In an editorial on Israel's protest movement, "Bloomberg" says, "One universal lesson from the Israeli protests might be that economic prosperity for some, at the expense of social inclusion for many, is a nonstarter in a democratic society. Finding the right balance will be difficult, but [Prime Minister Benjamin] Netanyahu has no choice.
"Bloomberg" points out that the Israeli economy, particularly the high-tech sector, has never been more stable. Companies such as Check Point Software Technologies Ltd. (Nasdaq: CHKP) and Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) have become world leaders. Israel has more companies traded on the Nasdaq than any other country, except for the US and China, and it has the world’s largest number of startup companies per capita. Many Israelis are living more prosperous lives than ever before.
Asking why there are so many Israelis on the streets demanding change, "Bloomberg" points to several factors: economic growth has also produced rising prices for previously subsidized items, widening economic disparities as wealth concentrated at the top, and a change to emphasize individual prosperity rather than the communal goods, which they see as a change, not for the better, in Israel’s core values.
"Bloomberg" says, "The current prosperity resulted in large part from budget discipline, begun in 2003 when Benjamin Netanyahu was finance minister and continued during his present term as prime minister. Netanyahu lowered income taxes and made up for the lost revenue by cutting social spending and subsidies and by increasing indirect taxes."
"Bloomberg" also notes, however, that the 40% rise in home prices in the past three years has pushed young couples and much of the middle class out of the market. Prices for as education, childcare and transportation are all up. Israel's Gini coefficient for family income, a measure of inequality, rose from 35.5 at the end of 2001, to 39.2 at the end of 2008, resulting in the most unequal distribution of income in any developed country except for the US. "Many middle-class Israelis believe their quality of life is eroding and that the quality of public services they depend on, such as primary and secondary education, have declined," it says.
"Bloomberg" says, "It’s encouraging that Netanyahu said he understands the protesters’ distress and is prepared to change his economic policy. In doing so, he should reject a return to deficit spending and government management of the economy, and instead allow the market to operate more efficiently. The rising cost of housing can be brought down by breaking the government’s stranglehold on approving construction projects. Prices for many consumer goods can be reduced by eliminating bureaucratic barriers to competition.
"A change in priorities might also be required. Manuel Trachtenberg, the chairman of the committee that Netanyahu appointed to look into policy changes has rightly said he will examine raising corporate and income taxes, reducing levies on fuel and lowering the price of electricity and water."
Published by Globes [online], Israel business news - www.globes-online.com - on August 18, 2011
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