Revolutions tend to be messy affairs. The people and the issues are
confused; hence the Marxist-inspired revolutions that were supposed to liberate
the industrial proletariat were in fact staged by middle-class intellectuals in
agricultural economies. The revolutionaries often pick the wrong targets; thus
the French stormed the Bastille as a symbol of tyranny, only to find just a
handful of prisoners inside. The revolutions themselves rarely produce
revolutionary change; hence the Egyptians find their military still running the
Israel’s cottage cheese revolution is no different. It
appears to be a rebellion of the middle class victimized by unbridled
capitalism. The NIS 8 price of a 250-gram tub (more with olives) is for
many the rallying point, for others the raison d’être, of the revolt. Like Marie
Antoinette, the Russian tsarina and Suzanne Mubarak, the villains are women.
Thus, Ofra Strauss of Strauss Dairies and Zehavit Cohen of Tnuva have had to
answer to the media acting as a revolutionary tribunal.
But is that
really what this revolution is about?
LET’S START with the cottage cheese
itself. McKinsey & Co., the management consultants, reportedly
advised Tnuva several years ago that cottage was such a critical part of the
Israeli diet that consumers would buy it at almost any price. McKinsey probably
got paid a lot more than Marx ever did for Das Kapital, but the social insight
was no less faulty. Davka because the Israeli consumer buys so much of the stuff
on a regular basis, he is sensitive to any change in the price and regards it as
a personal affront when it reaches the level he regards as gouging.
the funny thing is that the gouging level was probably achieved months ago, not
in June, when the revolution erupted. The price of cottage soared by more
than 40 percent after controls were lifted in 2006, but this year the price
actually declined slightly as of the end of May. The prices of a lot of other
things, such as cooking oil and coffee, have risen a lot more this
In any case, the price of cottage isn’t a lifeor- death issue for
the average household. Let’s say the typical family of 3.7 people, with
take-home pay totaling NIS 11,354 a month (that’s in 2009, the last year for
which there are statistics), buys a generous eight tubs a week. At NIS 7.50,
that works out to NIS 240 a month. When prices were a more “reasonable” NIS
5.20, it was NIS 166. Compare that to the effect on a family’s expenses
from the 15% year-on-year increase in home prices March-April. But home prices
haven’t stirred a revolt.
And what about the villains?
Certainly the rise
in global food prices is a factor. Even if the price of cottage cheese has
exceeded the increase in the cost of making it, the fact is that most of the
rise has indeed been due to higher input prices. The problem for revolutionaries
is that rising world commodities prices don’t make a good enemy for the
revolution. You can’t interview a stalk of corn or a cow and demand an
explanation. The fact that the Chinese are wealthier and eating more might be
fodder for an expert’s report, but not for a Facebook campaign. Demand that they
eat less? Much has been written about concentration in the Israeli economy, not
just in cottage cheese and dairy products, but in everything from cell phones to
land. Still, concentration is only one element. Even with Israel so open to
foreign trade, it is a small country of only seven million people, inhabiting a
tiny and crowded area cut off from surrounding markets.
Even if the
government didn’t exploit its near-monopoly on it, real estate would be more
expensive because there is a limited amount of land. True, Israel Electric Corp.
is a near-monopoly and the unions rip off the public, but electricity will
always cost more because Israel can’t attach its grid to neighboring countries
and share power.
Israel’s economy is growing quickly, but the engine
driving it is a small one composed of the hi-tech sector and a few highly
competitive industries. Overall, productivity is low by developed-country
standards, and too many Israelis don’t work at all, requiring the rest to carry
The alternative to big manufacturers like Tnuva and Strauss
and big retailers like Shufersal and Co-Op is small, inefficient dairies and
mom-and-pop groceries. There might be more competition, but prices would be
higher. Competition from imports can help, but they are not a panacea: Cottage
cheese, for instance, would have to be air-freighted at great cost to reach
Israeli store shelves with enough of their expiry date intact.
So, in the
words of Lenin, what is to be done?
THE FIRST thing is to recognize the real
problem, which is that cottage cheese is a symbol of middle-class distress. As
housewives were turning their noses up at the dairy shelves last week, Merrill
Lynch published its annual report of the world’s millionaires. Israel
counted a total of 10,153 in 2010, a remarkable 20.6% increase from the year
before and more than double the worldwide percentage growth. The average salary
last year rose 3.7%.
It’s not a perfect demonstration of growing income
inequality in Israel, but it captures many of the issues. The economy is
growing, but a small fraction of the population is enjoying most of the fruits.
If you had a substantial investment portfolio, which millionaires by definition
have, you did very well last year. If you had an advanced degree and worked in
technology or finance, you did well, too. This is a trend taking place all over
the developed world, but in Israel it is more pronounced because the economy is
so reliant on hi-tech at its top end and has so many people not working at all
on the bottom. After the US, Israel is the most incomeunequal society in
Forcing Cohen and Strauss to lower the price of cottage won’t
solve anything. Neither will breaking up oligopolies. More market- opening
measures won’t do the trick, either. As boring as it is, the solution is to
bring more Israelis into the magic circle of high-paid, high-skilled work with
an overhaul of the educational system. The barricades shouldn’t be erected
around the cottage cheese display; revolutionaries should be storming the
schoolhouse.The writer is executive business editor at The Media Line.
Israel: The Knowledge Economy and Its Costs will be published by
Palgrave Macmillan in 2012