It is undisputed that Benjamin Netanyahu will be remembered as one of the statesmen who left their deep mark on the Israeli economy, as on few did before him. It is customary to compare Netanyahu to Ben Gurion. I would compare him rather to Pinchas Sapir.
Both politicians have shaped the Israeli economy for nearly two decades. Sapir built the Israeli economy in the 1950s and 1960s through state intervention; Netanyahu led the Israeli economy into the twenty-first century through a series of economic reforms.
Now, that the “Kingdom of Netanyahu” seems to be coming to an end, here’s a summary of the Netanyahu’s era in the Israeli economy by six points. (I will not discuss two issues: gas outline and corruption.)
- Ideology: Obviously, Netanyahu is not a Social Democrat. Is he a neoliberal? A conservative? Quite a bit has been written – and I also contributed to this literature – on the fact that the notion of neoliberalism is quite broad, and therefore it can encapsulate very different policies and political figures. This is a problem, in particular, today when populism and trade-wars are on the move.
Netanyahu’s ideolog – as I show in my book – is best portrayed as “market nationalism.” This is an ideology, which prescribes the use of market forces and market-oriented policies to promote state preferences and national ideologies. In practice, this market nationalism is expressed in policies that can be very similar to neoliberal policies – liberalization, privatization, the rule of law and so on – but it selectively adopts these principles as long as they do not harm the geopolitical interests of the state.
This characterization of Netanyahu’s ideology is based, in part, on how he himself presented his economic vision in various forums and in part on the basis of an analysis of its policies throughout the years.
- History. Netanyahu’s era in Israel’s economic history can be divided into four periods: the First Netanyahu’s government, Netanyahu as the Minister of Finance, the Second Netanyahu’s government, and his subsequent governments. Each of these periods has a slightly different characterization, in terms of its impact on the Israeli economy.
- The First Government of Netanyahu (1996-1999). Netanyahu is appointed prime minister after Rabin’s assassination and his victory over Peres. The Rabin government has implemented an expansive fiscal policy for 4 years, partly for the purpose of absorbing Russian immigration. The Rabin government was the most social-oriented government in the post-stabilization era (1985). Despite pressure from the central bank – governed by Jacob Frankel – to cut the budget and to support the war on inflation, Rabin, and his Treasurer Sho’chat, did change course.
With his victory, Netanyahu gave Frankel a green light to conduct an extremely radical monetary policy, that did not consider the consequences. During this period, the level of inflation dropped, within 4 years, from a level of above 10 percent to around 2 percent. The price of the achievement was lack of growth: During the Rabin government GDP per capita grew by more than 4 percent per year. During the Netanyahu period GDP per capita stalled.
- Netanyahu the Minister of Finance (2003-2006). Netanyahu’s main impact on the Israeli economy was evident during this period. Netanyahu was appointed finance minister during an economic recession in Israel and worldwide. Globally, the high-tech bubble has just burst and we were two years af the 9/11 terror attack.
In Israel, we were in the midst of the second intifada, which followed the collapse of the Oslo Accords. As a Minister of Finance, Netanyahu reshuffled the Israeli economy through the “Law for the Recovery of the Israeli Economy.” At its core, it was an omnibus program designed on the basis of a Business Friendly approach, or Supply-Side Economic principles. It consisted of a deep cut in budgetary spending, a deep cut in social spending and social security safety net, a reduction in the issuance of government bonds as a long-term savings measure, in order to streamline savings to the Israeli capital market.
This policy had a dramatic impact on the Israeli economy and society. In my opinion, no less than the 1985 Stabilization Plan. Some claim that Netanyahu’s reforms saved the Israeli economy. On the other hand, a study by the Bank of Israel (Flug and Sternwinski) claimed that Israel climbed out of recession mainly due to international and security exogenous factors.
Beyond that, since 2003, Israel has become a high-tech powerhouse, a country that attracts foreign investment, which is part of the prestigious club of countries with current account surplus. It is difficult to determine the causal links between the “Israeli miracle” and one or another politician. But I think it’s reasonable to say that Netanyahu’s policies in 2003 played a positive role as they enabled and reinforced Israel’s export-led and capital-attracting model.
In any case, the direct result of the reforms was a rapid increase in inequality and poverty relative in Israel relative to developed countries.
- The Second Netanyahu Government (2009-2013). During Netanyahu’s second government, in my opinion, he lost the interest and the passion he had in relation to the management of the Israeli economy. The social protest that erupted in 2011 could have been an opportunity for him to make reforms, amendments, and changes. At that stage, it should be remembered, Netanyahu’s policies were no longer backed by professional economists. During this period the Bank of Israel’s Annual Report criticized the government policies year after year for not investing enough in infrastructure, and for not addressing other social problems.
But Netanyahu dismissed the claims of the protesters. He called the protesters “populists.” His finance minister, Steinitz, has adopted the same line, describing the protesters as sabotaging the country’s economic and national interests.
- Third Netanyahu Government onwards (2013-?). During this period, Netanyahu began to develop his econo-geopolitical vision, which was based on the triangle of economic power, military power, and geopolitical power. According to Netanyahu, on various occasions, he has succeeded in maximizing Israel’s economic power, through privatization and liberalization, and thus mobilizing Israeli capitalism for the benefit of its national vision.
Some see this vision as a smokescreen. But an empirical examination of his claims and justifications shows that this vision has a solid factual basis. During Netanyahu’s era – and against the backdrop of the breakup of the global liberal order – the Israeli model has become a desired model among quite a few small countries, which sought to leverage their economic power.
Netanyahu’s problem was that during this period he became fully immersed with the quest of what he perceived as Israel’s “economic power,” and he lost touch with the domestic economy and society.