JERUSALEM, ISRAEL — Jerusalem. -- There's much more to the rift between President George Bush and Israeli Prime Minister Yitzak Shamir over whether to link $10 billion in U.S. loan guarantees to help Israel settle Soviet immigrants to the curtailment of settlement activity in the West Bank.
The core of the issue is actually economic: why isn't Israel economically self-sufficient, will Israel forever be dependent on U.S. aid, and should American taxpayers be morally obliged to finance Zionist endeavors?
Despite Mr. Shamir's attempts to lay a guilt trip on America by claiming that it has any obligation to help settle the Soviet Jews, there are a growing number of Israelis, myself included, who are ashamed of these efforts.
We live here and aren't afraid of being branded ''enemies of Israel.'' We know better than any Diaspora Jewish leader why additional U.S. aid and increased philanthropy will never be enough. It's not a question of how much money, but of the black hole into which these funds are sucked.
We say nobody owes Israel a living, that American aid has turned Israel into a charity case because with no strings attached, i.e., no commitment to introduce true economic reform, the $3 billion annual assistance has no ultimate purpose. We want to know where it is written that Israel is destined to be a welfare case.
It doesn't have to be. Israel spends more than $6 billion on its security obligations each year, out of a $42-billion gross national product. That's higher than most other Western nations, but even so the goal shouldn't be to reduce the defense budget by making ''concessions for peace,'' but to cut back non-defense expenditures and to increase GNP?
My job as an economics journalist takes me to the length and breadth of Israel. If there is one thing Israel does not lack, it is inspired entrepreneurs and technological geniuses. Dollar for dollar, Israelis are world leaders in the development of new ideas and marketable products.
So why must its leaders continue to schnorr more and more money from the U.S. government and world Jewry? In a nutshell, because Israeli politicians initiate and maintain economic policies which strengthen their control over the economy, and as a result retard economic growth. A free economy would only serve to weaken their power base.
Consider the whole picture. Israel's public sector employs a third of the work force as the government directs more than 75 percent of economic activity. Subsidies for food, farmers, health services, credit, industry, export insurance and transportation consume $3 billion annually. Out of every shekel earned, 56 percent of it winds up as taxes.
As a result of high taxes, evasion is estimated at $3 billion a year, with the ''black'' economy running at 25 percent of GNP. Due to extremely high levels of taxation, output per employee is half of what it is in other Western countries, $27,500. Because of exclusive import licenses and government-sanctioned cartels and monopolies, the Tel Aviv Chamber of Commerce estimates that Israelis pay $3 billion a year more in higher prices for their goods and services than other Western nationals.
Regardless of what Mr. Shamir thinks, Israel could be viable. For instance it could save a quarter of non-defense public expenditure if it followed the advice of Alvin Rabushka, a senior fellow at the Hoover Institution and director of research at the Institute for Advanced Strategic and Political Studies in Jerusalem.
Mr. Rabushka has prepared an alternative state budget which slices more than $3 billion off a $12.5-billion budget by slashing distorting subsidies and axing unnecessary programs in the ministries of Industry and Trade, Agriculture, Education, and Health. The savings would be equal to 40 percent of all projected income tax or two thirds of overseas assistance.
The Israeli government owns more than 190 companies worth in excess of $15 billion. They could all be sold and the proceeds used to absorb Soviet immigrants.
However, Israel's politicians would rather stand in line for charity than diminish their stranglehold over the economy. Why? Because control over the economy translates into political domination. This ugly fact of Israeli life is the key to understanding what makes Israel tick and it's what so many Jewish leaders fail to see.
If world Jewry is to make a significant contribution to Israel's well-being it must get over its hesitancy to criticize Israeli leaders on these crucial economic issues. Israeli politicians may very well know what's best for Israel's security, but are far from being experts in economic arenas.
If I was a Diaspora Jewish leader, I would speak frankly to my Israeli counterparts and tell them: ''sell off all your assets, the companies and land you own, and then we'll talk about how much more money you'll need.''