Israel's end of welfare state is painful

ECONOMY-ISRAEL - IPS - 8/3/03
US Embrace Turning Painful
Ferry Biedermann

JERUSALEM, Aug 4 (IPS) - Israel's transition from a welfare state to market models closer to the U.S. economy is turning out to be a painful one.

The single mothers in their colourful tents protesting against welfare cuts outside the offices of the finance ministry in Jerusalem are only the most visible indication of the change. Israel is finding itself moving close to the U.S. in ways most people do not want.

The gap between rich and poor is bigger now in Israel than anywhere else in the Western world -- except for the United States, according to recent research by the Luxembourg Income Study. That is a remarkable position for a country that was founded partly on socialist ideals and where the collective farm, the Kibbutz, was the ideal.

"Bibi (finance minister Benjamin Netanyahu) lives in a two million dollar home," says one of the protesting single mothers, Abergil Ravit. "Why can't the rich pay a bit more, why do we and our children have to suffer?"

But the government is lowering taxes, especially for the rich. The government defends its policies as necessary for encouraging growth, but many of the poorest wonder why the huge deficits are being offset by welfare cuts, but then again made worse by tax cuts. The government says it wants to encourage growth, and Netanyahu speaks of "breaking the welfare habit."

Experts say Israel is moving away from a system of 'total welfare' along the European model of the seventies to a 'minimal welfare' system along U.S. lines. But that does not mean no gap existed between rich and poor earlier.

"There have always been such differences," says Dr Johnny Gal from the School for Social Work at the Hebrew University in Jerusalem. "There were big gaps between the immigrants from Arab countries and the immigrants from Europe; these still exist. The poorest segment has always been the Arab population and that has not changed."

In May and July the government cut some 2.4 billion dollars off its expenses. The economy contracted last year and most experts expect zero growth this year - from a 6.8 percent growth in 2000.

Unemployment in Israel is now some 12 percent, but it is more than 17 percent in the Arab population centres. Another weak sector is the orthodox Jewish public. The gap between these groups and the Western, Jewish population has grown dramatically in the 1990s.

Gal and a colleague have studied social and economic trends over the past 30 years in Israel. "What is different now is that after years of talking about it, they are now really starting to cut into what we call the safety net," he says. Gal says that many have advocated cuts in the welfare system in the 1980s and 1990s.

The current economic crisis is being made worse by the violence of the past three years. According to the finance ministry, the Intifadah shaves some 3 percent off the annual growth. Without it, Israel might just avoid recession.

Investment in the technology sector in the second quarter of this year was less than a quarter of the one billion dollars it drew in the last quarter of 2000. Non-domestic funding has risen of late, from 77 million dollars in the first quarter to 158 million dollars in the second quarter. But this is not enough to save the country from its worst recession since the state came into being in 1948.

Technology, including particularly military communications technology had helped the Israeli economy grow in 2000. But the downturn in the communications market has meant that the market is not bringing in the expected levels of business. The government now hopes, in line with U.S. economic wisdom, that lower taxes will give growth another kickstart while welfare cuts help it balance the books.

"Economic thinkers in both the big political parties (Labour and Likud) have been very much influenced by the American model," says Gal. He attributes that partly to the growing dependence on the U.S. for military aid and political backing. "But many of the top people genuinely belief the American model is better. Many were educated there or have spent parts of their working lives there."

Gal says the left-wing Labour party too is moving in that direction, but the people who are hit by the current round of welfare cuts blame Likud which is in power now.

"For years we supported the Likud because of the security situation," says Eti Goari, a 38-year old single mother form the coastal town of Nahariya who has also joined the protesters in Jerusalem. "We never really took the economy into account when we voted but I'm sure that will change now because what's the use of having security if you don't have a life."