Barak's Economic Program

In 1992, it was still unclear that Bill Clinton’s election would mark the advent of a new breed of leaders. Yet a few years later Tony Blair was elected in England and Lionel Jospin in France. When Germany’s Gerhard Sch- roeder and Israel’s Ehud Barak entered office it became apparent that we weren’t witnessing a series of arbitrary events but rather a trend.

A variety of forces from the right are noticeably apprehensive—from Jesse Helms and the Christian right in the U.S. to Christoph Blocher in Switzerland—and do not miss an opportunity to criticize the policies these heads of state advance. Yet, what about progressives who still believe in helping the poor and underprivileged. Shouldn’t they be just as frightened?

Let’s consider the Israeli case. The resemblance between Barak’s campaign—the Labor Party’s representative—and the ones launched by the other liberal leaders is striking. Barak was elected prime minister not so much for his foreign policy, but primarily because he promised the Israeli public that he would attend to internal affairs. The predicament of the poor, Israel’s collapsing health system, high unemployment rates, and the devaluation of pension income were central issues of his campaign.

Not surprisingly, Barak’s course of action after entering office has also been similar to the ones adopted by his counterparts. In the past months he has taken measures to cut unemployment benefits. Libraries for the blind have been shut down and a women-in-crisis telephone hotline was closed because the government failed to provide them with public funding. Moreover, Barak’s proposed year 2000 budget reveals that he does not intend to add a penny to pressing social issues like health and education.

In response to the public’s distress, Barak provides the customary reply: there is no extra money in the country’s coffers. Actually Barak’s unwillingness to restructure Israel’s monetary policies, which for years have been benefiting the rich at the expense of the poor, and not the scarcity of resources have lead to the wide disparity within Israeli society. It is sufficient to examine who wins and who loses from the existing capital gains policy and the extremely high interest rate (which is almost 13 percent, about 9 percent above the annual inflation rate) in order to understand why Barak does not allocate more funds to the social sector.

Surely, the millions of Israelis who have an overdraft in the bank and pay about 19 percent interest annually are losers. The unemployed, who comprise 9 percent of the population, as well as many of Israel’s wage earners are more likely to have an overdraft than the most affluent 20 percent. Also among the losers are small entrepreneurs who, in order to begin a new business, frequently take out loans on which they pay 17 percent interest.

The winners are, of course, the banks. They manage to procure millions each year as a result of the high interest they collect from Israel’s poorer segments. In addition, Israel’s wealthier citizens invest in Certificates of Deposit whose annual interest rate is about 10 percent. The beauty of it is that there is no capital gains tax on savings or the stock market. Thus, if one invests $100,000 in an Israeli bank, by the end of the year one has $10,000 tax free income.

So while Barak laments that he cannot help the poor because Israel’s coffers are empty, the Israeli government gives, according to conservative estimates, $2 billion each year to the rich by not collecting a capital gains tax. Barak’s failure to attend to the destitute population’s needs has little to do with lack of capital, but is rather a direct outcome of his insistence on leaving Israel’s monetary policies intact.

Barak’s approach is typical of the new breed of liberal leaders. After all, it was Clinton, not Reagan or Bush, who destroyed the social safety net in the U.S. Germany’s Schroeder, rather than the conservative Helmut Kohl, intends to cut pension and unemployment benefits. Other heads of state are also introducing similar economic policies. All of which clearly suggests that the progressive voter should be just as wary of current developments as the right wingers are, if not more so.                Z

Neve Gordon teaches in the department of Politics and Government at Ben Gurion University, Israel.