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.
“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 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.