The Great Fake

Imagine a shiny Cadillac pulls up to your house and a guy in a fancy suit, smelling of cologne, knocks on your door. “Just sign this,” he tells you. “I’m going to make you a rich man.” “OK,” you ask, “but what is it I’m signing?” “It temporarily places all of your possessions in my name,” he answers. “That’s so I can make you a pile of dough.” Would you sign?

How about this one: These guys in the government tell you: “Hey, we’ve finally hit on the secret of prosperity and happiness for the people.” “Education?” you guess excitedly.” “Nope”, they answer. “A super public transport system?” They shake their head sadly. “Great preventative health care to keep us all vibrant and strong?” “No, no, no,” they say impatiently. “All we have to do is to make sure the rich get even richer and everything public gets poorer and more desperate and, presto, things will be good for everyone.”

Would you vote for those guys? Well you already did, if you voted for any of the Prime Ministerial candidates in the last 23 years. Because, behind all the fancy language about “freeing capital”, “restructuring the economy”, and “empowering the private sector” that economic advisers, Treasury officials, Bank of Israel presidents and economic journalists hired by the Moses or Nimrodi families have been feeding us, there is a cruel and heartless con game going on. And it has made little difference if its been Shamir or Peres, Rabin or Netanyahu, Barak or Sharon in the seat of power. Same card game. Same sleight of hand.

A graph charting the growth of the Israeli economy from 1988 until the year 2008 would tell the story this way: The line swings upward impressively, and stays there, climbing almost constantly to ever-new heights. Alongside the line recording growth is another, equally high climber—a line charting the salary increase of the top ten percent of Israel’s salaried workers. Up, up, up goes that line.

Below are two other lines, one recording the income fluctuation of the 6th percentile, people with decent, middle class jobs and one telling the economic story of the lowest 10 percent of the working population—factory workers, security guards, gas station attendants. Both those lines are flat, like the cardiogram of someone that’s just died of heart failure. The income level of 60% of the population has not risen during the past twenty years. The effect the majority of the population’s experiences from Israel’s remarkable spurt of growth is that they have to pay higher interest on their constant overdraft, and spend their own money if they want their children to get a decent education, or if they need to send their aging mother to a specialist. “If the pie gets bigger, they’ll be more for everyone,” is what they experts said. But the experts lied.


The growth in the Israeli economy has directly benefited two groups: the tightly knit, well connected elite that controls much of Israel’s industry, as well as the banks and the media, and those Israelis whose education and training have made them valuable in the high tech and other knowledge-based industries. While the pie-piece of those Israelis who have completed 16 years of education has grown considerably over the last two decades the already tiny piece of men with only 8 years of education has shrunk even more. Three decades ago these unskilled workers made 74% of the average Israeli salary; now they make only 49%. This does not include the ever-increasing ranks of the unemployed. Those who have been left behind by the new economy grew up and live in geographical concentrations: in development towns, distressed neighborhoods, and Israeli Arab villages where the educational system is weaker by far than in middle and upper class areas. The only possible way to integrate these groups into the knowledge based-industries that are the source of Israel’s economic growth would be through a massive national effort in education and job training. And that is exactly what the “let the rich get richer” economic theories will not allow.

A series of articles by Timothy Noah in Slate Magazine—a popular and mainstream online publication—tells a similar story of rising inequality. Whereas in 1915, Noah explains, the wealthiest 1% of Americans possessed 18% of the nations wealth—considered at the time a troublingly unequal distribution, today, even after the crash of 2008, the riches 1% possesses 24% of the wealth. “Income inequality in the United States has not worsened steadily since 1915,” explains Noah. “It dropped a bit in the late teens, then started climbing again in the 1920s, reaching its peak just before the 1929 crash. The trend then reversed itself. Incomes started to become more equal in the 1930s and then became dramatically more equal in the 1940s. 📷 Income distribution remained roughly stable through the postwar economic boom of the 1950s and 1960s. Economic historians Claudia Goldin and Robert Margo have termed this midcentury era the ‘Great Compression’. The Great Compression ended in the 1970s. Wages stagnated, inflation raged, and by the decade's end, income inequality had started to rise. Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance… . During the late 1980s and the late 1990s, the United States experienced two unprecedentedly long periods of sustained economic growth—the "seven fat years" and the " long boom." Yet from 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent.”

The two huge crashes of the past century, those of 1929 and of 2008, have a striking common denominator: both occurred at the height of a growing inequality between rich and poor. In 1928, just before the crash, the richest 5 % of US citizens received more than a third of all the personal income in the country. During the post-war period, the richest 5% controlled at the most one quarter of America’s wealth. But since the 1980’s, the era of Reagan and Thatcher, inequality has risen in the United States until by 2008, the wealthiest 5% received more than 38% of all personal income. John Kenneth Galbraith, the great US economist who died in 2006, explained that when a high percentage of a nation’s economy is in the hands of the wealthy, the economy becomes more volatile—subject to quick and sudden changes. That’s because more of the capital is free floating, seeking investment for quick gain, rather than tied to a broader, more grounded agenda—paying for things people need in their everyday life.

George W. Bush’s tax cuts for the super rich released prodigious amounts of extra wealth to people who were already fabulously wealthy. They didn’t the money to buy things they needed for their lives; the tax cuts were intended to help the rich make more money, part of the delusional idea that private capital, concentrated in the hands of gigantic corporations and super wealthy individuals, is the most effective means of guaranteeing economic progress. Hundreds of billions of dollars sought new horizons for investment, demanding ever higher returns. There was thus an eager market for the new “financial products”, such as CDO’s, which had alchemically turned bad debt into gold.

According to what has become mainstream economic doctrine, slashing taxes and cutting the national budget in order to free money for investment is a cornerstone of the new economic doctrine—it’s what “frees up capital for the private sector”. This kind of slash and burn, which continues in Israel of 2010, hurts those who have already been left out of “economic growth” a second time. The education, social welfare and health budgets are prime targets for the budget shrinkers in the Treasury Ministry. The education and health systems in Israel are becoming increasingly privatized—families must now shell out money from their own pockets in order to get high quality education for their children. The predominant economic thinking is based on an intrinsic logic that leads to the draining of life from the public sphere until it is more or less an empty shell. Attempting to transform the education is a binge that the government; which, according to the experts, must learn to watch its weight like an anorexic teenager, can ill-afford. Thus exactly those groups that have been left behind by the new economy—those that cannot afford to pay for privatized “gray” education, and who are the past and current victims of inequality in the education system— are the ones who are hurt most by the budget cuts.


The claim of the “rich get richer” economists who run the Treasury Ministry and the Bank of Israel is not based on any moral or ethical vision. How could it be? Instead, they drape their economic views in the mantle of science. As Professor Shlomo Swirksy has written, “The tendency of this form of economic thought is to lend to decision making an aura of well considered balance performed by disinterested experts, who have a masterful knowledge of scientific secrets that enable them to mix the appropriate materials in their right proportions in order to achieve the desired outcomes, all the while relying on professional language that is impenetrable to laymen.”

And yet some of the fundamental assertions on which the economic experts base their claim to the reins of the economy are simply false. The idea that there is one economic model that can produce prosperity has been promoted by World Bank and International Monetary Fund representatives in countries all over the world—and Israeli “experts” have swallowed this doctrine hook, line, and sinker. Yet most of Europe, including many of the most prosperous European countries, have a much larger budget relative to their GNP than the “right” model allows. This larger budget is a reflection of their commitment to providing quality education, health, and social services to their citizens; this commitment has enhanced, not detracted from, these countries’ prosperity. On the other hand, countries like Argentina, Thailand, and Romania, which have attempted to follow the “scientific” dictates of the American-based international financial organizations, by privatizing and slashing budgets, have experienced ongoing economic havoc.

Israel itself provides a fine example of the way in which ambitious national projects—exactly the kind needed in order to close the educational and income gap which is tearing the country apart—can be good for the country’s economy. The government has taken on two enormous special projects in the last thirty years. Both projects inflated the national budget to a huge percentage of the GNP, much larger than the largest European budgets. The first national effort, in the 1970’s and early 80’s, was the establishment of defense based industries in Israel. The second was the absorption of Soviet immigrants in the early 1990’s. Both of these efforts were crucial to the economic growth Israel has experienced in the last 15 years. The defense industries made Israel a player on the international economic scene for the first time in its history, and also trained a generation of workers in knowledge-based forms of industry. Many of the workers and entrepreneurs trained by government money, later moved to high tech. The absorption of thousands of Soviet scientists and engineers was also a crucial component in readying the country for the high tech boom of the second half of the 1990’s. In Israel, huge government investment has proven a necessity, not an impediment, to the growth of an economy.

In the case of both the establishment of defense industries and the absorption of Soviet immigrants, government investment was predicated on the idea that the funds and effort spent were serving crucial national interests. These efforts, building on accomplishments achieved through the massive expenditure of public funds, put billions of dollars into the pockets of some Israelis—nearly all of them already from the priviliged economic classes--but left behind whole segments of the Israeli population. Yet neither of the large political parties has yet seriously suggested addressing these inequities through a major national effort—at least not when the party actually held power.

The education, health, and welfare of a State’s inhabitants are not viewed by the new economic ideologues as crucial national interests that would justify increased government spending. This is in spite of the fact that numerous studies have proven that investment in education, for example, in the middle and long term, is one of the most important and effective possible uses of public funds. But private enterprise cannot think in the middle or long term—and neither can economic theorists who are in the thrall of private enterprise. When politicians forget the language of public good, and begin to internalize the language of business oriented economic theorists, government can no longer do its job, which is to work, however imperfectly, towards the creation of a good, just and equitable society.


The judicial system is another segment of Israel’s governing elite that has its own language, its own theoretical framework, and the opportunity to influence society in a most significant way. Many Israelis look to the judicial system, and especially the Supreme Court, to right the wrongs foisted on Israeli society by a divisive and compromised political system. Economists may not base their arguments on ethics and morality, yet we expect the law, especially at its highest levels, to do so. But anyone hoping that the Supreme Court will defend the rights of those segments of the population foisted aside by the economic policy makers may be seriously disappointed. David Ben Gurion himself warned against the process which seems to be unfolding right before eyes. Speaking before the Knesset Committee on Law in 1952, Ben Gurion stated that one of the reasons he opposed the drafting of a constitution for the State of Israel was that in the United States, “the Supreme Court became an obstructive force guarding and privileging property rights over human rights.”

In a fascinating analysis of the Supreme Court’s and especially its Chief Justice, legal theorist Ayal Gross, in an article called The Israeli Constitution: An Instrument of Distributive Justice or its Opposite? (from the anthology “Distributive Justice in Israel” edited by Menachem Mautner, Ramot Publications, Tel Aviv University, 2000) tells how social rights have just about been eliminated from the Court’s agenda. A logical place for the court to anchor a defense and interpretation of social rights during an age of increasing poverty in Israel would be in interpreting the Basic Law: On the Freedom and Dignity of Man, which was passed in 1992 as part of a piecemeal substitute for a constitution.

Israel’s Declaration of Independence is one of the key documents towards which interpreters of the Basic Law are meant to turn in order to understand the law’s intent. The Declaration specifically states that “equality of social rights for all citizens” is part of the fundamental ethical code of the State of Israel. Yet in interpreting the Basic Law, Aharon Barak, who served as Chief Justice of the Supreme Court from 1995 until 2006, has repeatedly come down on the side of the wealthy rather than the poor, employers rather than employees, and the right of ownership rather than the right to health or education—as if in fulfillment of Ben Gurion’s warning. As Prof. Ruth Ben Yisrael wrote already in 1994 “It is extremely unfortunate, and even quite strange, that Justice Barak who is the champion of the rights of man whenever the subject is political or civil rights, did not choose to include within his basic conceptual framework....not even one of the basic social rights.” Barak, for example, interprets the “The dignity and freedom of man” to include all civil rights and even some economic rights. But his broad interpretation stops at the borderline defining social rights” according to Ayal Gross. Barak includes within “the freedom and dignity of man” the freedom to make contracts--an economic right that most often protects the financially strong because it is the weak seeking employment and without the means to hire lawyers that are most prone to signing disadvantageous contracts out of desperation. But health-related rights are ignored, despite the fact that, as Gross writes, “It is certainly possible to argue that defending the life, body and dignity of man, as stated in the Basic Law, would invite us to recognize the primacy of the right to health when in conflict with the right to make contracts freely.” In a precedent setting case in 1995, Justice Theodore Orr declared that basic educational rights for impoverished children were also not included in the Basic Law lechvod ha’adam. Barak supported his judgement.

In interpreting another section of the Basic Law, the law mandating freedom of employment, Barak comes down firmly on the side of raw capitalism. He interprets freedom of employment to be founded on “the right to free competition”, which is, as Gross points out, rather strange in view of the fact that “Free competition is not one of the interests usually defended as a human right.” Instead of using the right of free employment to strengthen the hands of workers in an increasingly ruthless economic environment, Barak has chosen to side with the employers: he interprets free employment to mean the right to hire and fire at will, rather than the right to work under decent conditions. According to Gross, referring to Barak’s academic writing, we can infer that “From the examples of legislation that Barak cites as, according to his thinking, infringing on freedom of employment, many kinds of social legislation, such as minimum wage, controls on work hours and rest time, and any kind of price regulations would be considered in his eyes just such an infringement.


Israel is not the worst country in the world in terms of its economic policies and social system. The public health system—a legacy of Israel’s social-democratic past--is still better than in many Western countries. The shocking statistics showing that Israel has the largest income gap between rich and poor of any Western country measures income bruto; after adjustments for taxes and bituach leumi payments, the gap is still nothing to be proud of, but there are countries that are worse. The percentage of the population in prison is nowhere near as high as in the United States, where 2 million people, the vast majority from impoverished backgrounds, are held in brutalizing conditions. We still have not entirely lost the human face of our society.

But more and more, it seems that Israel is slipping down an icy slope with nothing left to stop our fall. For the past ten years, for example, as it has become clearer how crucial a transformation of the educational system is to any effort to stop the widening social gap, the education budget has been cut in real terms. With politicians and Supreme Court Justices uniting to undermine whatever remains of our collective social ethos, and with the media under the tight monopoly control of a small, self-interested economic elite, change can only come through a demand rising from the people themselves. And despite Ben Gurion’s famous remark about being Prime Minister of a nation of Prime Ministers, the Israeli public has remained remarkably passive in the face of the slow but steady erosion of its collective rights.

I think that the evidence is in that ruthless capitalism-not the capitalism of David Ben Gurion or even Pinchas Sapir, but the capitalism of Milton Friedman and George W. Bush—is not making it better for everyone. I think people are waking up to the fact that giant conglomerates and super-wealthy business tycoons have no exclusive claim in determining the quality of our society.

Recently, at least partly because the crash of 2008 helped reveal the hollowness of claims that the free market could regulate itself and that unfettered capitalism provides a one way ticket to social prosperity, the government and courts in Israel have begun to reverse some of their earlier stands. After a long court battle, Supreme Court Chief Justice ruled against the privatization of Israel’s prisons, and in another decision, agreed to hear the case against the privatization of Israel’s government owned lands. This past week, there was more good news: the Sheshinski commission recommended a new and fairer division of profits from the store of natural gas discovered off of Israel’s coastal waters: instead of a 70-30 split in favor of private tycoons, a 66-44 split in favor of the public. In addition, the Neeman Commission recommended that for the first time in Israel’s history, salaries of high level managers in public companies should be tied to the median wage in Israel.

Nearly everywhere in the world is in some way experiencing the kind of privatization of power which is the trend in Israel. But to my mind, Israel’s moral claim to being the state of the Jewish people intensifies the stakes in the struggle over Israeli society. Judaism is the only one of the world’s major religions to be founded on a public revelation in which the entire people participated. The Torah itself is addressed to a people with legislative and judicial powers, not to individuals. Dozens of Torah laws grow out of the Torah’s basic conviction that private property is not an absolute category, that the welfare and needs of the poor and the stranger, and of society as a whole, limit and preempt the idea of ownership.

A Talmudic Aggadah tells a story that we would do well to remember. A farmer is digging stones out of his field and throwing them into the public path that divides peoples’ property. A hasid who sees him says “Fool, why are you throwing stones from a place that is not yours into a place that is yours.” The man shakes his head; this guy is crazy. Flash forward seven years. The farmer has fallen on hard times and has had to sell his field. Destitue, he walks past his old property, and trips on a rock he had thrown into the public path years before. “How wise was that Hasid”, he says with regret.

Our schools, our hospitals, our air, our water, most of our land—all these physical things are part of our public space, just like the path the Hasid warned the farmer about. So are intangible things: our feeling of solidarity and collective responsibility, our justice system, the atmosphere in our streets, our collective identity as Jews and Israelis, our language, our national character, our moral standing as a nation. What considerations should we use to determine the quality and scope of the public dimension of our existence? For me, this question, that we and we alone must answer, will ultimately prove at least as crucial for Israel’s future as the resolution of our conflict with the Palestinians and the Arab world.