56 top int’l economists warn Netanyahu that legal overhaul will hurt economic growth

Open letter to PM, whose signatories include 11 Nobel laureates, says proposals will make Israel more like Hungary and Poland; 5 more unicorn firms said to pull funds from Israel

Incoming Prime Minister Benjamin Netanyahu (right) with incoming Justice Minister Yariv Levin in the Knesset on December 13, 2022. (Yonatan Sindel/Flash90)
Incoming Prime Minister Benjamin Netanyahu (right) with incoming Justice Minister Yariv Levin in the Knesset on December 13, 2022. (Yonatan Sindel/Flash90)

Over 50 leading economists at US universities penned an open letter to Prime Minister Benjamin Netanyahu on Wednesday warning the premier that his government’s efforts to significantly weaken Israel’s judiciary would be “detrimental” to prospects for economic growth.

“A strong and independent judiciary is a critical part of a system of checks and balances. Undermining it would be detrimental not only to democracy but also to economic prosperity and growth,” read the letter, which was signed by 56 current and former professors at leading American universities.

As presented by Justice Minister Yariv Levin, the coalition’s proposals would severely restrict the High Court’s capacity to strike down laws and government decisions, with an “override clause” enabling the Knesset to re-legislate struck-down laws with a bare majority of 61. It would also give the government complete control over the selection of judges, prevent the court from using a test of “reasonableness” to judge legislation and government decisions, and allow ministers to appoint their own legal advisers, instead of getting counsel from advisers operating under the aegis of the Justice Ministry.

Eleven Nobel laureates signed on to the letter, including Peter Diamond of the Massachusetts Institute of Technology, Oliver Hart of Harvard, Paul Milgrom of Stanford and Edmund Phelps of Columbia.

Another signatory, Princeton’s Daniel Kahneman, has been vocal against the reforms from the get-go. He told Channel 12 last month that the new government’s proposals have him more concerned for the future of the country than he was during the 1973 Yom Kippur War.

“From my perspective, it’s almost the end of the world,” he said. “It’s the end of the country as I know it.”

Paul R. Milgrom, professor at Stanford University, during an interview about winning the Nobel Prize in economics at his home in Palo Alto, California, October 12, 2020. (AP Photo/Tony Avelar)

Several of the signatories work or previously worked at MIT, where Netanyahu received bachelor’s and master’s degrees.

Workers from the high-tech sector protest against the proposed changes to the legal system, in Tel Aviv, on February 7, 2023. (Tomer Neuberg/Flash90)

Also signing on was Luigi Zingales from the University of Chicago, who Netanyahu has hailed in the past.

Luigi Zingales (CC BY 2.0, USV, Wikipedia)

The economists argued that the proposals announced by Netanyahu’s government last month “would adversely affect the Israeli economy by weakening the rule of law and thereby moving Israel in the direction of Hungary and Poland.”

“Although we significantly vary in our views on public policy and on the challenges facing Israeli society, we all share these concerns,” they added.

Also Tuesday, Channel 12 reported that five more Israeli unicorn firms — companies whose value exceeds $1 billion — have pulled significant funds from Israel due to pressure from concerned investors. The firms did not make a public announcement such as those by Wiz, Papaya Global, Verbit and Skai, who declared last week that their decisions were a result of the judicial overhaul plans.

The total amount of funds withdrawn from Israeli banks now stands at $7 billion, the network said.

The latest batch of companies directed the withdrawal of $300 million while deciding not to follow through transferring some $600 million that was supposed to enter Israeli accounts.

Israeli tech company employees stage protest in Tel Aviv against judicial overhaul, January 21, 2023 (Courtesy)

Channel 12 published an email exchange from one of the unnamed firms in which the latter directed the transfer of an additional $30 million from its Israeli account to its Swiss account.

Workers in the tech industry have staged protests over the past three weeks against the sweeping overhaul of the judiciary, concerned over its possible impact on the tech ecosystem and the economy in general.

Companies, moneymakers, business organizations and policymakers have warned that the judicial overhaul plan, which they say threatens democracy, will hurt Israel’s standing as a stable hub for investments. The fear is that a weakening of the judiciary system will create uncertainty and scare away foreign investors from injecting funds into companies in Israel. This in turn could force local and international businesses to leave and set up shop elsewhere.

Warning about the snowball effect of the proposed changes, former Israeli central bank chiefs recently highlighted examples of countries such as Turkey, Hungary and Poland, where a judicial review and a deterioration of the status of the legal system have weakened checks and balances, and state authorities have been undermined, vastly increasing the powers of governments. The countries have suffered from drops in foreign investments and a downgrading of their sovereign credit ratings, they warned.

Advocates in the government have dismissed claims that their proposals will harm Israel’s democratic character or lead to economic tumult, arguing that opponents are politically motivated and are misinforming the public in order to spread fear. Netanyahu has argued that limiting the judiciary’s power will also lead to the shrinking of the bureaucracy that businesses face, thereby improving economic conditions in the country.

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