialism continues to deprive the Israeli people of economic freedom. The country's scholars, politicians, and, most of all, its media continue to staunchly defend Israel's socialist system against any criticism, especially by fellow Jews pushing
free-market reform. That's us.
I stayed at the Sheraton Plaza Hotel on King George Street, my home away from home in Jerusalem. Each morning and evening, as I walked to and from the Institute, I followed the same route I took four years ago. The streets, cars, and shops were as run down as before - maybe worse. Nothing had changed for the better - or cleaner. So, too, the issues of the day were unchanged from four years ago: the threat of strikes in the civil service and in every
state-owned enterprise; getting more aid from the United States; extracting more reparations from other countries; the usual mix of
secular-religious disputes; controversy over the pace and scope of withdrawal from the territories; and so on. Fortunately, I came after the garbage strike and left before the next strike - take your pick.
Israel isn't crossing the bridge into the new millennium. It's still trapped in the early years of this century. How can socialism flourish in Israel when it's failed everywhere else? At the risk of beating a dead horse, the answer is the same that the Institute has given for more than a decade: free money (foreign aid, charity, reparations, loan guarantees, etc.). It's easy to sustain socialism, and crush the people's liberty and spirit, if someone else pays the overdraft on the economy.
You see, Israel has the largest remaining class of die-hard socialists in the world, who work full time to sustain the system. They can afford to do so because their salaries are paid partly by foreign taxpayers and philanthropists. It is one of the great ironies of modern times that successful Jewish businessmen in the United States help pay the salaries of the bureaucrats, professors, and journalists, who work full time to stymie freedom for the Israeli people.
There are, admittedly, a few capitalists who have succeeded in Israel. These individuals devote the bulk of their time and effort to their business ventures. They have little time left to fight socialism. Indeed, for many of them, it's more lucrative to lobby for government benefits than to work for freedom. Or, failing that, to relocate their headquarters and operations to the United States.
Teaching Economic Freedom to Young Israelis
Every fall, the Institute takes in a new class of bright, freshly scrubbed graduates of Israel's universities who will spend the next two years working in the Knesset, Israel's parliament, as interns. The Koret Fellows, as they are known, are trained by the Institute's staff to provide research assistance on economic topics to Knesset members of all political parties. Some work in the prime minister's office and in the offices of other members of the cabinet. Each spends a month in the Congress learning about the business of public policy in the United States. Most importantly, they learn how to write serious research papers. As readers of the Quarterly Report know, these Policy Studies have provided the intellectual foundation for several
free-market reforms during the past few years (even if the bureaucrats stall the reforms and the monopolies threaten the Institute with lawsuits).
Each year we strive to improve the program. The purpose of my visit, after a
four-year absence from Israel, was to teach a week-long seminar on the Israeli economy to the incoming Fellows. The theme of the seminar was to explain to these young Israelis, who have grown up in a bureaucratic socialist environment, the real meaning of economic freedom, and to show how free money stifles the development of markets, property rights, and freedom. The textbook for this seminar, tentatively titled
A Guidebook to the Israeli Economy, includes articles and papers that I've written over the past decade along with an analysis of facts and figures published by the Central Bureau of Statistics since 1952. The Guidebook includes such standard economic topics as the balance of payments, budgets, taxes, spending, privatization,
high-technology, monetary policy, and so on.
Why is there a need for another textbook on Israel's economy? The country's most internationally renowned economists have published several books on Israel's economy. None, however, places any importance on free money and its adverse impact on growth and freedom. Some disregard it altogether, as if $10 billion, some
one-tenth of the economy, does not exist or has no impact on the economy or its people. The Guidebook was compiled to make free money, and its destructive effect on economic freedom, a central theme of the Israeli economy.
The seminar was an interesting experiment. Many of the facts and figures in the Guidebook were familiar to the Fellows. None, however, had been challenged by any of his professors to consider the impact of free money on the economy or contemplate the issue of economic freedom. These subjects, were they standard fare in the classroom, would make it harder for the bureaucrats, journalists, and intellectuals to continue to defend the system. For my part, it was a great opportunity to try out a textbook on Israel's best graduates of economics. I came away with a list of additional topics, which emerged during our afternoon discussions, that should be included in the final volume.
The Internet
The internet has transformed the world of communications. Whereas before we could reach only a few thousand readers in Israel and the U.S. with our printed publications, we now can reach hundreds of thousands all over the world, an unlimited readership. The Institute remains committed to its foundation of solid economic research. To that, we now have the capability to add a
multi-media news service. We have begun to post analyses of the news that set out the real
facts and truth on major economic events in Israel, thus providing, for the first time, an antidote to the yellow journalism and bullying tactics of state monopolies that dominate Israel's news. We can now defend our research against false charges and intimidating threats by bureaucrats and state monopolies simply by telling the world the truth.
Another reason that socialism survives in Israel is that its doctrines are taught in the schools. The internet gives us an opportunity to provide some balance in the educational arena. After some additions to the text, we intend to post the Guidebook on the Institute's website. This will make it available, free of charge, to every student in Israel in Hebrew, and to anyone else in the world in English. Stay tuned!
