Guest columnist: In tents and purposes

The Israeli economic miracle of the last two decades has bypassed a large part of the population. That cannot continue.

August 26, 2011 16:40
Protesters sit outside tents in Tel Aviv

Protesters sit outside tents in Tel Aviv 521 (R). (photo credit: REUTERS/Nir Elias)

Was the tent pitched by Daphne Leef in Habimah Square a few weeks back the start of a social upheaval? We would be well advised to heed the words of Mao Zedong, who was certainly no pushover in the matter of making political pronouncements. Asked nearly 200 years after the event about the implications of the French Revolution, his answer was, “It’s too soon to tell.”

The tent cities have captured a real and previously unexpressed angst felt by the public. But incipient revolutionaries need to keep a firm hand on reality. Distressingly, neither the protesters nor the pundits and politicians watching them have done a good job of it. Their mistakes risk channeling real grievances and problems in wayward directions. Let’s look at six of the prevailing myths: 1. The Arab Spring started it all.

Nothing could be more ridiculous. Never mind that Israelis hardly need Egyptians or Tunisians to show them that street protests are a useful way to express grievances, but the denizens of Rothschild Boulevard have almost nothing in common with the crowds protesting at Tahrir Square or fighting it out in the Libyan desert. The latter are upsetting the foundations of fundamentally undemocratic societies. The fulfillment of their demands necessarily requires toppling those in power. The former are exercising their ordinary rights. Even if they are couched in slogans calling for social justice and for Prime Minister Binyamin Netanyahu to resign, our protesters are putting forth an agenda of consumerist reforms, not revolution.

2. The tycoons must be cut down to size. Have the likes of Yitzhak Tshuva and Shari Arison grown rich by ripping off the middle class? It’s tempting to think so when your salary doesn’t get you through the month or puts the cost of an apartment out of your reach. After all, if the tycoons were less rich, we’d each be a little bit better off. So why not take away the monopoly profits they’re supposed to be enjoying? The answer is that it’s not so simple.

Breaking up the tycoons’ empires might increase competition, but it would also make them more inefficient and raise costs. Subjecting their businesses to more regulation might help in some cases, but just as often, regulation backfires because the natural tendency of governments is to protect producers rather than consumers. In fact, the private sector is more open to competition than most people give it credit for. Witness the rise of Rami Levi to take on the two big supermarket chains.

3. Privatization must be stopped and/or reversed. In fact, many of the biggest problem areas in the country’s economy are the sectors controlled by the government – namely land, electricity and water. They are all poorly managed, provide inferior service at high cost and operate in the interests of the producers (or more precisely, the employees of the producers). On the other hand, look at the telecommunications industry. There are only three major providers, which hardly makes it a competitive free-for-all, but 25 years ago, when it was a government monopoly, prices were higher and phone service was poor and primitive.

4. The Israeli consumer is battered and beaten. Americans buy cottage cheese and cars at prices far lower than we do, but wait till their bills come in for college or for health insurance. A year’s tuition at an American university easily swallows up a lifetime of lower-priced cottage cheese. This isn’t to say we have it better than Americans (perish the thought, although fewer of us are jobless or have had our homes subject to foreclosure), but it does mean that comparisons are very hard to make, and when you make them, the results aren’t always so black and white. In fact, the forces of deregulation and privatization have turned Israel into a rich country over the past two decades, and middle-class consumers are better off than they were.

5. Sweden is our role model. There is a lot to admire about the Swedish system, which is both prosperous and generous, but that doesn’t mean we can imitate it. For one, a larger proportion of Swedes work – 65 percent of the labor force versus 57% for us – and they produce more on a GDP per capita of $37,200, versus $27,700 for us. Sweden hasn’t fought a war for almost 200 years and has a defense budget equal to 1.2% of gross domestic product (versus 6.3% for us). All these parameters give Sweden more wealth to spread around. We don’t have the options Sweden has.

6. Income inequality is an Israeli problem that needs an Israeli solution.

Among developed-world countries, Israel has a particularly severe incomeinequality problem, and it has been growing worse since the 1980s. But growing inequality is a problem shared by the entire developed world. Even the Swedes have seen the gaps widening, even after taking into account the benefits provided by the country’s vaunted social welfare system. The post-industrial economies in North America and Europe have exported many well-paying jobs to Asia.

In Israel, the problem has been compounded by the burgeoning of hi-tech in the economy, which employs relatively few, highly paid workers; immigration, which creates a large class of under- or unemployed people; and the refusal of a large part of the population to join the labor force. Increasing transfer payments papers over the problem; it doesn’t solve it.

ONE THING that is not a myth is that the economic miracle of the last two decades has bypassed a large part of the population. That cannot continue. A society where the gap between the haves and have-nots widens too much is dangerous to democracy, and it is especially dangerous to a democracy like ours that demands so much of its citizens. But getting started on the task requires getting real.

The writer is executive business editor at The Media Line. His book Israel: The Knowledge Economy and Its Costs will be published by Palgrave Macmillan in 2012.

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