More articles by
Yacov Ben Efrat
"It Can't Happen Here": Israel and the Global Financial Crisis
The world's credit markets are clogged, a situation unprecedented in the capitalist era. And what about Tel Aviv? The captains of Israel's economy soothe the public: our banks are not "exposed" to the same degree as America's. But will the crisis pass us by? True, the United States was unique in making an industry out of financial speculation. But in the era of the global village, distances shorten. Wall Street determines the ups and downs of its Israeli equivalent, Ahad Ha'am (the name translates, ironically, as "One of the People"). The immune system of Israel's economy is weaker by far than America's, while its dependence on the latter is great.
That dependence is not just economic. It is also ideological. In the 1980s, Israel abandoned the worn-out Zionist-socialist creed in favor of an even older one, which produced two world wars and fascism. This is capitalism—but served up in modern dress, global and computer-based. Like post-Soviet Russia, Israel has privatized itself, selling a cooperative economy for peanuts to a few tycoons. Such tycoons have sprouted up among all nations and religions. Until the present crisis, they ran the global economy.
To make money one needs money: generous credit at low interest. In order to get credit from the world's big banks, states have to pass certain entrance exams. These are administered by credit-rating agencies in Washington, which are supposed to ensure that loans will be repaid and that investments will yield good profits.
The credit-rating exam is simple. It hinges on fulfillment of the monetary policy dictated by Washington: reduce the national budget, reduce welfare payments to the poor, be generous toward the rich. The economy must be structured for maximal privatization. It must be proof against workers' demands. It must be open wide to foreign investment.
Israel abided by these rules, sacrificing its citizens on the altar of "Credit Rating." It even imported Stanley Fisher—an American expert famous for imposing neoliberal economics around the world—to head its central bank.
The results were soon felt. Foreign investors bought up every Israeli toy they could lay hands on: high-tech firms, real-estate projects and factories. The country thrived in its general statistics, but it also split in two. On one side stood a small group making six-digit salaries, on the other an unorganized army of workers making minimum wage, living near or below the poverty line, without job security.
The flow of capital was not just one-way either. A huge river of money went outward. It belonged to the new tycoons, and it was subsidized with loans from local banks. Israeli firms, for their part, did not make do with Ahad Ha'am. They went to raise money on Wall Street, binding us to the global economy. Our banks were no better at resisting temptation. They bought the same toxic securities as Bear Stearns, Lehmann and the others, while lending our new tycoons enormous sums to finance real-estate speculations worldwide. The amount of these loans is 30 times the capital of the borrowers. Now the bubble bursts, and the shares of the tycoons plummet, and the banks begin to worry about their loans.
Despite the soothing words from Israel's Finance Ministry, it is likely that the credit freeze will stop the inflow of foreign investment. In the absence of credit, investors cannot exploit opportunities, no matter how tempting. Israeli society has paid a high price for the cheap credit these investors formerly enjoyed. The government deliberately created the circles of its poor, promising a trickle-down effect. Instead, the situation has gone out of control, and a society stands before an abyss.
On top of all this, Israel's economy largely depends on export to Europe and America, which expect recession. Adding the factors together—the cessation of investment from abroad, the fall of the tycoons and a global recession—we find no reason to feel soothed. Unemployment is at the door, and the first to pay the price will be those who never enjoyed the fruits of the phony boom. America is at the epicenter, true, but Israel will feel the waves.
The approaching earthquake will force Israeli society to search its soul. Weighty questions will arise, not just about Zionism and social solidarity, but also about the conflict with the Arabs.
The crisis of capitalism, Karl Marx foresaw, will not pass anyone by. Low oil prices will rattle regimes from Moscow to Saudi Arabia. The Middle East will change its face utterly. But this crisis also contains the seed of a new protest movement on a global scale. Solidarity among the oppressed can replace otherworldly fundamentalism. That solidarity will be the sole alternative to nationalism and fascism. Israeli society too will have to decide: will it join the new world or remain in its rut of refusal and isolation?