The Role of Economic Advisers in Israel's Economic Policy by Daniel Schiffman Warren Young & Yaron Zelekha

Author:Daniel Schiffman, Warren Young & Yaron Zelekha
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

5.3 Israel Turns to Friedman (May 1977)

In early 1977, Milton Friedman agreed to accept an honorary doctorate from the Hebrew University, to be conferred in Jerusalem the following July.5 The parliamentary election of 17 May 1977 brought about a seismic change in the political landscape (known as the “political revolution” in Israeli discourse6): Menachem Begin and his Likud Party came to power, ending a 29-year period of uninterrupted Labor Party rule. It was well known that Begin planned to appoint his close friend, MK Simha Erlich, as finance minister. Erlich was second to Begin on the Likud Knesset slate and headed the free market Liberal faction, which was traditionally supported by businessmen and independent farmers.7 He had played a key role in drafting Likud’s economic platform (Likud Party 1977), which had promised disinflation, faster growth, reduction of the BOP deficit, privatization, and extensive free market reforms. Immediately after the election, Liberal MK Gideon Patt,8 who would soon be appointed minister of housing, suggested that Erlich invite Friedman to advise the government that was about to be formed. With Erlich’s approval, Patt telephoned Friedman and invited him on Erlich’s behalf (Friedman to Stanley Goldstein, Milton Friedman Papers [henceforth MFP] 197/1). Friedman accepted and extended his stay in Israel in order to hold consultations with government officials (Friedman and Friedman 1999, 463).9

On May 22, Erlich, during his first post-election press conference, announced that Friedman would advise the new government. Erlich’s protégé MK Yehezkel Flomin (who would soon be appointed deputy finance minister) explained Likud’s choice of Friedman to the US Embassy’s political officer, who cabled Washington as follows: “Aware that Friedman’s philosophy represents extreme laissez faire, Flomin said he was chosen so as to invest the Likud’s idea for liberalizing Israel’s economy with the prestige of Friedman’s name. ‘We had to pick someone who represents a 180 degree turn-about from Israel’s present course in the hope that we will eventually end up somewhere in between’” (US State Department 1977a).

At this press conference, Erlich also presented an economic plan, which was mostly consistent with Likud’s economic platform (Likud Party 1977). It consisted of the following measures:

Reduce inflation by almost half.

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