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for Social & Economic Progress
an independent pro-market
public policy think tank since 1984
Winner of the 2005 Award for Institutional Excellence and the 2006 Templeton Award for Student Outreach
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Israel Hayom2 Jan ’13
The Israeli government could eradicate poverty by breaking the monopolies and spurring competition.
fundamentals • reform • welfare
After decades of socialist policies, with the government devoting the lion’s share of its bloated budget to welfare and transfer payments, the number of poor people has only grown. If we are to believe the organizations that collectively refer to themselves as “the social justice lobby,” things are only getting worse. Tens of thousands of children have been reduced to begging for handouts, they say. After a 50-year failure to eradicate poverty, one would expect some kind of effort to figure out the reasons behind it.
But this is not the case with the true believers in the welfare system. They have a single solution: More money. If only we were to expand budgets, then the complicated problem of poverty, with its many diverse causes that necessitate different solutions, would be resolved immediately. They fail to realize that the money doesn’t come from the government itself but from taxpayers, in particular the productive middle class, and that heavy taxation destroys the growth it generates.
Most poverty is caused by a massive price gouging of all goods and services by the government and monopolies operating under its auspices. The government could eradicate poverty by breaking the monopolies and spurring competition, which would in turn cause the price of everything to drop, saving the Israeli consumers about half their meager income.
But it is not worth it for those politicians, who exploit poverty and perpetuate the tycoons’ monopolies, to change things. Tycoons contribute money to party primaries. In addition, the perpetuation of poverty allows politicians to distribute perks to voters and offer cushy jobs to cronies.
As a result, politicians and the regulators who work at their behest neglect to break up the monopolies, while the social justice lobby or that great defender of workers, the Histadrut labor federation, fail combat them. In fact, they are not opposed to economic concentration, which reinforces the rule of thieving monopolies.
Nor do they have anything against the banking system, which steals billions from workers’ savings through excessive fees and artificially low interest payments on savings. These exploitative bankers also waste the public’s savings on risky loans to their friends. They block productive investments in small businesses, thus stifling economic growth. This credit chokehold with regard to small businesses is particularly damaging to the Negev and Galilee, which are on the periphery of the country not just geographically, but in also in terms of knowing the “right” people.
For many decades the governments of Israel, at the behest of the Histadrut, had an economic policy that suffocated initiative and economic growth and turned a talented nation into an economic cripple.
The politicizing of the workplace has led to artificially high compensation to employees of the monopolies and caused the productivity of the Israeli worker to be only two-thirds that of the American worker. The Israeli worker’s salary is likewise pathetic. What solution does the “social justice lobby” propose? First we will “break” workers’ legs and then provide them with the crutches of benefits, and the social justice lobby will come out looking like a hero.
What can be done? First, we can open the market to imports, which will compete against the monopolies and lead to greater efficiency and lower prices across the board.
Lower prices will immediately increase workers’ buying power, particularly that of the poor. Increasing buying power is a real solution to poverty, as opposed to raising the minimum wage by a few percentage points, which will only cause inflation and the erosion of workers’ buying power.
Second, the government has a monopoly on lands and also allows banks to exaggerate value assessments of property. It is also possible to eradicate the monopolies and cartels controlling cement, construction materials and building contractors in order to bring down the cost of apartments. This will liberate young families from enslavement to a mortgage for their entire lives, allowing their savings to be directed to productive investments that increase employment and raise workers’ salaries.
It is also possible to streamline the government’s conduct. Not by much, let’s not get caught up in fantasies, but by about 10 percent. This would save billions as well as lower taxes in order to encourage growth.
There are practical and immediate ways to combat poverty while benefiting the economy. But don’t expect any help from the “social justice lobby” which is caught up in its annual poverty festival. Making the economy more efficient won’t allow the social justice lobby to earn political capital, as it can with billions in welfare payments, of which the poor receive only crumbs. Most of it goes to politicians, to those distributing the payments and to the oligarchs.
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