Why did Bibi win? It's the economy, stupid!

Some of the smartest analysts say Benjamin Netanyahu's surprisingly clear re-election victory in Israel was about the Israeli people still putting national security as their top priority at the ballot box – and being angered by what they see as the Obama administration's meddling in their election.

They're only half right.

Israeli Prime Minister Benjamin Netanyahu waves to supporters at the party headquarters in Tel Aviv March 18, 2015.
Amir Cohen | Reuters
Israeli Prime Minister Benjamin Netanyahu waves to supporters at the party headquarters in Tel Aviv March 18, 2015.

The news media in both Israel and in the United States tried to portray the economy as a weakness for Netanyahu. In fact, it was a relative strength for him — and a disastrous mistake for his opponents.


Traditional leftism died in Israel 14 years ago, when Ariel Sharon was elected prime minister in the midst of an onslaught of Palestinian terror attacks. A desperate Israeli people turned to its greatest military hero to end the daily carnage — which he did.

But the left also died during that same period for economic reasons. The economic juggernaut known as "Start-Up Nation" was just hitting its stride in Israel at that time, convincing a once mostly socialist public that ingenuity, competition, and speed to market were the way to end Israel's economic isolation once and for all.

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A lot has happened since then. But the bottom line is that the majority of Israelis no longer believe in making concessions for the illusion of peace -- and they also don't believe that destroying the country's booming tech, pharma and energy sectors with crushing new regulations or taxes is the way to spread the wealth to the parts of the population still struggling economically. The traditional Labor/left/news media alliance in Israel just hasn't gotten the memo.

And so polling aside, it should have been clear to anyone that Israel's left-wing campaign based on promises to improve the economy never stood a chance. Yes, voter confidence in Netanyahu's economic policies was far from high because of the increased cost of living and a housing shortage. But confidence was even lower in the opposition's "new" economic plan that was really just the same old socialist platform circa 1954.

Still, Netanyahu is far from in the clear on the economic side and he must deliver on this issue if he wants to finish this new term in office. Israel's fast-growing economy has created an inevitable increase in the cost of living for all Israelis, whether they've directly benefited from the economic boom or not. Finding a non-socialist way to spread the wealth is his task, but he has a clear path to take on that score and that's by following the free market.

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Fortunately for Bibi and the Israeli people, using the free market to reduce prices and improve services is not some academic pipe dream. The people there have seen it directly thanks to former Likud leader and likely coalition partner Moshe Kahlon who won a strong number of seats with his breakoff party. Kahlon is a self-made millionaire who as Communications Minister slashed cell-phone bills by 90 percent in Israel not by enforcing regulatory price controls, but by opening up the cell-phone market to more competition. Now, he is expected to be the next Finance Minister and he's setting his sights on improving competition in Israel's banking and housing sector. In the past, Netanyahu has had a nasty habit of pushing out anyone close to him who threatens his ego and dominance. Bibi needs to end that practice right now.

In fact, he needs to do a complete about-face and be more welcoming. That means inviting economic reformer Yair Lapid and his popular party into the coalition too. Lapid and Netanyahu were coalition partners in the previous government, but they had a typical falling out over personal issues. Bibi should make a partnership with Lapid work long-term this time, because Lapid and Kahlon really constitute the common sense economic reform movement in Israel that thankfully has nothing to do with socialism. Lapid's big contribution is his strength on the issue of drafting ultra-orthodox Jews into the military, cutting welfare to that ever-growing community, and getting more them integrated into the world of employment. Lapid made good progress on all those fronts in the last government and his work must not be discontinued. If Bibi can lure Lapid into his coalition and really work with him this time, the new government will not need any support from the ultra-orthodox parties who oppose Lapid's important successes.

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You'll notice that none of the crucial political hurdles mentioned above include terrorism, the Palestinian peace process, or even Iran. That's because those issues are largely settled in Israel. Based on the election results, about 70 percent of the Israeli people agree with Netanyahu's policies on those issues. And it's been that way since 2001. That's a huge majority bloc in a country like Israel. Now the real challenge is for Bibi to make sure he doesn't let the economy fall off his radar. I don't think the Israeli people will ever want to go back to socialism and the Labor party, but an economic stumble by this government could result in a new Left bloc in Israel that includes people like Kahlon and Lapid squarely against Netanyahu. And that's a bloc that could win.

Bibi won the economic vote by default. Now he'll have to show results if he wants to stay in power.

Commentary by Jake Novak, supervising producer of "Power Lunch." Follow him on Twitter @jakejakeny.