More than 270 Israeli economists published a letter this week warning against proposed reforms relating to the judicial system. The economists are from across a broad spectrum and they reflect different political views. Nevertheless, they are united in their concern that Israel could be headed down the path of countries like Turkey or Hungary with the far-reaching implications that it introduces.
Economic consequences of the proposed reforms
“We, lecturers in economics and management, express our deep concern regarding the government’s actions intended to weaken the judicial system and public service’s independence, which we think will cause unprecedented harm to Israel’s economy,” the economists wrote.
This comes on the heels of similar warnings by Bank of Israel Governor Amir Yaron and former BoI head Prof. Karnit Flug.
Yaron reportedly summarized his recent meetings at the World Economic Forum in Davos and relayed warnings made by senior international economic figures about the potential consequences of the judicial reform.
Flug, in an interview with the Post this week, also warned of economic difficulties ahead, if the full reform went through.
“If the government goes ahead with the judicial reform as it intends, we definitely have a heightened risk of reducing our sovereign credit rating,” said Flug, now the vice president of the Israel Democracy Institute.
That prediction was supported by a highly regarded impartial non-Israeli body, the credit rating agency S&P, which warned that judicial reforms could have consequences for Israel’s rating.
Israel has always had many challenges, including the conflict with the Palestinians and also anti-Israel rhetoric at the UN and elsewhere; but the country’s economy has become a bedrock of our success.
The economy is not a simple matter. Israel has managed to weather economic crises – like the housing crises or tech bubble – in the past. In addition, we have done a good job in terms of confronting inflation and not having huge numbers of unemployed, even during the height of the pandemic. Prime Minister Benjamin Netanyahu has often prided himself on his economic credentials and also created the conditions that have freed the economy to succeed.
There is no doubt Netanyahu deserves praise for his handling of the economy in the past. However, the warning signs by nonpolitical entities are growing that the proposed changes to the judiciary and the perception that the country’s democracy is being compromised can lead to unforeseen challenges and unintended consequences that may harm the economy.
We live in a globalized world where issues like the democratic values of a country matter more in our relations with the West than might have been the case two decades ago. Today, the Western democracies and the liberal rules-based international world order is backing democratic Ukraine against Moscow’s invasion. Democratic countries such as South Korea, Japan, Singapore, India and Europe are Israel’s friends.
President Isaac Herzog met Thursday with European Parliament President Roberta Metsola. Our future as a state is tied to the democracies and economically we are also in their camp. That doesn’t mean that we don’t have important trade relations with other countries, but it is important that the liberal democratic foundations of the state and the rule of law that led to our economic success, not be eroded.
How can this coexist with the sweeping reforms the government is proposing and seemingly appears intent on bulldozing through at any cost?
Netanyahu must recognize that what underpins our state is its institutions. The Start-Up nation flourishes in an environment of democracy and peace, not chaos and war.
Toward that end, we need to reduce conflict in the West Bank, reduce tensions in society and be careful not to upset the careful balancing act that makes democracy possible. This means not eroding the judiciary on a whim and not empowering extremists who want to harm our democracy.
Netanyahu must not dismiss the warnings of the economists, but instead, should proceed with caution. The economic bedrock of Israel is the one on which Netanyahu has made his mark. He’s demonstrated his ability to transform the Israeli economy and is well aware of the effect that an economic downturn could have on the country. He knows that eroding that important part of our state can have deleterious effects across the board.
Before continuing on the path that could lead to that eventuality, Netanyahu, Justice Minister Yariv Levin and the rest of the government should start listening to the economic experts. Soon, it may be too late.