Costly Israel

Because Israelis pay more for basic goods, housing and transportation, they have less money for other items, thereby preventing new forms of industry from developing and lowering the quality of life.

By
December 10, 2017 22:10
3 minute read.
A MAN holds a sign during the 2011 ‘Summer of Discontent’ protest when hundreds of thousands marched

A MAN holds a sign during the 2011 ‘Summer of Discontent’ protest when hundreds of thousands marched in Tel Aviv for lower living costs in the largest such rally in Israel’s history. (photo credit: DARREN WHITESIDE / REUTERS)

 
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At least since the socioeconomic protests of 2011, Israelis have been acutely aware that they pay more for everything from cottage cheese and candy bars to real estate and transportation than do citizens of most Western nations.

In the cover story of this week’s Jerusalem Post Magazine, Orit Arfa revisited the subject, providing a host of examples of how little has changed since hundreds of thousands of Israelis took to the streets that summer.

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Six years later, the price of cottage cheese is still twice as high in Israel as it is in the US. Other products, such as cleaning supplies, toothpaste, canned goods, pasta, beer and bread, are cheaper in Germany and Britain and in other Western countries than they are here.

Part of the problem can be blamed on high tariffs, ostensibly put in place to protect Israeli industries and jobs from foreign competition. There is a 160% tariff on butter; 170% on eggs; 298% on onions; 60% on cheese; 127% on olives; 190% on beef; and 170% on chicken.

The other factor that distorts Israeli retail markets is bureaucracy. Barriers of various kinds prevent the sort of competition that brings down prices. The difficulties begin with the red tape involved in launching a new business and continue with the Standards Institution of Israel, which places unnecessary restrictions on imported products that have already received EU and American approval for safety and quality.

Also, a small number of business concerns control the banking, insurance, real estate, communications and retail markets. Competition – even in gaining access to shelf space in large supermarket chains – is severely restricted.

Sometimes, powerful unions prevent change. Dutyfree stores in Ben-Gurion Airport pay astronomically high rents to what is essentially a monopoly, the Airport Authority, which go toward paying the high salaries of a protected class of airport workers.



Why do these barriers to free trade remain in place? Because they serve powerful business interests.

Lobbyists, backed by big money, pressure politicians to refrain from making the reforms needed to increase competition. Unions that control essential elements of the economy, such as sea and air ports and the Israel Electric Corporation, impose higher costs that raise the price on nearly every product imported to or produced in Israel.

Protectionism and monopolistic practices that stifle competition are destructive on a number of levels. Maintaining artificially high prices through the use of tariffs or lack of competition means that consumers, most of whom are poor or middle class, subsidize the rich. Such policies distort social justice and are morally indefensible.

Because Israelis pay more for basic goods, housing and transportation, they have less money for other items, thereby preventing new forms of industry from developing and lowering the quality of life.

Also, local industries that are protected by tariffs and bureaucracy tend to stagnate, because they lack any incentive to innovate. Instead, their unfairly earned profits get funnelled back into lobbying efforts to prevent reforms. And this ultimately leads to political corruption.

Even if “buy Israeli” were a legitimate argument (which it isn’t) many of the large concerns operating here are not even locally owned. Osem is owned by Nestlé of Switzerland; Tnuva is controlled by a state-owned Chinese company; and Telma belongs to Unilever.

In his speech to mark the opening of the Knesset’s winter session, Prime Minister Benjamin Netanyahu mocked cynical Israelis who complained about the situation in Israel while enjoying the benefits of the nation’s impressive economy.

While it is true that Israel’s economy is relatively strong and indicators such as the employment rate are positive, the cost of living remains unreasonably high due to barriers that prevent competition.

The socioecononic demonstrations in the summer of 2011 raised consciousness about the causes of Israel’s high cost of living. But the public outcry failed to convince politicians that they risk losing their job if they fail to bring down the cost of cottage cheese. It should come as no surprise, therefore, that food prices and those of other basic goods and services remain artificially inflated.

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