“Unable to decide”

The Jerusalem Post
19 Aug ’10

The reformers must know the importance of the reform’s success both for Israel and for their careers, and what damage they will incur if it fails.

Filed under:

public policy • reform

Israeli governments are notorious in their inability to decide or to execute decisions (over seventy percent of government decisions never get implemented). Wits say this is good, since in those decisions that the government implements it does so much harm that it is quite enough.

Not always. Remember the brave decisions to cut bloated government expenditures (a steady state since the nature of government is to inflate expenditures), as well as the reforms in financial markets made by then Finance Minister Benjamin Netanyahu. Those decisions, however imperfectly executed, have saved the Israeli economy in 2005 from a Argentina-like collapse.

But famous media pundits argue that the financial reforms, known as the Bachar reforms were actually a catastrophe. The facts speak for themselves. Not only have the reforms saved Israel and its banks from near economic collapse. They put the Israeli economy, after two decade of slow or no growth, of frequent recessions, on an amazing growth path of an average 5% annually. But even the dramatic growth in the size of assets held by the Israeli public, of 60%, from 1.2 trillion shekels before the reform to 2.2 trillion at present, despite a terrible world financial crisis, does not deter our famous commentators from calling the reforms “a catastrophe”.

Once again Netanyahu is facing an historic opportunity to reform the Israeli economy by breaking the inordinate concentration of economic – and political – power in the hands of less than twenty families. They control the huge pyramid style corporations that dominate the Israeli economy, representing about half the value of Israel’s traded assets!
Such a great concentration enables these corporations to wield monopoly power, and monopolies choke competition and the efficiency generated by it. Low efficiency is a major factor in the low productivity of the Israeli worker, about half that of the American, and of his low earning.

Monopolies inflate prices and exact a heavy “monopoly rent” on everything we consume, estimated at about a third of what the average Israeli earns. The low earning strata that devote most of their income to consumption suffer most. It is a major reason why so many working Israelis are poor.
Excessive concentration also endangers the total economy. Excessive concentration is at the heart of the serious problem Israel has: the problematic close relationships between big business, politicians, bureaucrats and the media, which is mostly controlled by our oligarchs. It corrupts both politics and the economy.

The Bank of Israel included in its annual 2009 report on the economy (published April 2010) a pioneering study that established the fact that Israel indeed suffers from excessive concentration and warned about its grave dangers. The study provoked a storm of protests and counter-arguments by the servants of our oligarchy. There were several biased efforts to discredit it.

Prime Minister Netanyahu picked up the issue and expressed several times, in public, his determination to address this severe problem. That he did this at a time when he is besieged by existential problems, such as the threat from Iran and by unusual coalition woes is evidence that he understands the great importance of this challenge. He did not flinch even after some economic pundits who habitually serve the interests of the oligarchs attacked him ferociously, charging that he had more important issues to address, like poverty and the miserable economic lot of the Orthodox and of Arabs, as if they do not realize that poverty is in large part as result of the monopolies exploitation. They even tried to deflect attention to the secondary issue of inflated executive pay common in publicly held companies, again hiding the fact that such salaries are also a function of excessive concentration and of the fact that it pays the oligarchs to pay their executives, mostly former government employee huge sums because the are not just executive but mostly “machers” (operators) who know how to milk billions from the government, so that they earn every shekels of their inflated cost.

The prime minister’s office has been preparing to appoint a commission charged with framing the terms of implementation of this reform. It will include representative of the Treasury and of The bank of Israel.

But months have elapsed and the commission is not formed yet. It is said that as usual turf and political prestige infighting is holding this historic reform back.

Some even claim that these struggles are fomented by powerful lobbyists and their partners in the bureaucracy who are looking for every way to kill the reform, postpone it or vitiate its powers.

It is hard to believe that a reform launched by the two highest office holders in Israel in the sphere of economics, the Prime Minister and The Governor of The bank of Israel, a reform explicitly supported by Prof. Yuval Steinitz, who has mastered economic knowledge in an amazingly short time, will be undermined by the oligarchs and their henchmen. But this has happened before, and we better worry. The reformers must know the immense importance of its success both for Israel and for their careers, and what damage they will incur if it fails. Reason demands that they do all they can to get it going soon. But reason does not always dictate developments in Israeli politics. Let us hope this time it does.

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