The imperative need for Israelis to renovate their political system

The imperative need for Israelis to renovate their political system to improve their life

Didier BERTIN - March 27, 2018

1-The unavoidable reality of economic facts

A-GDP - Inequalities - poverty

Every year GDP (Gross Domestic Product) is growing satisfactorily, but inequalities between citizens are widening so that the majority of them do not benefit from the fruits of their efforts to create this growth. Yet the vast majority of citizens are heavily taxed and exposed to insecurity in general including a long military conscription and a much longer military period of reserve. This situation, which does not correspond to that of a modern democracy, is substantially illustrated by the figures

We may observe at first that nominal GDP is significantly reduced when converted into purchasing power parity (PPP). In nominal terms, GDP per capita reached a very respectable level of USD 39 974 in 2016 according to the IMF and ranked 22nd in the world, ahead of France's USD 39 673 (23rd in the world). Yet the reality of the facts is quite different because in purchasing power parity the GDP per capita is reduced to 36 200 USD and is at the 53rd world rank near the level of of Slovakia or Slovenia, which remains still satisfactory, while that of France s' GDP increases to 43 600 USD per capita and ranks 39th in the world rank ahead of that of the United Kingdom or Japan (List of CIA factbook).

This means that consumer prices are maintained at a high level in Israel in many areas and significantly restrict purchasing power. Overall, the 2016 Israeli GDP reached 348 billion USD (growth: + 9.8%) in nominal terms but was reduced to 315 billion USD (growth: + 2.9%) in purchasing power parity.

The main factors behind this large gap between nominal GDP and its PPP reality are:

(a) Lack of competition in the field of everyday consumption,

(b) Insufficiently high median wage,

c) Privileges of some large groups,

d) Increasing speculation in real estate under the influence of some luxury realizations for a privileged class,

e) Lack of stock of social real estate in the employment areas for the modest class and

d) Incompetence of too many elected representatives indifferent to the fate of their fellow citizens

The growth of inequalities weakens the majority of the population, especially young households whose budget is drastically reduced by real estate expenditure (43% of the population is under 24 years old).

The calculation of inequality indices is not updated and makes the situation unclear, however we know that between 2008 and 2013 the GINI index went from 39 to 42.8% and we have no reason to think that this trend does not continue.

We recall to understand this index that zero is the perfect equality and 100 the perfect inequality (one individual has everything). This index is 21.5% in Finland: better result and 29.2% in France. With at least 42.8%, Israel is placed in a group of least developed African countries as Cameroon, Mozambique, and South Sudan. In 2010 10% of the population lived with 1.7% of household income and 10% with 31.3%. In France the gap was between 3.6% and 25.4%.

22% of the Israeli population lived below the poverty line in 2014, which was set at US $ 7.30 per day, or US $ 2,664 per year or US $ 222 per month (according to CIA factbook). In developed countries as those of EU, the poverty line is set at 60% of the median wage (following Eurostat's guidelines).

In France, the poverty line estimated in 2014 as it should be considering 60% of the median wage 1,253 USD and concerned 14.1% of the population whereas it was 5.6 times higher than the Israeli threshold. It must be noted that the median salary in France in 2017 was 2,222 USD giving a poverty line of 1,333 USD per month.

In 2014 the Israeli median wage was NIS 6,707 or USD 1,719 and therefore the poverty line according to Eurostat's guidelines would have been 60% of this amount i.e. USD 1,031, very far from the official level of USD 222 which does not permit to live in the country. In the same year, the averaged wage was 9,317 NIS, or 2,388 USD, far from the median wage and confirms the very high income inequality. It must be noted that 50% of employees earned less than 72% of the averaged wage in 2014 (source: Tribune Juive of March 22, 2018), that is to say less than $ 1,719.

The poverty level approach in Israel is made difficult by the lack of up-to-date information and a non-significant official poverty line and thus Tribune Juive (French Jewish newspaper) and CIA factbook consider both the 2014 figures.

Assuming that 50% of the labor force earned less than 1719 USD (according to Tribune Juive) and  knowing that in 2014 the labor force  accounted for 3,500,000 people i.e. 42.7% of the total population of 8,200,000 (source: IMF), we estimate  that  50% of the global population have an income lower than 733 USD per month and per inhabitant in 2014. It can be thus also estimated that more of 50% of the global population live below the poverty line calculated according to Eurostat criteria of USD 1,031 in 2014.

If we consider GDP in PPP we obtain in Israel a global household consumption of 173 billion USD (55% of the GDP) which is 20 843 USD per year and per capita or 1736 USD per month and per capita. Such monthly figure in France per capita is 1 932 USD which is only 11.29% above the Israeli figure. This relatively small difference further underscores the fact that Israel is a particularly unequal country. Household consumption is generally satisfactory but very unevenly distributed.

The structure of GDP between household, state and investment spending is roughly the same as that of France or Germany and does not significantly affect the role of the state towards citizens as is the case in countries such as the United Kingdom or the United States which both follow a strict doctrine reducing the role of the State in the field of Economics.

One can say that BREXIT is the consequence of the difference of philosophical conception of Economics between continental Europe and the United Kingdom and also of the United States.

We will also see that the heavy weight of the military budget does not affect the possible role of the Israeli State in Economics because the economy benefits of important and net and recurrent positive external financial flows. Thus the military expenditures should not affect the domestic consumption.

The excessive degree of inequality between citizens despite a satisfactory GDP involves the full responsibility of a passive Government in the field of Economy and this behavior is not in line with the expected targets of a Jewish national home.

B- Special case of real estate

The rise in real estate prices is not a source of enrichment because it is generalized to the entire housing market. Indeed if someone wants to move he must sell his apartment at the high market price to buy another in the same market conditions and so a high price will not enrich him. In fact the co-owners of many old dwellings do not even have the financial resources to maintain their buildings, which regularly deteriorate.

The price of apartments that the government should impose in order to fight the detrimental and artificial price rising involves the implementation of a common sense model.

Assuming a median salary in 2017 of about 7,000 ILS with monthly real estate charges which should not exceed one third of income, i.e. 2,333 ILS; then the cost of a family apartment paid over 30 years with a rate of 5% (including insurance) should not exceed 430 000 ILS but should be situated near the employment areas to enable the people to earn a sufficient revenue.

A household with 2 median salaries could buy an apartment of 860 000 ILS provided that to keep their income intact they do not have children. However we must also think of the 50% of the labor force that "by definition" earns less than the median wage and for which access to property is extremely difficult especially for the youngest of them and first-time buyers knowing as we have already mentioned that in Israel 43% of the population is less than 24 years old.

The solution is simple and involves the creation of State controlled construction companies and real estate financing to implement a suitable policy. This need for interventionism seems to be due to the fact that the population is too small to allow self-regulation by the market mechanism and this in all areas. However, it should be noted that the competition mechanism works well in some European countries whose population has a similar or smaller size, but in which the state may play a better role.

Social housing and family housing programs close to employment areas priced between 200,000 ILS and 400,000 ILS could be considered. We recall that all the land built and not built remains the property of the State by the way of emphyteutic leases and the majority of the labor comes from Judea and Samaria and accepts wages lower than the Israeli wages because of the high local unemployment rate.

Thus fortunes were probably made on the basis of the impoverishment of the Israeli population, who must devote a large part of their budget to the cost of housing and on the poverty of the construction workers of Judea and Samaria. The fall in the price of real estate can also be achieved by a choice of more modest materials as experienced in many European countries. To regulate exaggerated cases, the State could even use its right of pre-emption or even of expropriation.

In addition, the personal guarantees requested from the families of the borrowers by the Banks or rental entities are unacceptably infantilizing and may propagate precariousness. In case of need, guarantees should be reasonably delivered by Insurance companies as in normal developed countries and not by families. This is reminiscent of tribal customs in less developed countries

C- The recent increase of the minimum wage

The recent increase in the minimum wage to ILS 5,300 as of January 1, 2018 is equivalent to US $ 1,488 based on 186 hours of work per month or nearly 44 hours per week or US $ 1,351 for 40 hours per week and US $ 1,182 for 35 hours. Thus this minimum wage calculated on 40 hours of work per week would be roughly equivalent to the poverty line in France of USD 1,333 for 40 hours where the minimum wage is USD 1,835, and remains much lower than the Israeli median (79%) and averaged wages (57%) of 2014; this improvement does not yet solve the national pathological inequality regarding revenues.

D-Corruption

According to "Transparency International" the least corrupted country is New Zealand and with an index of 89 and the most corrupted country is Somalia with an index of 9. The averaged index of Western countries is 66. Germany and France rank respectively 12th and 23th with indexes of 81 and 70. Israel ranks 32nd with 62, which is not too far from the averaged index of Western countries and is thus relatively satisfactory. Corruption in Israel seems to affect the political class rather than the economic world.

E- The fake argument of the weight of the Military expenditures to explain the reduction of purchasing power

The economic difficulties are all too often politically justified by the weight of the military expenditures of 5.6% of the GDP, i.e. about 19.5 billion USD which is apparently very high. However from a global economical standpoint one must take into account the huge and recurrent net positive unrequited transfers which amounted to 9.5 billion USD in the 2016 Balance of Payment published by the IMF.  These net positive transfers include probably the global US aid of 38 billion USD dated of 2016 to be paid over a period of 10 years. The size of net positive unrequited transfers is very exceptional in the Balance of payments of developed countries which show generally negative balances or balances near zero.Taking into account this amount that we may "for example" apply to the military budget, we obtain a reduced figure of 2.8% of GDP as compared to 3.29% for the USA and 2.16% for France according to CIA factbook but 2.3% in 2016 according to the World Bank.

F - The development of Judea and Samaria

The economic development of Judea and Samaria for the benefit of the local population should be seen as a stabilizing element that would enhance Israel's security taking into account that the project of creating an independent Palestinian state moves away for a long time in favor of an area partly autonomous. In the long run the problem of a Palestinian State may come back because of demographic pressures nevertheless population tends to stabilize when the GDP increases. A GDP of only $ 4,300 per capita in Judea and Samaria (last figure available as of 2014) can only increase the bitterness of the local population and then the insecurity of Israel which should participate in its growth for reasons of well-being, demographic stability and finally security.

The hostility of many EU Member States and of the anti-Israel BDS (Boycott, Divestment, Sanctions) movement to Israeli economic development projects in Judea and Samaria turns against the local Arab population for whom these projects could be a major source of employment and enrichment subject to a significant increase in local wages by Israeli companies. Objectively and whatever is their protests the hostility to local Israeli development projects by these states and this organization is unfavorable to local populations who become their victims to be in accordance with their stereotype:  poor and assisted Arab populations victimized in order to maintain a tension in the region.

2- The Legislative System

The legislative system is based on the election of a plethora of "political parties"; citizens elect political parties and not directly their MP's (Members of Parliament) with whom they have no contact; moreover, the MP's do not care of the opinion of their voters since they are elected on list basis. The election is proportional and on lists and it is enough to have 1.5% of the votes for a party to have a member in the Parliament. The parties select all kind of MP's according to internal arrangements of any nature that includes power struggles and personal interests unknown from the citizens. E.g. the last founding father of the country Shimon Peres had to leave his own party in which he was the victim of unfavorable steps to join the Party Kadima. The Prime Minister is the individual who may achieve "unstable arrangements" to bring together fundamentally different political parties with requirements are disproportionate to their size.

In order to build a genuine democracy it would be advisable to create geographical electoral districts in which the candidates would have to demonstrate their skills to be MP in front of their local voters. In case of election the MP would have to report regularly and on request to his local voters the detail of his action in Parliament. In addition the threshold of eligibility should be raised to 5% of the votes.

The creation and conception of local districts for elections should allow larger parties to obtain a majority without suffering the blackmail of small parties. As a result the system would underscore the most important opinions of the majority of the population avoiding giving small parties' oversized representations.

Among these small parties that corrupt democracy the religious parties have doctrines based on religious faith i.e. on intimate convictions which are only legitimate in worship places and certainly not on the political scene, or in the legislative and executive bodies and civil affairs. The rigidity of the religious parties is not suitable for a modern democracy.

3- The Political Class and Conclusion

After the disappearance of the founding fathers, the political class has been invaded notably by too many dubious characters, adventurers, suspects of possible corruptions some of whom were imprisoned or are even still in jail or had sought to evade justice in countries where they lived or on which police and judicial investigations are ongoing. The imperfections of the legislative and executive bodies are harmful to the population and in particular to their economic well-being. There is, however, young Israeli elite that would advantageously replace the current political class.

To be elected many are those who practice a demagogic and populist politics, overusing for their interest the security question which is of course a key question in Israel. This argument hits a population that feels threatened to the point that it loses sight of its legitimate desire to live better in order to escape an external threat while both: welfare and security,  must be guaranteed "at the same time ".

The populist parties that dominate Israeli politics so use fear of insecurity to neglect their work in order to enable the majority of the population to live much above the poverty line as determined in "developed countries" and not as scandalously determined locally.

In order to achieve this target, it is necessary to reduce inequalities and this only comes from a political will "since the GDP created by the whole population is already at a sufficiently high level". Among the developed and modern democracies Israel is probably one of the most unequal countries.

The replacement of the political class is a key element of well-being. The political class must be made up of people who are well versed in the public administration and endowed with a great moral rigor because they should be guarantors of the collective interest without taking care of their own interest. The feeling of belonging to a nation should prevail over the notion of party and individual. Regional elections could help this process of improvement by also allowing the necessary refreshing of the political class.

In the global context of the rising Islamist anti-Semitism and in particular in France, it is urgent that Israel becomes a perfect Jewish homeland.