It is not uncommon for Jewish-American federated giving campaigns to earmark over 30 percent of their contributions for Israel. The United Jewish Appeal-Federation of New York, for example, sends 70 percent of its contributions overseas. In total, Gary Tobin of the Center for Modern Jewish Studies at Brandeis University estimates that 15-20 percent of all Jewish charitable giving goes to Israel. Alvin Rabushka is director of economic policy research at the Jerusalem-based Institute for Advanced Strategic and Political Studies, a conservative think tank dedicated to fostering free-market institutions in Israel. Philanthropy spoke to him from Palo Alto, where he is an economist at Stanford University.
PHILANTHROPY: You have said that U.S. government aid to Israel is ultimately counterproductive because of the heavily centralized, bureaucratized nature of the Israeli economy. Does this same charge apply to charitable giving by individual Americans to Israel?
MR. RABUSHKA: Estimates of the total size of the Israeli economy are at somewhere between $80 and $85 billion. Of the $80 to $85 billion, there is a category called ‘Unilateral Gifts and Transfers.’ That category last year reached as high as $7.7 billion. What it consists of is U.S. official aid, official aid from European countries (not all that much), the continuing inflow of German reparations, institutional transfers and individual transfers, which is the charitable component.
Most of this money, directly or indirectly, ends up in government hands. A lot of it-the aid, the loan guarantees-simply goes directly into the hands of government. Of the charitable money, some of it ends up in public institutions, that is, it may go to Hadassah Hospital or it may go to the Jewish Agency. [The Jewish Agency of Israel is a clearinghouse for Jewish-American giving-ed.] But the Jewish Agency needs to be properly understood as an arm of the government; it’s not an independent charitable group; its boards and leaders are selected from among political party officials. The current head, Avraham Burg, was a former Labor Party member. That money is in effect spent in a kind of public sector way.
PHILANTHROPY: So there’s no real distinction between public and private monies entering Israel?
MR. RABUSHKA: Taxation in Israel is also very high. For example, everyone’s paying a value-added tax of 17 or 18 percent and people are paying very high income taxes. If you were to take the money that comes across the ocean and goes to what have the appearance of purely private organizations, and ask what share of that money is then collected in the form of taxes, it’s probably half again. So at the end of the day, 70 or 80 percent of this $10 billion in ‘free money’ [total public and private aid, plus loan guarantees] probably ends up in government hands.
PHILANTHROPY: So you’re suggesting that the decision to make a charitable contribution to Israel cannot be made without considering the political context in Israel.
MR. RABUSHKA: The problem is that too much of it gets used for political purposes. So, in some sense, what you are fostering with this flow of money is a welfare clientele. Each year I write a scorecard on the Israel economy. Last year I made the observation that the United States passed comprehensive welfare reform in which single, black women heads of households must get a job in two years. But we’re not going to require middle class Israeli families to be weaned off U.S. aid. That suggests to me that there is a certain higher priority in the politics of the United States with respect to Jewish interests and Israel than there is with respect to American welfare recipients.
PHILANTHROPY: Has anything changed under Netanyahu?
MR. RABUSHKA: Not yet. He talks better than the other guys but he hasn’t behaved any differently yet. When the government is so big and you have coalition politics as you have in Israel, the purpose of being in politics is to grab a chunk of the taxpayers’ money for yourself. For example, Natan Sharansky, who actually talked a good free market line, extracted as a price for supporting Netanyahu in this last no confidence motion more money for his Russians. And then they say ‘Go to the United States and get it! Go to the United States and get some more!’ That’s the political culture that I would like to see changed. I don’t know how long a people’s morale can survive when at the end of the day that’s the bottom line.
PHILANTHROPY: Do there exist what you would consider more productive forms of private charitable aid to Israel?
MR. RABUSHKA: A few years ago I put together a business plan for one of the largest Jewish charitable foundations, the Koret Foundation, which involved going to the Negev in Beer-sheva, a depressed area where there are a lot of the Russian immigrants. The idea was to take the money which the Foundation normally just gave to the United Israel Appeal or the Israel Fund or to the United Jewish Appeal and use it to set up a bank. So they set up something called the Israel Economic Development Funds and invested several million dollars. And they worked out an arrangement with a hungry little local bank in Beersheva in which the Koret money would guarantee the loans of the local bank so that they could leverage the money. At the end of about three years, they have something like $10 million worth of loans outstanding, and 200 businesses that are underway that have provided work for about 500 people. The default rate is under 10 percent, which is well below what typically you have in these start-ups.
I for one have these grand schemes and visions that we would ultimately strip away 5 or 10 percent of the money coming out of the federations. If we could build a loan fund up from 5 million to 10 million to 15 million-ultimately up to 100 million-the idea would be that we would build up a pool of capital and put not hundreds of Israelis and Russian immigrants into business, but thousands.
PHILANTHROPY: With the goal of not just helping needy people but changing the political culture in Israel?
MR. RABUSHKA: This is one case in which I’ve been able to persuade a foundation that the traditional approach-buy a bench for a park, put up a flower garden, put up a school, put up a hospital-is less important than what I think Israel needs, which is good healthy doses of privately owned businesses. If American Jews want to support Israel, they should support individual people in Israel, not the government. It would go a long way toward creating people whose understanding of economic life in Israel is one of running your own business and succeeding, and away from one of going to the government and throwing chickens at the Finance Minister to demand a hand out from the state. They do that. The farmers when they don’t get their subsidies throw eggs and chickens at the Finance Minister.
The whole objective is to generate a class of small inventors, small shopkeepers, and others who couldn’t get started but who otherwise would have to depend on state charity or go to work on government jobs. The most important thing about this project is that it’s not run by the government, it’s not run for the government, and it’s not for government employees.