How neo-liberal policies screw the citizens of Israel (and everywhere else)

The effect of the J14 protesters on taxes and the budget were noted in Here’s hoping social justice protesters will get into politics

Between Realization and Dehydration: Israeli Governments’ Methods for Draining Social Services

By Tali Nir, with Tamara Traubmann, Ronit Gilad, Ido Katry
English translation: Gila Svirsky

Note: The following are extracts from the  English summary of the comprehensive Hebrew report.

INTRODUCTION
The social protest in the summer of 2011 transformed the public agenda in Israel and shined light on an important truth that had long been suppressed: Israel had become a country in which many people could no longer realize their basic right to a life with dignity and a decent standard of living. In tent cities throughout the country, thousands spoke of how hard it is to make a living, to make ends meet, to afford housing, and voiced their concerns about the poor education their children are getting. These stories were repeated throughout Israel by people from diverse groups and occupations, revealing a deep rift between the state and its citizens.

Many understood for the first time that this was a problem not only of their own making, the result of life circumstances or the choices they made, but part of something much bigger: long-standing government policies. This collective awakening cast light on the budget cuts and extreme privatization of the social services carried out by Israeli governments for almost three decades in all social spheres.

Government policies that extolled public sector cutbacks and transferred service provision – including social services – to market forces constituted a dramatic retreat of the state from its responsibility to ensure social rights in housing, health, education, employment, and welfare. The shifting of this responsibility to the private sector was carried out without sufficient attention to the social implications, and without offering alternatives to Israel’s citizens or the chance to cope with their diminished human rights. The results were felt by many – the drying up of numerous social services, the trampling of individual rights, and the dramatic deepening of social gaps in society.

This government policy was not accidental. It was born of a socioeconomic ideology that believes the free market should also deal with the realization of social rights. This system was and still is the norm in some countries, and is driven by parties with vested interests.

To institute this system, a number of mechanisms and methods were employed: As budgets were cut, many social services were privatized. At the same time, legislative initiatives to promote social rights were being thwarted. In addition, many laws to protect social rights that had already been passed were suspended by the “Arrangements Law”. Other laws were simply not implemented, due to various ploys used by the government. The legal system was also mobilized, with the courts giving legal backing to the government and the Knesset as they undermined the social safety net.

In addition to all this, Israeli tax policy was placed in the service of the market economy, with tax benefits serving the powerful and the tax burden gradually shifting to the middle class and lower income groups. The overall lowering of taxes combined with heavy security outlays meant that allocations to social services were at risk and then cut drastically.
To ensure that resistance to these policies would not gain traction, political leaders sought to undermine the potential opposition. Selective benefits were given to strong interest groups, for example, thereby silencing and weakening them; organized labor, which might have been able to prevent some harm to the labor market, was rendered impotent. Intense campaigns were waged to delegitimize all those adversely affected by the policies, particularly those who became impoverished as a result of these policies.

The research below sets out the mechanisms and methods used by various governments of Israel to shirk responsibility for ensuring social rights in the name of one socioeconomic ideology. As history has proven elsewhere, as well as in Israel, this approach is seriously flawed. It has wrought extensive damage to the systems of education, health, and welfare; led to a shortage of affordable housing; created a labor market with insufficient jobs; and made most Israelis vulnerable to unbridled competition, salaries that cannot meet the cost of living, and exploitive work conditions. Interspersed in this paper, we have placed interviews with individuals who once held key civil service positions, casting light on these methods based on their personal experience.

Education, health, housing, employment, and welfare are not commodities, but fundamental rights to which every individual is entitled. The governments of Israel must evince social responsibility and resume their obligations to ensure that every individual can fully realize these rights. Government policies are needed that promote social justice, reduce social gaps, and devote maximal public resources to ensure adequate social services. The demand for “social justice” by the tent protesters awaits meaningful change in government policy. This change will not be measured by declarations or promises, but by action. A significant component of this change must be relinquishing the mechanisms and methods described below that have been in place for years. We hope that revealing the mechanisms used to promote this economic system will help the public better understand government activity in the coming years, and allow it to make more informed decisions.

PART ONE: THE METHODS

Chapter 1: Drying Up Social Service Budgets
How the System Works
The primary tool used by Israeli governments to diminish their role in social service provision was the gradual but extensive reduction of the budgets of government ministries and public bodies that are responsible for the provision of these services.

The opening salvo for changing the socioeconomic orientation of Israel (the shift to neoliberalism) was the Economic Stabilization Program, introduced in 1985 to contain the soaring inflation of the 1970s and 1980s. This program included cutbacks in government spending, a reduced role for the state in service provision and subsidization of commodities, and stepped-up privatization. As a result of this plan, the budgets of the government ministries steadily declined, while efforts to privatize social services and public corporations steadily grew.

In the 1990s, the state budget was allowed to expand somewhat to allow for the absorption of waves of immigration from the former Soviet Union and Ethiopia. In the 2000s, when the government concluded that enough had been done to absorb new immigrants, it returned to the original plan and resumed the cutbacks. In 2003, the Socioeconomic Defensive Shield Operation was launched – an important milestone in the system that advocates reduced government outlays for social services.

The context for this economic plan was the recession following the outbreak of the al-Aqsa Intifada in 2001, the bursting of the high-tech bubble with its impact on Israel, rising unemployment, and a sharp drop in tourism. This economic plan called for sweeping cuts in the budget accomplished by a salary freeze, reductions in National Security Institute payments, raising the retirement age for pensions, reducing the concentration of wealth in the capital market, and instituting an across-the-board 4% cut in the budgets of government ministries.

Almost three decades of policies designed to reduce government spending led to a drop in public outlays from over 50% of the GDP in the 1990s to 42% of the GDP in 2011 – lower than the average of developed countries. And this came about at a time when the Israeli economy was showing steady growth.

When Israel’s heavy spending on security is taken into account, a very limited amount remains for social needs: Government civilian expenditures (government outlays minus security expenditures) are lower in Israel than the average of OECD countries, constituting 31.8% of the GNP compared with 40% on average in OECD countries.

The policy of reducing government spending is implemented through two primary mechanisms:

1. Budget cuts: These are cuts to the budgets of government ministries that are responsible for social service provision, or direct cuts to the budget of a specific office, often touted by Finance Ministry officials as in the interest of “greater efficiency”. Across-the-board cuts have also been made to government ministries and public authorities. Over the past decade, for example, the government has annually slashed the budgets of all the government ministries, with the exception of the Ministry of Defense. This has ranged from 1-5%, until 2006 when the Finance Ministry asked for a drastic across-the-board cut of 9% to finance the Second Lebanon War, but ultimately made do with a 6% cut thanks to public pressure.

These cuts are generally made via the Arrangements Law, which is passed together with the state budget and receives sweeping approval, as its rejection would cause the government to fall (see Chapter 3 below for more about the Arrangements Law). Thus reforms are approved annually that often include cutbacks and privatization of various ministry budgets without any serious deliberations. Furthermore, the process of submitting the budget has historically not been transparent, preventing ministers and Knesset members from thoroughly examining it, which allows the government to easily pass budget-cutting bills.

Passage of a two-year budget in 2009 was a milestone in the budgeting process. According to this new system, the Knesset will approve the state budget once every two years, rather than examining it anew annually. This system makes it easier for the government to introduce budget cuts because it eliminates the annual criticism and Knesset haggling over budget policies reforms and cuts.

2. Budget depreciation: To dry up a budget, it is not necessary to reduce it; one can simply not update it in keeping with demographic changes – population growth, increased numbers of elderly or children, changes in the proportion of people with special needs, etc. Thus, the budgets of some government ministries responsible for social services have remained fairly stable over the years, but the allocation has dramatically depreciated because of the increased number of people served by this allocation (more schoolchildren, more people in need of the healthcare system, etc.).
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IN CLOSING

In what social-economic direction is Israel heading? Today, after the protest in the summer of 2011 and prior to the anticipated protest in the summer of 2012, it is too early to say. Large segments of the public seem to understand that the governmental policies over recent decades have left social rights behind, and they are pained by the social deterioration.

Research indicates that most of the Israeli public is dissatisfied with the current economic policies, clearly prefers a more expansive model of the welfare state, and even seems willing to pay for it by higher taxes. On the other hand, the government has not yet changed its worldview, and is busy muzzling protest. Although government initiatives in recent months on specific issues are welcome – such as extending free education to preschoolers – these are limited and not a significant change of direction. Such change would require many more far-reaching decisions in the spheres of taxation, social service budgets, government responsibility for service provision, and a long list of legislative changes.
Linking the pain and distress of the public to the existence of a system – that government policies caused all this – is not self-evident. It requires knowledge, understanding, and delving into the economic and social systems, which has rarely happened in public discourse here for a very long time. In a country where the security situation continues to be precarious, it has been easy for politicians to avoid the social issues, allowing those who made the cuts to social spending to do so callously and in sophisticated ways. They apparently never imagined the low level to which the system would sink when social needs are ignored, deteriorated, and privatized.

The public debate about social and economic policies began in Israel in the summer of 2011, and the change in discourse is still just beginning. Yet it is clear today to the Israeli public that education, health, housing, employment, and welfare are not commodities, but fundamental human rights. One can now hear talk of the decisions that snatched these from us. We are at the beginning of a long process that is just maturing, and it will take time until reality looks different, but the very fact of the change in discourse and pointing a finger at government responsibility are a promising beginning.

We hope this paper will serve to help fathom the mechanisms underlying government policies, inspire additional social activism, and provide a tool in the ongoing Sisyphean effort to attain social justice and realize the social rights of all inhabitants of Israel.