Originally published under the title, "How Netanyahu Can Win."
Israeli Prime Minister Benjamin Netanyahu is seeking a fourth term in office.
Coming on the heels of a spate of revelations regarding corruption in the Israeli government – as well as worrisome signs of dysfunction in Israeli governance, exposed during last summer's unresolved campaign against Hamas – the Israeli public was shocked again recently by yet more revelations of pervasive corruption in high places. Now a dark cloud on the political horizon, corruption (as well as its neglect by the authorities) shows signs of developing into a major political storm. It could deeply affect the upcoming March elections, in which Prime Minister Benjamin Netanyahu will have to defend his seat against a still fragmented - but very determined - opposition that will run on the slogan "anyone but Bibi."
In recent days, dozens of officials and lobbyists connected with Foreign Minister Avigdor Lieberman's Israel Beitenu party have been arrested. They are accused of involvement in elaborate scams to siphon off scores of millions of shekels in government allotments. Almost daily, an ongoing investigation reveals new cases of corruption and a wider network of miscreants, probably extending to other parties as well.
The plague has spread outside of the government. A major Israeli bank, Le'umi, was recently fined 1.4 billion shekels by U.S. regulators for facilitating tax evasion. Management in the semi-official Israel Electric Corporation received millions of Euros in bribes from the Siemens Corporation. Similar corruption charges have been leveled against Mekorot, Israel's premier water management corporation. And even in retail markets across the country, price-gouging has become the norm, impoverishing a large part of Israel's population.
Corruption has progressively become so endemic in politics that it makes state agencies dysfunctional.
"Is corruption endangering Israel?" a prominent columnist has wondered. The answer, alas, is yes. Not because corruption in Israel is so exceptional; corruption is lamentably common everywhere. But as the only country openly threatened with extinction, Israel cannot allow its social and moral fiber to be compromised. Corruption is undermining governability and the citizens' faith in politics and government, as well as in their economic leadership.
Since Bismarck invented the welfare state, which, with excessive "takings," became a major re-distributor of wealth, the nexus between politics and big money has become tighter. This is a chief source of corruption even in liberal democracies, let alone in former socialist regimes. Nowhere is this more true than in Israel. Corruption has progressively become so endemic in politics that it makes state agencies dysfunctional. As a result, services that the government is supposed to provide - health, education or even internal or external security - are deeply inadequate, thus causing great hardship for citizens and undermining the legitimacy of the government. Corruption also inhibits growth and is a heavy drag on the economy.
The government has suffocated business with over-regulation and exorbitant taxation, which it has used to to fund sprawling bureaucracies and a huge collectivist sector.
The central problem is this: The government is simply too involved in the broader economy. Indeed, over seventy years of quasi-socialist governance, Israel nationalized practically everything. The government has suffocated business with over-regulation and exorbitant taxation, which it has used to to fund sprawling bureaucracies and a huge collectivist sector in agriculture and manufacturing. Regulation is crushing; it can take ten years for a mid-sized real estate project to receive certification.
The Israeli government owns 93 percent of all land, most natural resources, electricity, transportation, roads, rails, ports, and airfields. The public sector employs every third person. After socialism went bankrupt in the 1970s, and after Labor lost its seventy-year monopoly on power, the conservative Likud government cut the massive subsidies that kept loss-making government and Labor enterprises afloat. Still, this wasn't as good as it looked: many public assets were "sold" to political cronies for a pittance in a phony privatization scheme.
As a result, Israel's economy became dominated by price-gouging tycoon-owned monopolies. Its financial markets, earlier de-facto nationalized, have remained monopolistic and shot with cronyism. Most savings allocated to cronies were wasted through inefficient use. As a result, labor productivity in Israel is only two thirds what it is in the US. Workers are paid a measly monthly median salary of $1,900, while prices are higher than in America. Over half of Israel's population lives on the brink of poverty.
Israel's political system of proportional representation, which requires costly, unmanageable coalitions, has become a source of instability in itself. In the last 66 years, Israel has had 33 governments. This has cost untold billions in unnecessary election costs, as well as governmental dysfunction. Coalition governments enable sectarian groups to extract political and financial spoils from the politically split majority. "Special allocations" to coalition partners become a slippery slope to corruption.
While everyone is aware that corruption is threatening Israel's viability, its political and economic causes are not being addressed.
While everyone is aware that corruption is threatening Israel's viability, its political and economic causes are not being addressed. Except for a few heroic efforts, like those of deputy Attorney General Avi Licht and anti-trust regulator Professor David Gilo, who are attempting to curb a the grotesque natural gas cartel that threatens Israeli democracy, little has been done.
Many wonder why Prime Minister Netanyahu, who courageously led reforms of the Israeli economy when he was finance minister in 2005, has not addressed corruption since becoming prime minister. The reason may simply be that he is utterly consumed by the need to address urgent security threats, and unable to take on such a politically exhausting task - especially when the opposition is doing all it can to defeat any suggestion of reform, enabling the most retrograde forces in Israel to exploit the very workers that the leftist opposition supposedly represents. Netanyahu has, to put it mildly, his hands full, dealing with a nearly nuclear Iran, the mayhem created by the putative Arab Spring and the U.S.'s grave mishandling of it, as well as relentless pressure from the Obama administration and self-satisfied European elites. With so many existential challenges facing his country, it's a wonder that the prime minister finds time to breath.
Ironically, Netanyahu's success in handling security concerns, which has earned him the moniker "Mr. Security," may be his undoing. By largely successfully quelling terrorism, Netanyahu has allowed Israelis to focus on domestic problems, especially the extremely high cost of living. Indeed, 2012 saw mass protests against the state of the Israeli economy, which died down after they were exploited by the leftist New Israel Fund in a bid to bring down the prime minister. But the recent discovery of more corruption in high places may be the spark that reignites protests against the domination of the Israeli economy by corrupt politicians who protect the iniquitous system of exploitative price-gouging monopolies.
It may be late, but perhaps not too late, for Netanyahu to find the energy to immediately address corruption and Israel's economic problems. This would make it much easier for Netanyahu to win.
Daniel Doron is founder-director of The Israel Center for Social & Economic Progress (ICSEP), a public policy think tank, and a fellow of the Middle East Forum.