Global Agenda: Of cottage cheese and kings

Direct taxation on individuals and companies has been steadily reduced, while indirect taxation via levies, duties, charges, etc. have been steadily raised.

cottage cheese 311 R (photo credit: Marc Israel Sellem)
cottage cheese 311 R
(photo credit: Marc Israel Sellem)
This past week has seen a deterioration on nearly all fronts. The severity of the global economic situation has been illustrated by sharp falls in stock exchanges around the world, while the flow of economic data has continued to be largely disappointing and frequently downright bad.
Regionally, it is quite apparent that things are getting steadily worse in Syria, while the Egyptian situation is reflected by the use of an old but ever-faithful ploy of arresting an Israeli and using him to divert public opinion.
On the Palestinian issue, “September” is now seen as a prospective High Noon, with any number of scary scenarios making the rounds.
Against this background, many people in Israel – and probably not a few outside – are stunned by the fact that the burning issue here for the last few days is the price of cottage cheese. The revelation that the cost of cottage cheese in your local supermarket is double its price in Europe has triggered an extraordinary outburst of public anger and a huge outcry. Although the facts are clear, the response of the Israeli public to the cottage- cheese scandal seems to justify the application of the overworked term “disproportionate.”
But it doesn’t. This is not about cottage cheese but rather much bigger and fundamental issues, which presage dramatic changes in Israeli economic policy and, down the road, sociopolitical platforms and the composition and orientation of future Knessets. Indeed, in a very real sense, what we are witnessing is a mild version of the kind of popular uprising now associated with Tahrir Square.
In a democracy, there is (usually) no need for giant crowds to gather in public places and protest with varying degrees of violence – as, for example, happened and is continuing to happen in China this week. Change can be achieved more peacefully. But it can’t happen unless and until the general public is aroused.
The correct context in which to view the cottage-cheese rebellion is as a direct follow-up to the petrol-tax rebellion that took place in January. Then, the government raised the petrol tax again, as required by the budget, which had been debated and passed according to all the rules. However, something quite unexpected happened – very likely under the influence of the then-ongoing events in Tunis and Cairo. An abrupt surge of public opinion forced the (weak and pliable) government to backtrack.
But this was not about 20 agorot on a liter of petrol.
This was actually about the entire thrust of fiscal policy over the last 10 years, in which direct taxation on individuals and companies has been steadily reduced, while, with much less fanfare, indirect taxation via levies, duties, charges, etc. have been steadily raised.
Direct taxation is progressive, so reducing it helps the rich. Indirect taxation is regressive (meaning that the lower your income bracket, the harder it hits) – so raising it hurts the middle class and clobbers the poor. At some point in time, this policy was destined to trigger a backlash.
We now know that point was reached in January 2011. Since then, the political system – especially within the Likud – has been adjusting to a new reality, in which the middle class is fighting to change the direction of fiscal policy.
Now comes cottage cheese – the tip of a huge iceberg that begins with the prices of processed foods but extends to a vast range of goods and services. Suddenly – thanks to aggressive investigative journalism in Globes and The Marker – the public has become aware that it is being ripped off systematically by a panoply of monopolies and cartels that dominate a wide range of business sectors in the small and often still isolated Israeli economy. This state of affairs has existed for years and – because of the overtly probusiness policies of this and the previous government – has been getting steadily worse.
Now, notice has been served that the public will no longer accept this situation. Why now? Why cottage cheese? The answer is that it doesn’t make any difference.
What is at stake is not the price of cottage cheese but the entire policy of deregulation of prices and reliance on the free market to engender competition and award consumers good precuts at competitive prices.
The Israeli public has now told the Netanyahu-Steinitz-Lieberman team that it no longer believes in, or wants to have more of, their “free market is good for everyone” platitudes. It didn’t work in financial services in the US, it didn’t work in water, railways and various other privatized industries in the UK and elsewhere, and it certainly hasn’t worked in the consumer sector in Israel.
The pendulum is swinging sharply back toward more regulation, less free markets and, no doubt, less “efficiency,” but, hopefully, a tad more “equality.”