Shelly Yacimovich, a candidate who wishes to represent the poor and middle
class, has just proposed a devastating economic program that would solely
benefit the already privileged public servants and union
Displaying the politician’s typical predilection for spending
other people’s money, she calls for an increase in government spending, to be
financed by tax increases or budget deficits. I assume that the Greek, Spanish
and Italian experiences that brought those countries to the brink of bankruptcy
haven’t been part of Yacimovich’s education in economics.
The problem is
exacerbated by the fact that, unlike those floundering economies, Israel would
not be rescued from bankruptcy by the European community. We would go bankrupt
alone and risk our survival as a nation. Israel needs a strong economy and
strict fiscal discipline in order to provide security for its
If Yacimovich really wants to help the middle class and not
just her Histadrut cronies, she will call for increased competition, reduction
of import tariffs and decreased government spending.
markets ensures lower prices and better services. Every Israeli knows that
opening the cellular phone market to competition has allowed households to save
hundreds of shekels each month. Cell phone providers are fighting for customers,
lowering their prices and increasing the quality of their
Unfortunately, this sector is the exception to the general
Many goods and services – such as electricity, water, rail,
air and sea ports – are still produced or provided by government monopolies, and
Israelis pay much more for these products than Europeans or North Americans
The reason is simple and was made very clear by the Trajtenberg
Employees at government monopolies are paid in excess of a
billion shekels a year, far above what they would earn in a competitive market.
The salaries of these overpaid union members and government employees are
financed directly by the middle class. Increasing government intervention as
recommended by Yacimovich would only make the bill larger and erode further the
standard of living of the middle class.
In fact, she is so opposed to
competition and so protective of the monopolies and their overpaid employees
that she wants to increase import duties. A reduction of import tariffs as
recommended by the Trajtenberg Committee and implemented in part by Prime
Minister Binyamin Netanyahu opens markets to foreign suppliers, thereby
increasing competition and lowering prices. Without free trade, Israeli
companies enjoy the status of monopolies or cartels, enabling them to keep
prices well above the market prices. Trade liberalization undermines that market
power and local industries must reduce prices to compete.
today in Israel, international trade is entirely controlled by high tariffs,
customs duties, quotas and regulatory requirements preventing the import of many
products. Over the years, Israel has ignored its agreements with other countries
in terms of free trade.
Although agreements were intended to give Israeli
consumers access to cheaper foreign goods, local industry and major importers
forced the government to increase the cost of imported goods, or prevent them
from entering Israel.
This is exactly what happened when the Kedmi
Committee recommended opening the retail food market to international
competition. Olive oil producers not only opposed a reduction of tariffs but
asked for increased customs duties to insure that imported olive oil would be
more expensive than the locally produced oil. As a consequence of this lobbying,
in the biblical land of olives, the price of olive oil is two to three times
higher than in the United States and Europe.
Milk producers are also
vehemently against lowering tariffs on dairy products. Their influence in
political circles allows them to lobby in favor of protectionist laws that
prevent imports or make them prohibitively expensive through high tariffs,
condemning Israelis to having to pay 44 percent more for milk and eggs than
citizens of other countries.
If Yacimovich really wanted to help the
middle class and increase their standard of living she would be in favor of
cancelling all import duties instead of asking for more protection for local
monopolies that drain Israelis households by overcharging them for all basic
products. As Milton Friedman wrote: “‘Protection’ really means exploiting the
A trade liberalization program, similar to the one Israel
launched in the early 1990s, would not only expose domestic industry to foreign
competition leading to significantly cheaper prices but would also spur
increased economic growth.
Economists agree that free trade creates jobs
through economic expansion. Hong Kong, one of the richest nations in the world,
illustrates this point. Within 40 years and with a totally free trade policy,
Hong Kong saw its GDP per capita increase 25 fold and its employment 20 fold.
Singapore, Taiwan and South Korea have also achieved stellar economic
performance because of their trade policies.
Today, what Israelis need is
not another politician who protects the unions, the tycoons and the government
monopolies’ employees but a brave candidate who will fight for the middle class
and open our country to competition and international trade. This would allow
all Israelis to raise their standard of living and pay fair and affordable
prices for basic products.
The writer is director of the Jerusalem
Institute for Market Studies.