From Challenge

ON SEPTEMBER 8, Israeli Finance Minister Binyamin Netanyahu presented his budget proposal for 2004, which purports to reactivate the economy. The slogans come straight from American conservatism. They include privatization of public companies, cancellation of monopolies, and transition from welfare payments to employment. According to his recipe, a deep cut in the government's budget, along with tax relief for capital, will encourage new investment. This will drive the economy forward, creating new demand and new jobs. Netanyahu claims that his previous cuts, in the 2003 budget (see Challenge # 80), have already borne fruit. The budget for 2004, he says, will improve the positive trend.

The proposed budget falls short, however, of addressing the problems of this stagnant economy. Unemployment continues to rise. For the third consecutive year, per capita GDP is in decline. MIT economics professor Lester Thurow, who recently visited Israel, warned that the economy is on the verge of coming apart. "The Soviet Union," he said, "also had a powerful, excellent military alongside a terrible financial situation. Today, it doesn't exist anymore." (Globes September 24.)

The Budget Deepens the Recession

Netanyahu's economic plan is based on assumptions that herald a worsening of the recession:

1. The 2003 budget was 270 billion shekels (NIS, about $60 billion). The budget for 2004 is nominally lower by 15.2 billion NIS. Netanyahu's top priority is to offer an appearance of stability to world financial institutions by keeping the deficit down. The method: to cut the budgets for education, health and the other governmental departments. The result will be less economic activity and deeper recession.

2. Making the labor force flexible. The method: by means of legislation, to override past labor agreements achieved through collective bargaining. The government will thus mandate dismissals and wage cuts. When legislation overrides bargaining, the unions will be irrelevant.

3. Privatization of public companies: The current struggle is focused on the harbors (see below). In the pipeline are the aircraft and defense industries, El Al and Bank Leumi. The result will be more unemployment and deeper recession.

4. Economic stability. In order to preserve the look of stability, Netanyahu supports an interest rate that is quite high relative to Western countries. This rate attracts foreign investments, but these are of a speculative nature. Moreover, the high interest rate and the high value of the shekel against the dollar do grievous damage to the productive sector, which depends on export.

5. Cutback in infrastructure. Precisely in a field where the govern Yediot Aharonot September 12.)

6. Cuts in welfare benefits (see the last Challenge, # 81). Netanyahu's slogan is "Get a job!" Yet without a policy of creating jobs, the cuts will drive more people into poverty, resulting again in less consumption and more recession.

Head to Head

Netanyahu is engaged in a major fight with the National Federation of Labor, called the Histadrut. His attack occurs in three phases.

1) The Histadrut controlled its members' pension funds. In June the Finance Ministry, by legislation, nationalized these and appointed new managers, who will invest the funds in the stock market.

2) Netanyahu has set out to reduce the size of the public sector. Two months ago, for the first time in history, the Histadrut acceded to a cut in public-sector wages. Ignoring this recent agreement, Netanyahu now wants to legislate further cuts and dismissals.

3) Now Netanyahu takes on the powerful labor councils, last stronghold of the Histadrut. He has started with the dockworkers. Ignoring a previous government commitment, he has initiated legislation to privatize the three harbors, transforming them into as many private companies. In the course of their competition, they will no doubt dismiss some workers and slash others' benefits.

In response, the dockworkers went on strike. After two weeks, on October 10, Netanyahu and Histadrut chief Amir Peretz signed a paper deferring the confrontation for a hundred days.

Time, however, is against the Histadrut: Its reliance on the big labor councils (see box) has isolated it from the wider public. The government attack comes with unexpected force and determination. Histadrut chief Amir Peretz has called for a general strike beginning November 3 in a last attempt to stop Netanyahu's drive. But Bibi has little reason to come to terms. He has every reason to think he will beat the general strike, as he did in June with the pension funds. These clashes foreshadow the gradual elimination of the Histadrut as a factor in Israel's economy.

Netanyahu's policy aims to create a façade of economic independence. In fact, he puts his hope in financial support from the Bush Administration. The attempt to copy the agenda of the American neo-cons is doomed to failure. Just as PM Ariel Sharon attempts to dictate terms to the Palestinian people by force, so Netanyahu is attempting, by force of legislation, to dictate terms to Israel's lower and middle classes. n

The Weakening of the Histadrut

IN 1994, under the new leadership of Haim Ramon (soon succeeded by Amir Peretz), the debt-ridden Histadrut joined in the national trend toward privatization, selling off its companies and assets. Its new power base would be the big labor councils (including the ports, the electric company, the water company, El Al, and the arms industry). These councils include about 100,000 well-paid workers (all Jewish). Peretz opted to rely on them, and serve their interests, because they aren't as vulnerable to globalization as his ca. 400,000 other members from labor-intensive industries such as textiles, agriculture and construction. He had no solution for the latter: textile plants would move abroad; migrant labor would be imported. In construction, for instance, the Histadrut turned a blind eye to the slave trade in migrants, among whom some 35,000 took construction jobs from Arab citizens of Israel.

Moreover, the members of the big labor councils lack the backbone for a fight. Their high salaries and privileges derive not from labor struggles, rather from corrupt political appointments. Most of the dockworkers, for instance, got their jobs through Likud connections. They never imagined that the party which appointed them would turn on them. They are completely unprepared for a fight.

In this way, the Histadrut lost the two elements any union needs in order to confront the government and the bosses: 1) an alternative economic and political program and 2) broad popular support. Because it has no alternative line and represents an elite, the Histadrut cannot oppose Netanyahu for long.

In opting for the big labor councils, Peretz was not oblivious to their make-up, nor to the danger of losing public support. His recourse was to reinforce himself on the political front. In 1999, he broke from the Labor Party and formed his own Knesset list, Am Ehad (One People). Counting on his base of 100,000 privileged workers and their families, he hoped to win the six or seven Knesset mandates that would enable him 1) to make or break coalitions and 2) to secure the interests of the Histadrut against the Finance Ministry. Because the big labor councils include many veteran Likudniks, he took care to demonstrate political neutrality.

His results were disappointing. In 1999 he won two mandates, in the last elections (2001), three. He joined Ariel Sharon's national-unity government of 2001-2002 – but without effect. The concept of an apolitical party, composed of the privileged workers, had failed.

The temporary head of the Labor Party, Shimon Peres, now wants to bring Peretz back into the fold as the party's next candidate for prime minister. He hopes thus to start a dynamic of "coming home" to Labor. Many Laborites would welcome Peretz back. One of them, MK Eitan Cabel, told Ynet on July 3, "I'm for it. With all the hard feelings we have toward Amir Peretz, he is a leader with something to propose, a leader with the power to lead, a leader with an agenda." In view of his history, however, the rehabilitation of Peretz would appear to derive not from any vote-drawing power on his part, rather from the desperate, leaderless state of the Labor Party itself.

Against Netanyahu's clear-cut agenda to destroy the last strongholds of organized labor, the Histadrut has no answer. It looks toward the coming general strike as a kind of Masada. "We are going to die," a senior Histadrut official told Hannah Kim of Ha'aretz on October 24. "Bibi will succeed in doing here what Margaret Thatcher did to the trade unions in England. He will break organized labor. All that's left to us, therefore, is to wage a final glorious battle and die like heroes." n

Netanyahu Reveals his Economic Plan

Assaf Adiv

The Budget Deepens the Recession

Head to Head

The Weakening of the Histadrut