By Lawrence Solomon | Published by Financial Post
As populations across the Western world have become increasingly secular, the managerial state has been growing. Except in Israel, which is different on both counts: the Jewish religion has emerged as a greater political force than at any time since the Biblical era, and the religious political parties in Israel’s governing coalition promote free trade and competition to set the Israeli economy on the right path.
For most of its existence, the State of Israel was a socialist darling, a proud member of the Socialist Internationale. Leftist governments, state corporations and labour unions ran the country. Although Israel’s economy swung to the right after Benjamin Netanyahu’s Likud Party came to power, the country’s system of proportional representation resigned Likud to coalition governments beholden to leftists and centrists, frustrating Netanyahu’s free-market ambitions.
That ended with Israel’s last election, which banished the leftist and centrist parties in favour of right-wing religious parties allied with Netanyahu. For the first time in its history, the State of Israel has a fully conservative coalition government unbeholden to the special interests that dominated its socialist past. The coalition’s religious parties are particularly determined to restore traditional Jewish values, not only in the social sphere, such as by reviving the study of Jewish history, but also in economics, by hewing to Judaism’s 613 commandments, a plurality of which concern themselves with business conduct, which they require to be voluntary, transparent and thus fair.
The religious parties’ straightforward approach to dealing with economic problems can be seen in how they’re tackling Israel’s high cost of living, much of which stems from the so-called “monopolies” — politically well-connected corporations in dozens of sectors whose dominant market share allows them to control prices and discipline retailers and others who might break their hold on the marketplace.
To rein in these monopolies, past governments have tried to regulate their activities with everything from a competition authority to laws requiring disclosure of their production costs and profits. None of these attempts at simulating a competitive market worked, not least because Israel’s Supreme Court has sided with the monopolies by ruling, for example, that their excess profits could be justifiable as long as they weren’t “significantly” higher than competitive markets would produce.
The new coalition government isn’t taking on the monopolies by attempting to better regulate them. Instead, it is letting competitors take them on, by abolishing import restrictions and government hurdles that prevent newcomers and competing products from entering the marketplace. This dismantling of artificial monopolies is “Job 1” for Finance Minister Bezalel Smotrich of the Religious Zionist Party: “As Israel’s governing body,” he has said, “our responsibility is to foster an environment conducive to genuine competition, which requires breaking up monopolies that have been established over several decades.” Smotrich’s formal economic plan calls for “the reduction of the centralization in the economy (and) the reduction of the bureaucracy and the regulation for the business sector and the citizens, the streamlining of the public sector.”
Apart from curbing private monopolies’ government-granted powers, the government is abolishing its own monopolies. Last week it ended state-owned Israel Electric Corporation’s monopoly by selling its largest electric power station to a private consortium, thus continuing the break-up of the electricity sector that Prime Minister Netanyahu began in 2018. Multiple private power producers accounting for 60 per cent of the market will now compete against each other and the remaining publicly-owned plants, and none will be able to fix prices.
Earlier this year, Israel privatized the Port of Haifa, the country’s principal port for passenger traffic and cruise ships. Other privatizations proposed or underway include the post office and the national broadcaster’s news service.
The mother of all free-market reforms, and the most contentious, involves the chief defender of the managerial state: Israel’s judiciary. Past decisions of the Israeli Supreme Court have: stymied development of Israel’s offshore gas reserves; overruled the plain meaning of business contracts; favoured labour unions; and overturned any government law or policy it deemed “unreasonable.” Until the courts are reformed to follow the law, not make laws up, the managerial state will continue to thwart the government’s ability to fulfill its free-trade agenda.
While Israelis of most political stripes accept the need for some form of judicial reform, the opposing camps have become so politicized that compromise seems impossible, leading most to believe it would take a miracle to change the dynamic in favour of reform. The religious parties haven’t given up hope, however. Committed to the reforms, they are accustomed to calling on miracles and, with God on their side, they have faith that free markets will out.