Economics students at Israel's universities always learn about the "lost decade" the ten years from the Yom Kippur war of 1973, that were considered the worst in the nation's history. The combination of war with soaring oil prices and poor economic management shoved the economy into deep recession. Ultimately, the bad times led to the crisis that resulted in the great stabilization plan.
Then came the 1990s with its tsunami of immigration from the former Soviet states, the Oslo accord, Israel's economic exposure to the world, capital market reforms, the communications surge and finally, the technology boom. Now we look back at the wonderful decade following the Gulf War of 1991, during which the economy grew by 4% and 5% a year, with a sigh.
But just as the Americans are rewriting the history of the 1990s on Wall Street, and are discovering that much of the growth was imaginary here too, economists are fated to rewrite the history of Israel in the 1990s.
The last ten years are likely to go down as the "wasted decade": a decade in which the governments, of whatever political bent, squandered the opportunity to urge Israel toward the macro-economic norms of the developed world.
Since his appointment a year and a half ago, Finance Minister Silvan Shalom made almost every conceivable macro-economic mistake he could. He refused to acknowledge reality, whitewashed the data, and did everything he possibly could to avoid doing the right things.
But he isn't responsible for the real problem it was just his bad luck that brought him top the Finance Ministry at the wrong time, just as all the ills of the wasted decade started to burst forth.
Shalom's biggest problem is that he inherited a bloated public sector, which had reached frightening dimensions in the last decade. All that rapid growth, immigration, the euphoria of peace, the influx of capital from abroad, the hi-tech bubble and the finagling of the nation's finances allowed the government to "conceal" the expansion of the civil service's during the 1990s.
Then came the global recession and the second
. Tax revenues collapsed. Suddenly the civil service was too big for the public to carry on its shoulders any more, as it gobbled up every cent from taxes, municipal levies, fees and public loans.
A macro analysts by a team of economists led by Dr Adi Brander, whch looked at the globalization of Israel's economy at the Israel Democracy Institute's annual economics "Caesarea conference", found that the Israeli government spends more of its budget on the civil service 55% - than any other developed nation in the world.
Meaning, instead of exploiting the great decade of the 1990s to reduce the government's sway in the marketplace, instead of reducing taxes, the national deny and the interest burden - all the governments, of whatever political bent, used the increasing tax revenue to inflate spending.
It's trendy to say that the government spent the entire extra income on the nonproductive religious sector and other cronies of government. Yes, these subsidies did grow at the highest rate, and worse yet, they encourage whole sectors not to work, not to serve in the army, and to live at the expense of the taxpayer but they far from being the whole problem. There is no part of public spending that didn't expand in the last decade: subsidies may even be relatively low, using international standards.
The most obvious consequence of the public sector's bloating is the budget deficit in 2002. Using international measuring standards, it will come to more than 7% of gross domestic product, apparently. That is more than in any of the developed countries.
All the governments of these countries reduced their deficits, to enable their economies to exploit their growth potential: from an average deficit of 4.8%, these countries shifted to an average surplus of 5.8%.
Only in two developed countries did the governments not manage to reduce their deficits over the last decade Israel, were the deficit grew from 3.2% to 4% this year, or 7% in international terms. And Japan, where the deficit climbed from 2.8% to 3.6%.
So maybe the time has come for our politicians to stop boasting that Israel's situation is much better than Argentina's, and to start thinking more about the ways we look like that country, better known these days as the "land of the setting sun".