No expert nor government in the world can foresee the economic outcome of this crisis.
In a climate of utter uncertainty, it is difficult for individuals to make decisions and map a course of action, it is the same for our politicians. Relying on the State to solve our health, social, political, and economic problems is an unrealistic expectation. More than ever, we need a decentralized well-functioning market economy. Yes, capitalism is the only system that will help us in this crisis because it is the best at generating growth, income, and jobs.
The Bank of Israel director Amir Yaron announced yesterday that the Corona crisis is expected to cost the economy NIS 50 billion and increase the deficit to 7%. It is also clear that the welfare payments are going to climb rapidly, as the government forbids citizens to go to work and forces most businesses to close. Paying for those expenses will be easier if the economy is strong.
The growing socialist camp calling for an end of the market economy is making a huge mistake. To distribute money to the needy, the government needs income. Scandinavian countries understood this principle. They adopted a very free-market economy to generate tax revenue to fund their generous income redistribution.
The citizens already change their lifestyles drastically to save lives, even if they incur an enormous emotional and financial cost for doing so. It's now the turn of the government to radically change its course of action and its economic way of thinking.
Israel should aim to position itself as one of the freest industrial nation in the world to attract companies and entrepreneurs, bringing jobs and economic growth. Last year, Israel ranked 37 on the Economic Freedom of the World index with a score lower than the average for OECD countries. According to the competitiveness report of the World Economic Forum, inefficient government bureaucracy is the most problematic factor for doing business in Israel.
Particularly worrisome is the fact that Israel has one on the worst labor market regulation in the world. Hiring regulations, minimum wage, centralized collective bargaining, hours regulations, mandated cost of worker dismissal are hazardous regulations. Labor markets need to be fluid and flexible to restart the economy. Many jobs offered at first will be temporary, part-time, freelance. If the government forces the employers to abide by all the existing labor laws, the recovery is doubtful. An over-regulated labor market in a time of economic growth is a nuisance, but in a recession, it is our worst enemy.
The recovery will come from alert entrepreneurs that are willing to take risks for an expectation of profits. Businesses and workers need to be able to act quickly with full flexibility without hurting a wall of bureaucracy. It took less than a week, from Zoom to become a household name, for distilleries to convert their production from alcohol to sanitizers. Restaurants went from table seating to take out in a matter of hours. The little solaces we get in our new jailed lifestyle all came from the private sector. The recovery will also come from individuals and entrepreneurs.
The private sector can solve problems and offer answers rapidly and efficiently. It only needs to be left alone and not burden by regulation. The government should encourage individuals to open businesses and become self-employed. In a very fast-changing world, flexibility is king.
A laissez-faire policy is the best policy now!