Some of the world’s leading thinkers are warning that the government’s judicial overhaul plans present a clear and present danger to Israel’s economy.
At Tel Aviv University on Thursday night, economists, Nobel laureates and chess international grandmasters were among those who spoke at a conference that brought together experts from various fields and industries to draw attention to the threats posed by the government’s judicial changes.
“I understand that after so many close elections and so many heated debates, there’s a desire to sort of cut the Gordian Knot, and find a durable solution. This is not it,” said Harvard professor and former chief economist of the International Monetary Fund Kenneth S. Rogoff at the Economic Consequences of the Judiciary “Reform” conference.
“A fundamental role of a court system in most democracies is to protect the rights of minorities. There is no economic minority that needs its rights protected more than foreign investors,” Rogoff said, highlighting the reform’s risk of harming Israel’s reputation among said foreign investors.
“Foreign investment and I would say more broadly, integration with foreign firms – not just money, but combining knowledge, combining expertise, joint ventures – have been absolutely central to the blossoming of the tech sector in Israel, which not only has driven exports but of course, is absolutely central to Israel’s national security,” he said.
“Of course, there are issues that can be looked at to strengthen Israel’s [legal] system. I certainly wouldn’t [recommend] constitutional changes or changes that are dramatic like this,” Rogofff concluded. “There’s no constitution – I wouldn’t say that should be off the table. But you need a process. To just get a tiny majority that can suddenly make sweeping changes with permanent effects is no way to run a country, and investors are certainly not going to like it. And it’s not just the foreign [investors] that will suffer – all investors and entrepreneurs in Israel which have helped the economy tremendously are going to be scared by this as well.”
Warnings against the judicial reform
A supercut of clips was shown that featured several experts warning against the reform.
“Giving too much power to one man or one party who’s not subject to judicial review can worsen the problem of corruption,” said Paul Milgrom, professor of economics at Stanford University and winner of the Nobel Prize in Economics in 2020.
“We can see horrible evidence of how this works in Turkey,” he said. “Where buildings built by friends to the current regime – after the 1999 earthquake standards were set – failed to meet those specifications and they collapsed in the recent earthquake. That collapse was both an indicator of the problem and a metaphor: those concrete buildings needed better steel reinforcement to withstand the stresses of an earthquake. Israel’s government today needs the steel of its governing laws to stand the stresses that tear at Israel today. [David] Ben-Gurion and Israel’s other founders got this right, and it would be a mistake to change it now.”
The event also featured addresses from the former chairman of the National Bank of Poland Prof. Leszek Balcerowicz and the former governor of the Hungarian National Bank, Andras Simor. Both delivered precautionary notices based on the negative impact that recent judicial reforms have had on each country’s economy.
“I would say that Hungary in the last 12 years has become a country where anything can happen to anybody at any time. It can be a country of unlimited opportunities if you are on the right side of the government. However, if you are not, you can be subjected to new discriminative and arbitrary taxes. You can be threatened to relinquish your property, or if you are a powerful enough multinational, you can be bought out at favorable prices to avoid persecution. You can be spied upon without any reason – you might know about Pegasus software in this country – and you can be subjected to wild and vulgar persecution by the government media empire,” Simor said.
“That is the situation in Hungary. This is not theoretical, these are all facts. This is, unfortunately, what happened to us; I hope you will fare better,” he concluded.
A flat-out hi-tech perspective was given by Viola Ventures’ Shlomo Dovrat, chairman of the Aaron Institute. He began by expressing the incredible benefit that Israeli hi-tech has granted to the Israeli economy.
“This is all due to one factor: the success of Israeli hi-tech. This amazing miracle is under an existential threat,” he said.
Dovrat called attention to the fragility of the hi-tech center despite its success. By removing only a few key players, he noted, the entire sector could crash.
“Take 50 people out of Israel, half of the Israeli tech is gone. If it was not for people like Gil Shwed starting Check Point, there wouldn’t be a cyber industry in Israel,” he said. “This is what hi-tech is all about: a single entrepreneur who has the brilliance, the creativity, the guts and the abilities to build a billion-dollar company in six, seven years. If that person leaves the country, we lose the industry. And those entrepreneurs are global citizens. They will be more than welcomed by any other country in the world.”
He concluded with a personal address to the Israelis gathered at the conference.
“Many of us who have worked for decades in this industry and have committed our lives to building a healthier Israeli society have left our realm of comfort. We’re all worried. It is a true and deep worry – but I must remain positive,” he said.
“I must remain positive because I see dozens or hundreds or thousands of people taking to the streets. I say to them: There’s no counting the many things that Israel’s leaders have said to calm them down – one of the things that they are entitled to is [the right to] protest. One of the things they’re entitled to is [the right to] hold conferences. And we will not give those up.”
The event took place as part of a collaboration between the Business-Academic Club and the Association of Friends of Tel Aviv University in collaboration with the Frenkel-Zuckerman Institute for Global Economics, the Israel Democracy Institute (IDI) and the Aharon Institute for Economic Policy.