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Leaders Discuss the Politics Behind Economics at Eli Hurvitz Conference

Leaders Discuss the Politics Behind Economics at Eli Hurvitz Conference

Many of the country’s financial decisions are based on what is popular with voters, rather than what is economically sound

Politics often drive economic decisions made by the Israeli government, especially during the coronavirus crisis, experts told a conference in Israel. The pandemic also has driven the unemployment rate higher as businesses have been forced to lay off workers or close.

The Eli Hurvitz Conference on Economy and Society, formerly called the Caesarea Economic Policy Planning Forum, was held this week in a virtual format. At the 27th edition of the conference, distinguished Israeli leaders and economic experts discussed the current state of the economy, as well as the political forces behind the Israeli government’s economic decisions.

One of the main topics of the conference was unemployment, which is currently having an outsized effect on the economy. Joseph Zeira, professor emeritus of economics at Hebrew University in Jerusalem and author of the forthcoming book “The Israeli Economy,” said that between 500,000 to 600,000 jobs have been lost as result of the pandemic.

Unemployment also is buoyed by a lack of job openings, Shira Greenberg, chief economist at Israel’s ministry of finance, said at the conference:

“You can see that before the crisis there were 92,000 vacant positions and now we stand at 55,000 — this is a significant decrease, and that is the main problem in the current crisis,” she said.

As long as the pandemic is raging, demand is going to be lower. When things are uncertain, investors are going to invest less. People are going to delay big purchases, like an apartment or a car.

Another panelist, Yotam Margalit, a professor at Tel Aviv University and senior fellow at the Israel Democracy Institute, says that at its highest during the pandemic, Israel’s unemployment rate was over 30%, and now it is hovering around 15%. He said, however, that it is very difficult to determine the exact unemployment figures during the coronavirus crisis because of how Israel assesses joblessness, which includes those who are furloughed.

“The measurement of unemployment is problematic during the coronavirus period because any worker can be released or furloughed and the government provides people [with] something that almost looks like unemployment insurance until June 2021,” he told The Media Line.

“What you have here is some people who are genuinely unemployed and have nowhere to go back to, then you have some who are furloughed, which includes two different types of people: some who are furloughed that will be hired again when the economy picks back up, and others who will be unemployed in the future, but the employer hasn’t notified the worker or hasn’t realized himself” that the position isn’t coming back, he added.

Zeira says that there are two main areas of the economic situation that the government has failed to address adequately: keeping the virus under control and handling risk.

“As long as the pandemic is raging, demand is going to be lower,” he told The Media Line.  “When things are uncertain, investors are going to invest less. People are going to delay big purchases, like an apartment or a car,” deciding to wait until things improve, he said.

“Uncertainty and risk are big enemies of recovery from the recession. We have tremendous unnecessary risk, mostly political risk, last year, with three elections…now there is a threat of a fourth one. Once you have a lot of political uncertainty, it affects the investors and consumers,” Zeira added.

As long as the pandemic is raging, demand is going to be lower. When things are uncertain, investors are going to invest less. People are going to delay big purchases, like an apartment or a car.

Eyal Winter, the Silverzweig professor of economics at The Hebrew University of Jerusalem, agrees that Israel’s government has failed to keep the coronavirus under control, which has had devastating impacts on the economy. He argues that it is even more difficult now to control the pandemic for political reasons.

“The negative effect of the numbers [of coronavirus cases] has stopped affecting us on the one hand, but the difficulty of closing down the economy has stayed as difficult as it was before. The consequence of that is that it’s going to be harder and harder for politicians to enforce rules that are meant to reduce the progress of the pandemic because of fear of public opinion,” he told The Media Line.

“It’s very important to have strong government that can be courageous enough to implement unpopular policies that very often will involve severe restrictions, closures and loss for businesses, especially small businesses, but they have to do it,” he said.

Winter cites this as an example of how political leaders do not decide economic policy purely on financial reasons, noting that this is a problem outside of Israel as well.

However, he says, Israel has done better than other Western economies in the Organization for Economic Co-operation and Development, or OECD.

The overall effect of the coronavirus on growth, he said, “was actually smaller than many other western countries and this is partly because of a large high-tech industry that flourishes in Israel.”

It’s going to be harder and harder for politicians to enforce rules that are meant to reduce the progress of the pandemic because of fear of public opinion

Winter says the pandemic has created a bigger chasm between the haves and the have-nots.

“The people who kept their jobs were the upper socioeconomic layer of society whereas those on the bottom of the ladder suffered more severely because  many of them lost their jobs,” Winter said. “So, inequality has increased substantially.”

Within Israel, another example of the government using politics to wrongly decide economics and exacerbating inequality, according to Winter, is the blanket checks that the government gave to everyone regardless of means during the second wave, in a move similar to the US, which provided each adult citizen with a stimulus check, in most cases of $1,200.

“Policy has to be directed at those people who actually need it and this wasn’t the case,” he added.

Winter says that the looming potential election also has spurred politicians to make more poll-tested policies rather than those that are based on sound economics.

“This instability contributed to popular policies that were bad for economics and society in general, but were more popular,” he said. “The policies are not made in a way that the only purpose of the policy is to improve the economy, it’s very much dependent on what the politician believes” will be the reaction to the policy, he said, such as to the blanket payout benefit.

When it comes to the government’s shortcomings on stabilizing the economy, Margalit says that the government failed to establish short-term work (STW) arrangements, like in Germany and France, where employers retain their workers even for part-time shifts, and the government then funds most of the remaining worker’s salary.

“There is good reason to believe that STW’s would have assisted. I don’t think it would have completely changed the picture but it could have been a useful tool for policymakers to have,” he said. “We need the tool for future crises when we face a significant downturn in the economy.”

 We need to invest significantly in worker-retraining programs. The whole system has been underfunded and under invested for decades and now we are absolutely seeing the consequences of not having a proper system like that

Another way Margalit says the government fell short in improving the economy is its treatment of retraining programs for those who have permanently lost jobs, a point emphasized in the conference.

“We need to invest significantly in worker-retraining programs. The whole system has been underfunded and under invested for decades and now we are absolutely seeing the consequences of not having a proper system like that,” he said.

“We could have used this crisis to upgrade the human capital of the Israeli market,” he added.

Margalit also believes that the pandemic crisis has changed Israel’s economy in some permanent ways, both good and bad.

“One big change is going to be in the way jobs are performed, with workers working from afar and flexible working arrangements,” he said. “The second issue is that some jobs might be performed from…possibly from overseas [outsourcing] and those are things that are going to effect the Israeli economy and other economies as well,” he said.

Margalit particularly worries about Israeli high-tech workers.

“If you used in the past Israeli programmers but now you see you can you hire programmers from Ukraine for one-third or one-fourth of the price… I’m worried some of those jobs are not coming back after the crisis,” he said.

 

 

 

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