The cost of the Arab Spring
Welfare programmes are being cut in Israel, undermining its attractiveness to Jewish immigrants, compounding the demographic challenges Zionism is facing, writes Saleh Al-Naami
Oded Shahar, the economics reporter for Israeli television’s Channel 1, admitted to his audience that he is no longer able to keep up with or analyse the endless reports by Israel’s Finance Ministry imposing more taxes on Israelis, raising prices and reducing public services. Although Israeli Prime Minister Binyamin Netanyahu knows well the consequences on his political career of raising taxes and hiking prices, especially since elections are likely to come early, he continues to strongly defend these increases. Netanyahu believes his government must raise state revenue to fund rising security costs in the wake of growing threats against Israel in the wake of the Arab Spring.
According to the Israeli prime minister, this goal will be achieved through three main methods: raising taxes, increasing prices and shortchanging the type and quality of social security benefits usually provided by the state to the poor and large families. But even a minister like Gilad Ordan, who presents himself as a champion of the poor, is defending the series of decisions issued by the Finance Ministry in coordination with the prime minister.
“Israeli society is required to bear the burden and be patient,” Ordan counselled, “since the sole purpose of the measures taken by the government is to enable Israel to confront the immense challenges surrounding it.”
Evidence of changes in public debate inside Israel in the wake of the Arab Spring is that habitual requests by the army to increase its budget were firmly rejected not only by the Cabinet but also the media. Today, however, many commentators defend an increase in security spending and support the government’s decisions since it is the only solution to confront Israel’s security threats.
Recently, the army leadership was able to convince the government to add $1.5 billion to the security budget to upgrade military forces stationed on the border with Egypt, and give priority and create combat units irrespective of being stationed on this border. According to army estimates, it needs nearly $30 billion over the next five years to revamp its forces on the southern front with Egypt alone. This means that the Israeli government will continue to demand more taxes and increase prices, and cut more social security benefits for the poor.
Merav Arlozorof, an Israeli economy expert, believes that the nightmare that haunts the political leadership is that Egypt could eventually annul the Camp David treaty. Arlozorof argues that Israel’s concerns are not only rooted in the acute security and strategic repercussions of such a step, but also the economic consequences. She adds that at the time, signing Camp David was a significant turning point that allowed Israel to achieve a remarkable economic boom.
Arlozorof added that the agreement guaranteed a retreat in security threats against Israel that allowed decision-makers in Tel Aviv to sharply cut security spending, and redirect security funds to investments in urban infrastructure, advanced technology, and other fields. Accordingly, there was a sharp drop in the security budget in the state’s budget and as a percentage of GDP. Arlozorof noted that Israel increased security spending by nearly 47 per cent of the general state budget to cover the cost of rebuilding the army, its brigades and troops — especially on the southern front after the 1973 War to prevent military failure in the future.
To demonstrate the size of the changes that occurred after this step, she stated that the 2011 security budget, which came to about $12 billion — the largest ever in Israeli history — is only 15.1 per cent of the state’s overall budget: the smallest security budget share in GDP in Israel’s history. In view of the dire economic crisis in Israel after the 1973 War, economic experts described the decade that followed the war as “the lost decade” because Israel’s interest payments during those 10 years on debts was much higher than the combined budgets for education, healthcare, social welfare and housing.
Thus, boosting Israel’s military power after the war came at the expense of economic growth, and the state almost declared bankruptcy if it wasn’t for the 1985 comprehensive economic plan devised by the national unity government.
Scaling back the security budget after Camp David enabled Israel to direct resources to pay debts, as well as more funds for healthcare, education and housing. Therefore “peace” and stability allowed decision-makers to adopt socio-economic policies that establish a welfare state. This made Israel an attractive target for Jewish immigrants, a development that played a big role in shoring Israel’s economy by absorbing waves of Jewish immigrants from Soviet states at the end of the 1980s and early 1990s.
Shlomo Maoz, another economics expert, believes that immigration waves boosted the economy by attracting many immigrants who are qualified technicians and experts in advanced technology. This in turn led to a boom in exports and economic development after the numbers of scientific talent among citizens rose from 10 to 20 per cent. This increased export earnings from $50 billion annually before the immigration wave to $80 billion afterwards.
Thus, it is easy to conclude that the security environment unquestionably affects economic activity.
Israel was keen on establishing welfare policies based on expanding social security benefits as an incentive for Jewish immigration to Israel, and to offset the risks of emigration in the opposite direction. Thus, the government used the budget surplus on funding services; 2010 ended with a surplus of $3 billion which was mostly directed to the welfare budget, spent on healthcare, education, housing, instead of the military.
Since the mid-1980s until 2010, civilian expenses accounted for 40 per cent of the general budget, while security’s share was only 14 per cent. Increasing security spending will be at the expense of civilian budgets, while implies that Israel will be forced to cut more social security benefits. This could undermine Israel’s reputation as an attractive environment for Jewish immigration, and increase emigration from Israel which would especially challenge one of two main principles of Zionism: attracting the largest number of Jews to Palestine’s historic land.
Some Israeli analysts warn that an increase in security spending after the Arab Spring will deepen Israel’s dependence on the US and decrease the former’s political independence in taking decisions. Strategic expert Omer Gendler argues that Israel cannot greatly increase security spending by just relying on tax revenues and raising prices, but will need to rely on the US. Gendler continues that in light of the global economic crisis, Israel’s ability to secure financial guarantees is very limited, which means that the only choice left is to turn to the US and ask for a sharp increase in security aid.
He added that asking for more aid from the US would make Israel more dependent on the US and inhibits Tel Aviv’s political manoeuvring. In fact, in recent years Israel had sought to significantly reduce dependence on aid from the US. Gendler warned that the consequence of more dependence would be more detrimental under a US president who is critical of Israel’s current policies, which is the case under President Barack Obama.
The challenges facing Israel are great as a consequence of the revolutions of democratic change sweeping across the Arab world.