Mr. Chairman,
My friend, Minister of Finance,
Prof. Stanley Fisher, Governor of the Bank of Israel,
My friend, Prof. Arik Ramon,
David Brodet, who provided me with a highly intelligent outline, within a short period of time, of a great number of clever things said during this conference – I believe this is the third time you have done so.

I believe I have participated in the Caesarea Conference the greatest number of times in various roles.  I remember the Caesarea Conference in Jerusalem, when I appeared as Mayor; I remember appearing – if I am not mistaken, once or twice – as Minister of Industry, Trade and Labor; once as Minister of Finance or maybe as Prime Minister.  The truth is that, eventually, the perspectives I must face are naturally different in these various roles, but the things you present are, to a great degree, adaptations of the fundamental questions in a changing reality.

What I did not hear you say, but which I cannot ignore and of which I believe I must remind you – we are constantly conducting the economic and business discussion by dealing with important macro questions – 1.7% or 2.2% or 2.7% [increase in the expenditure ceiling in the Government Budget for 2009], which, I admit, is new to me, completely cut off from the issues the influence of which I believe on what will happen here is decisive, and these are political issues.  I say this on the day after a very serious terrorist attack in Jerusalem, an attack which characterizes a pattern which we have not experienced in the past – once several months ago at the Merkaz Harav Yeshiva, and now again in the heart of Jerusalem, on the busy Jaffa Road, not far from the central bus station.  It is an attack which took place from within Israel, in Israel.  It is not a terror attack by parties who came from outside and succeeded in passing all the obstacles we place in their way, but rather these attacks emanated from within, from the Palestinian population, and they do what they do, and this is very difficult.  It creates a long series of issues which in the past we thought we did not have to deal with, because they were less dominant than the kind of challenge we faced from a security standpoint.  We invested billions in building the Fence – a fence which is highly effective, but apparently the fence can prevent someone from coming in or penetrating it or going through it or going through the existing crossing, but it still cannot provide a solution to the terror problem within the population that lives on our side of the Fence.

As you well know, I am very determined to continue the political processes.  I will say a few words about them, because I believe that conducting discussion on the economic situation without understanding the most important and influential central factor in creating an atmosphere which allowed this economic growth was the political reality.  I am not saying that were it not for this political reality, if we had not taken other steps which were proper from an economic standpoint, that we could have grown as we grew over the past several years.  I only claim that if this political reality had not existed, none of these economic tools would have helped.  If we do not understand this as our first lesson, then all the other considerations and analyses and arguments whether or not there should be a universal allowance… and I am for increasing allowances on a differential basis, and I am prepared to be flexible on this issue.  It may be that I will have disagreements with the Minister of Finance about this.  I am against universal allowance; I think it is a mistake, and I am open to hearing ideas about the expenditure ceiling, despite the fact that I believe our problem regarding the 2009 budget is bigger than the answer to the question of whether or not the expenditure ceiling will increase by 1.7 or 2.2 or not even 2.7.  We still have a problem about the 2009 budget which I think we have to face, and therefore I understand the logic of the Ministry of Finance, which says: let us stop for a moment and see how we can solve the big problems, and in the end we will see if there really is not another way but to become more flexible, or as you say, with a certain amount of justification, the more correct term may be the term “risk taking”, meaning that there is no doubt that increasing the expenditure ceiling also has its downside alongside this increased flexibility, which lends us the ability to solve budgetary problems.

There is a political reality, and there is a terror problem which must be faced.  Because I am very much in favor of continuing the political processes, and I will refer to this in a moment, I think we should be tougher in some of the measures we take towards those who commit terror, especially towards those terrorists who come from within the fabric of our domestic lives.  If houses should be destroyed, then houses should be destroyed, and if social benefits should be stopped then social benefits should be stopped.  The situation cannot exist wherein terrorists live among us and also receive all the privileges our society provides its citizens, with bonuses.  These are things which are impossible, and I instructed the ministers connected to this matter to act quickly, even if there is a need to change legislation, to ensure that there is a real threat, beyond the security measures we must take and are taking, in order to prevent these incidents of terror, while at the same time
continuing the political processes.

I wish to remind you that the State of Israel is, I believe, for the first time in its history, conducting political negotiations on two fronts simultaneously.  They used to say it was impossible; today I think it is not only possible, it is essential.  We are conducting negotiations with the Palestinians; we are conducting negotiations with the Syrians.  Negotiations are taking place.  We do not herald it with trumpets; we do not exaggerate our promises; we do not create unrealistic expectations; but gentlemen, political negotiations are being conducted between the State of Israel and Syria on a comprehensive peace.  And political negotiations are being conducted between us and the Palestinian Authority, and these two negotiations are taking place simultaneously.

I would like to tell you something else – I believe both these two negotiations are certainly greatly complex and have large problems, but they also have great odds, and significant progress can be made, certainly if the State of Israel understands what the proper boundaries are in all spheres of life. 

The State of Israel’s greatest problem is that we have no boundaries.  When I say we have no boundaries, I not only refer to the physical borders we do not have, but in fact we do not have boundaries in almost every area of life.  If there was one, supreme importance to the fiscal discipline we have practiced over the past several years with regard to the expenditure ceiling, it is that for the first time in many years, the State of Israel defined some kind of boundary on a matter and stood by it.  This was more important than the question of whether it is 1% or 1.7%.  It could have been 1.7% from the very beginning, by the way.  In my opinion, it would have made more sense at that time, because a country with a population growth of 1.7% per annum, when it increases its expenditures to 1.7%, it actually reduces its per capita investment in its citizens every year.  There was logic behind it – and I disagreed with one of the previous Ministers of Finance (not with Silvan, but the one that came after him) about this.  He was a Minister of Finance with many achievements, but I do not want to go into that now.  But it was the question.  What is important is that at the moment we set a limit and we upheld it – it is the only boundary the State of Israel upheld.  We have no boundaries.

I believe that the political process will, eventually, also lead to a definition of permanent borders which are recognized, known and agreed upon by the international community, even if the core of the peace is not completed quickly, because everyone understands that the ability to implement this process is very difficult and complex.  However, the very fact of these agreements are essential for the State of Israel, I do not want to say more than for the other side, but at least as important as for the other side.  If we cannot achieve this quickly, we may lose the opportunity to find a partner and a supportive international community ready to even refer to the question of the existence of the State of Israel as a Jewish state.  It could be that they will agree to all sorts of other things – to a state for all citizens, for a state for all residents, and other ideas like these which we believe are a threat to our very existence.  And to the majority of countries in the world, including those which are friendly to Israel, this idea sounds like a very reasonable one. 

Not many understand why we insist on this formula of a Jewish state.  When one speaks to friends of Israel in Europe and other places and speaks with them about a Jewish state, there is something in our tone that greatly disturbs them.  They say: “One moment, what is this?  We are all involved.”  Yes, we are a democracy; there is a free and equal right to vote for everyone; we have a policy to safeguard all our residents and all sectors; but a country with an ethic-religious basis is not the most popular idea in the world.  Today we can still find broad international acceptance for consolidating approval for such a country, which as far as we are concerned is an existential question, and reach an agreement with a partner.  If we wait too long, we will not have a partner with which we can conduct these negotiations, and there will be no supportive international community ready to fight for us in order to support that which, for us, is critical for our very existence.  Therefore, political negotiations are very important, and are, in my opinion, moving forward; and the gaps between us and the Palestinians are not as wide as they were when we began the discussions.  We still have not overcome all the problems.  In my opinion, there are three issues currently on the agenda, and it is not impossible to reach an agreement on all of them.  The first is borders; the second is the question of refugees; the third is the question of security arrangements which will ensure the strategic security of the State of Israel in all situations which may develop in the Middle East.  In my opinion, if we can reach a solution on these three issues, then we can also achieve a mechanism which would allow us to deal with the issue of Jerusalem, which is much more charged and much more problematic.  We are not currently negotiating this issue, as we agreed that it would be preferable to postpone this discussion for a while.

We are also talking seriously with the Syrians, and in my estimation, very soon the negotiations with the Syrians will have to be direct negotiations.  They cannot continue in their current form, although talks are being conducted.  Here, too, the problems are less complex than they appear.  One thing is clear: I think it would not be wise or correct, when conducting negotiations, to announce, “If they do not give one, two, three, etc., we will not make peace with them”.  It is correct to make the, in my opinion, intelligent assumption that if there will be peace between Israel and Syria, and if there are open borders between Israel and Syria, and if there are diplomatic relations between Israel and Syria, and if there is trade between Israel and Syria, then Syria will not be what it is now.  What can be deduced from this are the repercussions of such an occurrence on our region in the North, on our ties with Syria, on terrorism and everything else tied up with this matter.  I do not wish to say more than this at a time when we are conducting negotiations, but it seems to me that the strategic significance of such a possibility is one which cannot be ignored.

Therefore, in my opinion, we are doing the right thing for the State of Israel, for its future in the political arena.  There is no reason not to do so simultaneously with the Palestinians and the Syrians, and if we achieve this, I believe we will meet all the conditions which will allow the State of Israel to prosper economically in a way that will definitely allow us to realize the goals we believe are essential.

I would also like to say a few words on matters which were at the top of your agenda.  This entire discussion, as well as the things you told me regarding the summation of your discussions, are being conducted in the shadow of a shock or crisis, which is not a momentary crisis, in the global economy on the one hand, but on the other hand out of an understanding that the stability of the Israeli economy allows for continued growth of our economy in a constructive manner.  It is not that there is a crisis, and that this crisis – as once happened – will lead us into a terrible recession and domestic crisis, but rather there is a crisis and this crisis does not completely cancel out the Israeli economy’s capability for growth.  Our economy continues to grow, although I assume that the growth rate in the second half of this year will not be that of the first half of the year.  However, it will be growth at rates much higher than those of Western European or North American countries according to all the indicators and according to all the analyses I hear and the data I received.  First of all, over the past several years, including this year, this growth has a repercussion which is expressed in several areas.  A, in the field of employment – the target we set for 2010 in the framework of the measurable targets to which, for the first time, a Government committed itself, was that the rate of participation in the labor force would reach 71.7% by 2010.  We are not far from the ability to reach this goal.  In the first quarter of this year, the unemployment rate was reduced to 6.3%, which is below the average among OECD countries.  If I am not mistaken, the OECD average is 6.6%.  I have no doubt that this is unprecedented.

I could enumerate all our achievements, but I am certain there are economic experts here who did so before me in a much better way than I could.  I would like to tell you what I think is the greatest failure of the past four years with regard to our growth.  We took proper steps, and acted, inter alia, because of the ingenuity of Kobi Haber and his boys in the Ministry of Finance – with whom I do not always agree, but whom I always respect – and reached very impressive results in the area of growth.  For the most part, we resolved the problem of employment.  What we did not succeed in doing, and this is because we did not seriously try to do so, is create or develop a mechanism which would allow us to share the fruits of our economic growth in a manner which would increase social justice.

I say now: we failed not only because we did not have the tools, but rather because, in my opinion, we were addicted or overly committed to achieving and maintaining the parameters of achievement in the fields of growth and fiscal discipline that we were not really ready to invest any thought into how we can create the proper mechanisms to allow us to create some form of internal distribution which is a bit more appropriate.  We spoke of the periphery and did nothing real about it.  I remember the arguments I had as Minister of Industry, Trade and Labor with the Ministry of Finance about encouraging capital investments in peripheral areas, and how impossible these arguments were.  Therefore, our achievements were partial, but they certainly, in my opinion, did not provide the proper solution to the problems we have.  The Minister of Finance and his team recently formulated a plan that, if we can meet the budgetary challenges, very possibly may constitute the beginning of a more effective dealing with of problems in the periphery. 

Up until last year, we did not do what we needed to do in the area which I believe is perhaps the most important of all the challenges we face, and that is the education system.  We did not act.  Since I had the opportunity to serve as Minister in many ministries and deal with many different issues, I can refer to all the different aspects you brought up in the fields of local government and central government, and some of the other issues.  However, I will not, because I cannot take up too much of your time or my own, because this has been a busy day.  In my opinion, we did not invest; we did not think;, we did not want to genuinely invest in creating mechanisms that would provide for a more just distribution that could provide a solution to the problems of the distressed layers of society.  We did not deal as we should have with the issue of our periphery, both in the North and in the South, and we did not deal with the issue of education as we should have.

The first time we started down a different path was this past year, led by Minister of Finance Roni Bar-On, and it has been done in a decisive manner in the 2008 budget.  In the Ofek Program alone, we invested an additional NIS 3.5 billion.  In the past, I was also in favor of a reform of the education system, but I did not believe that such a reform could be implemented through fighting the workers’ and teachers’ organizations.  I did not think it possible to implement a reform in the education system while slapping the faces of those who should be our most important partners in creating this reform.  What we did last year is something completely different, and I propose to you and say to you: do not ask me; ask the representatives of the Ministry of Finance who sat night and day when we needed to make a decision and invest the money – and it was many billions of shekels.  Ask the Ministry of Finance: apparently part of the myth of the State of Israel’s collapsing and destroyed education system belongs to a type of inflammatory narrative in the public discourse of the State of Israel, but it has no connection to reality.

Amazing things are being done the field of education in the State of Israel despite the difficult problems.  But we are not where we thought we were in the past, and we are certainly taking significant steps forward today with a serious plan in which the State is making an unprecedented investment of billions of shekels.  Not even when compared with 1992-1995, when there was undoubtedly a real breakthrough made by the then-Prime Minister, the late Yitzhak Rabin.  This is in addition to the fact that we are currently building 8,000 new classrooms, and will increase this figure until we manage to reduce the number of students per classroom to 32.  However I must tell you, I am committed to this and we are acting to this end, but I am not certain that our education system’s primary problem is overcrowding in the classrooms.  I say this as someone who once was in charge of the education system, which is still the largest and most complex and most complicated system in the country.  I worked quite a bit with Shlomit Amichai when she was in her previous rotation in the Ministry of Education.  I have an advantage in that I do not read studies, but I worked in the field. 

Forty percent of the new classrooms we are building will be for minorities.  Whoever asked what is happening in the Arab or non-Jewish communities in the State of Israel, I can say briefly: there is an administration problem and also one of discrimination.  Once and for all, let us look ourselves straight in the eyes and tell the truth – we consciously and deliberately neglected the non-Jewish populations in the State of Israel for many years.  If anyone believes that there is any way to create a different discourse in the State of Israel between Jews and non-Jews without correcting this, they are mistaken.  If anyone thinks that the State of Israel can maintain its internal stability without conducting such a dialogue, he too is mistaken.  By the way, next week I am holding, for the first time, The Prime Minister’s Conference for Arab Matters.  This will be a national conference organized in conjunction with and with the cooperation of the Institute for Democracy and with Arik.  This is part of the change in priorities, that if we do not handle it, we may maintain fiscal discipline and increase employment, but we will not solve the problems.

Something else: I think that for many years, we neglected the development of infrastructure in regions which suffer from socio-economic inferiority in the State of Israel.  These things are not disconnected.  I was pleased that two days ago the new section of Highway 6 was opened, I believe almost until Jumas’s house.  However, in the final analysis, Gentlemen, if there is not a fast train from Tel Aviv to Eilat, which will generate greater development in the Negev, we will not meet the challenge which I believe is essential, of changing the State of Israel’s capability.  There is a train to Beer Sheva; it too should be faster, and for that, a second line must be built.  However, I do not want to have this argument with the Director General of the Ministry of Transportation now, because we are bringing the entire five-year plan for the development of transportation back for discussion, in order to examine and determine its order of priorities.  I think there should be a railway line between Ashkelon and Beer Sheva, and there should be two lines between Tel Aviv and Beer Sheva, and I think there should be a fast train from Tel Aviv to Eilat.  In the end, there is no other solution which could generate development in the Negev.  I also ask that you please solve the problem which led to the container falling in Binyamina.

Now I would like to say something, and I say it cautiously as I conclude my remarks.  In truth, there were many more subjects I wanted to discuss, but I am aware of the constraints on your time and on mine.  We can disagree, although I do not believe this is the place for arguments, nor the place to make decisions about what should be done with the budget’s expenditure ceiling and how we should deal with the gaps even after we increase the expenditure ceiling; or we do not increase it and there are still gaps we must deal with, and these gaps obligate us to make changes in the order of priorities.  And we must still deal with much more serious security issues than any other country in the world.

The fact that peace negotiations are being conducted cannot allow us to close our eyes to the tremendous dangers and heavy costs we must pay as a country, in order to be capable of providing answers to these problems.  After everything I said, including about the failures in the area of providing a solution to some of our social ills, I say to you now, the real problem facing the Israeli administration is the fact that our governmental bureaucracy does not allow any room for flexibility for decision-makers to make decisions which can change the pace, the dynamics and the possibility of reaching a solution for the problems in Israeli society.  We have public-governmental mechanisms which do not allow for a minimum amount of flexibility for those who bear the responsibility, and the result is that there are things in the State of Israel that could develop, advance and change more quickly, but they are stuck without us being able to change them.  Because, in addition to the fact that there are such mechanisms, there is also a public-media atmosphere which does not allow for any basis of agreement or trust in a system that wants to deviate from the rigid rules which have been determined and do not allow for any measure of flexibility for decision-makers who bear responsibility so that things could look differently.  Each of you knows of what I speak.

If we succeed in making our decision-making process more flexible and if we can make a more balanced and correct distribution between those who need to implement policy and those who bear the responsibility for determining policy, then – in my opinion – even under the constraints of the global economic crisis and its possible repercussions on Israel society, I believe we can continue improving the education system, which I view as a central component of our Government’s policy, thereby greatly reducing the number of people living in poverty (or however one defines this problem, the problem of social distress) compared with what we already achieved over the past year and a half.  I would say that this is, in fact, also the obligation the Minister of Finance made to the Government.

I was very involved in Government budgets for the entire 35 years of my public life in my various roles, and to the best of my recollection, this year is the first time that the budget initially presented to the Government has a defined goal – “Increasing Growth and Reducing Social Gaps”.  Before this, the Ministry of Finance never came to the Government to present a budget – they presented an increase in defense spending and an increase in deterrence and an increase in force and such things, but for the first time, the Ministry of Finance came and presented the Government a budget and said that its goal is increasing growth and reducing social gaps.  If the Ministry of Finance demonstrates enough flexibility and if we give them the space they need, I believe that even given the constraints of the shock the global economy is experiencing, and given the growth rates of the Israeli economy – and here I am referring to the figure provided by the Bank of Israel and the Ministry of Finance, not more than that, which is 4.2% in 2008 (which is more or less the same in 2009) – these are growth rates which will allow us to increase our investments and the importance we place on social issues, as well as meet the challenges of the security restraints with which we must deal.  But let us not forget one thing – if we do not advance on the political track, all we have said today should be re-examined.

Thank you.