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It's the Economy, Stupid?

As Ariel Sharon starts his own party, Israeli politcs might finally focus on economics.

11:00 PM, Dec 20, 2005 • By DANIEL DORON
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The dream of those who framed the Oslo accords that the PLO, an unreformed terrorist organization, will somehow advance peace, has only resulted in the growing radicalization and fragmentation of the impoverished, terrorized, and brainwashed Palestinians. If reasonable relations are to ever be established, and peace is eventually to emerge, Israel cannot remain indifferent to the continuous barrage of anti-Semitic propaganda and anti-Israel hatred disseminated by the Palestinian Authority, or to the indoctrination of school children. Inciting hatred against Israel and Jews is the real root cause for the strengthening of Hamas, which is seen as the only protection against a mortal Israeli threat. It neutralizes the Authority's ability to fight terrorism, and it undermines its popularity, because it is considered a peon of an intensely hated Israel.

Israel can fashion policies to reverse these ominous trends. It can also help to establish in Palestinian areas a rule of law and order by intensifying its war against terrorism. Without law and order there is no hope for fast economic development among the Palestinians and no chance that they will develop a civil society interested in peace.

That the Israeli electorate will probably give Sharon a ringing endorsement is an indication not of Kadima's vigor, but of how weary citizens are with both the Palestinian conflict and domestic politics. Because the Israeli government is so ineffective, Israelis clamor for a strong leader. Sharon seems to fulfill this prescription.

As for the opposition, at least "New" Labor, under the rule of trade union boss Amir Peretz, has a vision. But it is a vision of Israel's darkest Socialist days, when the total domination of the economy by politics was justified by ideology and resulted in a backward economy ruled by a corrupt political system.

Peretz's plan is to significantly increase the minimum wage and to build a special police force to enforce its observance. Higher wages, he believes, will increase consumption and engender economic growth (he apparently forgot about inflation). He wants to reverse the recent reforms which broke the bank monopoly in financial markets. Among other "progressive" measures, he advocates the reinstitution of designated government bonds that would guarantee returns for the pensions funds which his Labor federation brought to the verge bankruptcy. Peretz would also like all workers to join his union (which is a monopoly) and for successful companies to "share" profits with workers.

Otherwise, he asserts, he too believes in "free markets" and competition.

AS FOR THE RUMP LIKUD, with the exception of a few (most notably Benjamin Netanyahu), the old Likud was a single issue party devoted to holding on to Israel's land and resisting the formation of a Palestinian state. Now that much of the Israeli electorate, and even many Likud supporters, have shifted position, Likud remains without a role.

With the election of Netanyahu as Likud chairman, Likud's best chance is to follow the new sense of mission that Netanyahu's remarkable economic reforms created. Unfortunately, not enough people in Likud, or in Israeli politics generally, realize what a powerful force economic growth can be. Not enough of them remember that Netanyahu saved the Israeli economy from collapse and transformed a six-year recession into brisk growth.

The takeover of Labor by an alliance of its radical-leftist elements and the monopoly public unions has stimulated an unprecedented election time debate on social and economic issues. It may also finally delineate the lines separating those who claim that they are moved by a social conscience but really want to widen Israel's welfare regime that has regularly stymied growth, and those who claims that what Israel needs is economic growth that will "raise all boats", rather than wasteful and damaging handouts that for over 60 years have made the lot of the poor only worse.

The surprisingly swift success of Netanyahu's financial markets reform; the fact that breaking up of the powerful bank duopoly (it squandered two decades of savings by lending money mostly to cronies, like the banks did in Japan), did not take six years, as stipulated, but only a couple of weeks; that contrary to the fear spread by the banks strong foreign financial entities, that could compete with them, did pay above market prices for the two government owned banks, and for the banks' provident funds - indicate a faith in the Israeli economy. It also proves the success of these reforms in introducing competition and a more efficient use of savings and investments.