Israel Must Set Its Economy Free

At a time when even former Soviet-bloc countries are embracing the free market, Israel's economy remains hobbled by money-losing state industries, a monolithic labor union, heavy regulation, protectionism, and subsidies. Three of four Israeli workers belong to the trade union federation, which together with the government owns more than 200 businesses. Efforts to privatize the state-run businesses have so far been half-hearted, and only a few have been sold off.

Jerusalem is asking the U.S. to guarantee $10 billion worth of Israeli borrowing abroad to help settle up to 1 million Soviet Jewish immigrants. Right now, attention is focused on whether they and others should be allowed to settle on the Israeli-occupied West Bank. But there's an economic issue as well.

The money could help Israel create a more dynamic economy that, in turn, would be able to repay the loans-but only if Israel taps the immigrants' full productive potential. To do so, it will have to create hundreds of thousands of jobs and open up new entrepreneurial opportunities. That is likely to happen only if Israel elects to take decisive action, which it has shunned up to now, to reform its state-dominated economy and attract more foreign investors.

By itself, Jerusalem's fragile ruling coalition seems unwilling to take painful steps to free the economy. The U.S., as Israel's chief backer, should use its leverage to urge both the government and the opposition to support needed reforms. Israel's supporters in the U.S. should do so, too. With an unfettered economy, Israel can become a magnet, not just a refuge, for immigrants.