An inside look at local government

Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, recently published a book about the Israeli government and the economy entitled The Cornerstone – Seven Positions in the Public Service. Lynn has held various key positions in government and business since 1969. He was the director general of Jerusalem Jersey; director of the Israeli Investment Authority; director of State Revenue in the Finance Ministry; director general of the Energy and Infrastructure Ministry; and a Knesset member (1984-1992).

He rose to prominence in particular during his years as chairman of the Knesset’s Constitution, Law and Justice Committee. The Jerusalem Post once called him “Father of the reform” because of the many changes he introduced into our political system.

During the last 10 years, Lynn has been president of the Tel Aviv and Central Israel Chamber of Commerce and of the Federation of Israeli Chambers of Commerce, Israel’s largest business organization. He is also member of the board of two important international organizations: the Eurochambres and the World Chambers Federation (WCF).

In this interview, following the publication of his book, Lynn talks about the economy and the local system of government.

“In the last 40 years I have been deeply involved in key issues related to our country such as the economy, taxes, domestic security, legislation, state-owned companies, the Israeli legal system, the courts, our political and electoral systems and the nature of the Israeli written constitution,” says Lynn. “I also managed to accomplish dramatic, even revolutionary, changes in our tax system, energy market and the political system. I started my working life as a litigation lawyer, proceeded as business executive and moved to politics in the early 1970s, where I held three key government positions and key positions in the Knesset,” he says.

“The articles and introductory passages in my book describe the deliberations and changes in our economic and political systems from the position of personal responsibility and not from the view of the academic world. It is a book of reference for those interested and involved in economics, law and legislation. This book can also serve as a good reference for students in the political and social studies and law faculties. Because we cannot understand the present without understanding the past," he explains.

In a previous talk, you told me that the Federation of Chambers of Commerce is organizing a sort of non-political pressure group to promote the interests of the business sector. This is somewhat ironic, since in 2009 it was you who weakened the Coordinating Bureau of Economic Organizations by removing the Federation of Chambers of Commerce from the umbrella organization of the local business sector, which was a very effective pressure group.

Yes, it is true that I was instrumental in seceding from that group. We did that because, in our opinion, they were betraying the interests of the business sector. This was especially true in regard to the erosion of the basic rights of the employer on this issue; the chairman of the Coordinating Bureau did not choose to side with the business sector.

We need a strong apolitical pressure group, and I don’t mean an apolitical party, because the social unrest and social pressure groups that emerged last summer show that in this country, as well as in most democratic societies, well-organized apolitical pressure groups get results.

Were you motivated by the fact that you own a successful company that specializes in sub-contractual labor?

I firmly believe that a successful economy must have a very flexible labor force. The best way corporations can achieve such flexibility in their labor force is by sub-contracting part of the work. Doing away with outsoucing will cause our economy grave harm. I believe in a free-market economy, and at these times sub-contractual labor is one of the tenets of a successful and competitive economy.

Let me remind you that many companies in Israel collapsed, such as construction giant Solel Boneh, because of their rigid labor force. The welfare state in Great Britain collapsed for that reason, etc. In our modern mobile economy, with its vast tempo of change, flexibility is the key to success, and that includes the labor force.

You are a strong advocate of the free-market economy. In your view, the failure of democratic socialism as practiced in Great Britain or the totalitarian socialism in the Eastern bloc countries, not to mention the decline of institutionalized socialism of Israel, highlights the success of the capitalist system. But the system is not perfect. It creates great inequalities. In most capitalist free-market societies, they have in themselves the seeds of a social revolution.

Let me paraphrase Winston Churchill, a great democrat and free-market advocate, who said, “Democracy is not the best system of government but the least worst.” The free-market system has its faults, but it is the least harmful. It is true that it has created great inequalities, but it has generated vast economic growth. It is the most favorable system to generate economic growth, as it makes efficient use of resources.

The best way to solve the problems of inequality is by regulations that will eliminate abuses. We need to amend the capitalist system. The reason for the current financial and debt crisis is because the financial sector abused the system.

With regard to sub-contractual labor and the social inequalities in Israel, I would suggest the following:

1: Increase the minimum wage.

2: Upgrade the unemployment benefit plan so that the bona fide unemployed -- that is, people who became redundant in their place of work and are looking for other employment – receive benefits more or less equal to their average salary during the past 12 months.

3: Give sub-contractual workers the same salary as other employees are getting for the same work they are doing in the company to which they are being sub-contracted.

4: Continue the pension funds. Pension benefits will not be affected by a change in the place of work or by the fact that a certain individual has been out of work for a certain period of time and monthly payments have not been made during that period.

In times like this, the labor force has to be mobile. The old concept of security of employment in one particular company should not be allowed to the point that it will destroy the business. In the past, a person would be employed in a certain place of work all or most of his working life. Today, the place of work is changed at frequent intervals. Consequently, an unemployment safety net is more necessary than ever.

If a sub-contracted worker would get the same salary as someone who was contracted directly, the cost to the employer would be higher, so why should he hire a worker from a sub-contractual company?

Because of the flexibility. Sub-contractual labor has advantages beyond the financial benefits.

You are very critical of local industry. Why?

I am not critical of the Israeli industry. I am critical of the preferential treatment it receives from the government, which is based on outdated ideas. Industry is an important part of our economy, but so are the other elements in our economy.

Services and commerce generate annual exports of $28 billion. They employed 1.37 million workers compared to 420,000 by industry. During the last decade, industry has created 20,000 jobs, while services and trade have created more than 400,000 positions.

This figures show the importance of services and commerce in our modern economy; but nevertheless, the industrial sector is getting large subsidies in grants, as well as deductions.

The industrial company Iscar, located in the North, and other elite companies are getting tax deductions worth over NIS 6 billion, despite the fact that they are very profitable companies. In the past, the industrial sector was the mainstay of the economy; however nowadays most Western economies are based on services that include commerce.

Can a modern economy exist without its productive facilities – that is, industry -- and can industry exist in the Western world without government subsidies because of competition from low labor cost countries?

Industry as such is a matter of semantics. Industry includes design work, production, packaging and marketing. A large industrial firm will do its design work in Germany and its marketing from Germany, but it will sub-contract its simple production lines and packaging work in a low labor cost country.

Recently, Finance Minister Yuval Steinitz told the Knesset Finance Committee that Israel needed a stronger system of government. You were a senior civil servant, as well as a Knesset member. Do you agree?

No, I disagree. The current problems of government are, in my opinion, caused less by the present system than by the lack of leadership. The strongest democratic system of government, in my view, is a presidential system, coupled with regional elections, British style. No system will work if there is lack of leadership and discipline in the coalition Parliament ranks.

The same holds true in Israel, where there is lack of leadership, which is one of the reasons for the vast increase in costly populist legislation. The quality of the politicians and their dedication to the public’s interest are far more important than the electoral system.