Prof. Sam Lehman-Wilzig – THE FUTURE OF ISRAEL’S VIABILITY AND VITALITY (6) – Effective Institutions
Last week I discussed in-depth the fifth factor (of seven) – “The Activist State” – underlying national competitiveness and dynamism (https://israelseen.com/prof-sam-lehman-wilzig-the-future-of-israels-viability-and-vitality-5-the-activist-state/) in order to assess Israel’s growth and flourishing in the coming decades. But an activist state isn’t worth much if its institutions aren’t effective – the present subject for analysis.
Just like human beings, national institutions can perform differently at various stages of their life cycle. Israel is an excellent case in point. At the end of the 19th century, Herzl had the vision to call for establishing a modern Jewish state, but it the pioneers who came after him had the difficult task of turning it into working practicality. The embryonic entity (“Yishuv”) had its work cut out, given ever-increasing immigration into a country with poor natural resources and lacking significant financial wherewithal. In light of these limitations, it is nothing short of a political and bureaucratic miracle (metaphorically) that a functioning state came into being, with almost all the requisite governing institutions working at full steam.
True, the way those institutions were manned would be unacceptable today. Only those who were members or supporters of the Socialist-Zionist camp had much chance of being hired into the quasi-national apparatus. Yet, given their “Ambition and Will” (already covered in a previous essay: https://blogs.timesofisrael.com/national-viability-and-vitality-the-israeli-case-2-ambition-will/), they did not view their job as a sinecure but rather worked arduously to fulfill the Zionist dream of a functioning country. In short, in this “stage 1” of national development, the institutions were very effective.
Unfortunately, “effective” can turn into sclerotic as a result of bureaucratic and political inertia. As virtually the entire Israeli civil service for the first state’s thirty years was in the hands of the dominant Socialist camp, there was no incentive to change despite the country itself going through significant modernization. Bureaucratic over-regulation and under-efficiency were part of the reason that the Likud came to power in 1977, ending “stage 2.”
As I noted last week, the Likud’s liberalization policy slowly began “stage 3”, dismantling the country’s heavy-handed bureaucracy (with initial catastrophic economic results i.e., hyper-inflation). With Netanyahu’s privatization push in the 1990s (during his first tenure as PM), the economy started to grow very fast with many bureaucratic shackles dismantled. A key personality in this regard: Minister of Health Haim Ramon who pushed to depoliticize the health system by breaking the link between the Labor Party’s Histadrut Labor Union (until then, controlling a good part of the Israeli economy) and the central Clalit Health Service Fund. That law streamlined Israel’s management and public financing of medical services while guaranteeing minimum coverage levels to all citizens (today, the four HMOs provide world-class health care to all Israeli residents).
Unfortunately, privatization of the Israeli economy turned out to be a two-edged sword: greater efficiency of services, but also a much higher level of capital concentration and corporate ownership leading to “tycoon hyper-influence” and accompanying political corruption. The double result: too high cost-of-living and consequent massive protests in 2011 – the end of “stage 4.” The ensuing decade brought some relief. In the private economy, most tycoon monopolistic practices were curtailed (with several tycoons going bankrupt), while the civil service entered the digital age. The era of standing in line for almost all government services has ended – Israelis can do almost everything online (pay taxes, get their medical records, annual license fees, etc.).
This doesn’t mean that Israel’s public institutions are all equally effective. The police force is woefully undermanned; the country is presently undergoing a crisis due to a serious lack of
schoolteachers; the number of doctors and nurses hasn’t kept pace with the fast-growing population. All in all, then, the contemporary “stage 5” is an efficiency mix of the great, good, bad, and ugly.
The problem lies not in governmental inefficiency, but rather in policy prioritization. Simply put, the government spends a huge amount of money on “national security” (IDF, SHABAK, Mossad), and by all accounts, such largesse is necessary and efficiently employed. Indeed, Israeli Army retirees go on to spawn numerous high-tech companies (many non-military) that lead to further efficiencies of government and society in general. Nevertheless, such a high level of military budgeting doesn’t leave the national budget with enough capital for important services supplied by the civilian ministries: education, health, courts, transportation, and so on. The close to exemplary work performed by the national security apparatus is a clear expression of Israeli government “can-do”; the under-effectiveness of many other state services is a function of “not-enough-money-to-do.”
This is the challenge of “Effective Institutions” in Israel’s future. Israel’s high-tech sector shows that there is more than enough qualitative human capital to effectively meet every challenge, but given the country’s already high tax rates, and very high cost-of-living that renders any tax increase a non-starter, the question becomes whether the country can find the right balance in the future between financing its security requirements as well as its domestic necessities.
To be sure, the answer lies not merely in the economic realm; foreign policy (e.g., peace process; Iran’s threat – direct or through its proxies) will also determine to a large extent how effectively the country will meet its local needs. The more the foreign threats can be negated or at least neutralized (the Abraham Accords are a good step in that direction), the greater the chance of sufficient domestic investment in its human capital. Israel’s government has learned how to provide services effectively with the resources at its disposal; the main question looking towards the future is to what extent those resources can be increased for internal, domestic use – the true measure of a country’s health.
