‘It’s the economy, stupid’: What a candidate for PM should be saying to Israelis

Some people expect the Israel’s upcoming elections will be one of the first elections not to focus around questions of war and peace, but one that will be decided, rather, on economic and social issues. Though I am not running for office in these elections, if I were to run, this is the speech I would choose to give on the current status of Israel’s economy:

My fellow citizens, the disparity between the rich and everyone else in this country has grown dramatically over the course of the past ten years. Those who are not among the rich are having a consistently harder time making ends meet, paying their grocery bills, and filling their car tanks with gas. As such, economic and social concerns will drive any administration I would head.

Before talking about the challenges the Israeli economy faces, it is important to highlight our economic achievements. Israel’s economy has done well these past years. This success is not the result of the actions of any particular Israeli government. It turns out, Israel has benefited from the structural changes that have occurred over the past two decades in the world’s economy. The two major beneficial factors being: the transformative effect of computers, and the related affects of globalization.

The computer has transformed every business it has touched. Computers have made certain businesses possible. Could you imagine running an airline without reservation computers? Computers have also transformed the way business is conducted. The modern “big box” store (e.g. BestBuy, Target, Ikea, etc.) could never come to exist without their computerized inventory systems. More recently, computers began replacing human workers. How many telephone operators exist today? In the United States, computers have replaced entire sectors of the economy. Think what the existence of Amazon.com has done to bookstores. (I could go on, but this article is not about the effects of computers on the world economy, but rather, their direct effect on Israel.)

Computers have made possible the rapid globalization of the world’s economy. This advance has ended what used to be Israel’s greatest economic disadvantage (i.e. the lack of nearby markets and the high cost of competing when you have only a small local market.) Today, Israel’s market is worldwide. Its customers are in China, India, the United States, and numerous other points around the globe. Israel has become one of the key worldwide R&D centers. This shift has been possible, now that the cost of transportation is either nil, or exceedingly small compared to the value of the goods and service Israel provides, removing these factors from consideration. Our physical distance from markets has become a mere minor nuisance. In this age of videoconferences and Internet telephony it’s possible to run many businesses from Israel, as if they were located thousands of miles away.

As a result, the Israeli economy has grown rapidly these past ten years. Israel’s economy has flourished, despite the fact that the rest of the world has endured a serve recession. Needless to say, the current political leadership would like to take credit for this success. Ascribing some credit to the government is clearly warranted, in light of the fact that if things had gone badly they would have been assigned the blamed.  That being said, Israel’s recent economic triumphs are the results of the actions of successive Israeli governments. Truthfully, the most significant reasons for Israel’s latest economic achievements are the result of factors beyond the government’s control.

Israel has prospered in the face of the worldwide economic downturn because of the tremendous demand for the cutting-edge research, that we do so well. This thirst for forward-thinking research has not declined. This appetite for R &D is unlikely to diminish any time soon. As long as Israel continues to turn out the world’s best engineers, software developers, and scientists, Israel’s economy will continue to thrive. This is a case where being small is a great asset. The United States could not survive by being the R&D center of the world. Though, Israel is small enough that it can not only survive, but also prosper by doing so.

However, like most good things, there is a catch. One of the consequences of the rising centrality of computers is a change in the traditional balance between capital and labor.  The amount of compensation paid to workers has always been a function of the equilibrium between the power of capital and the power of labor. The rise of computers has upset that balance. Computers have given additional power to capital, at the expense of labor. Thus, we have seen an increasing gap between the rich, and everyone else– both in the United States, and in Israel. In both places that gap has grown even larger, due to these governments’ philosophical decisions to decrease taxes on the wealthiest citizens. This economic policy was put into place, based on the belief that the wealth of the rich will “trickle down” to the remaining masses, and as the saying goes, “raise all the boats”.

Last summer’s protest movements brought this economic policy question to the forefront. The protests began with a demonstration against the high cost of cottage cheese. That quickly evolved into rallies against the high cost of housing. But beyond the stated declarations, the underlying theme of the summer protests was the Israeli public’s collective exasperation with feeling like “frayers” (Hebrew for “suckers”). An overwhelming majority of Israelis are weary of carrying the societal burden, while others (e.g. Haredim) do not. As a result, in the last few days, as the scent of elections has become pervasive, all of the major parties (as well as Prime Minister Netanyahu), are falling over themselves to replace the “Tal Law” that was struck down by the Supreme Court. Now every politician wants to compose a law that will impose a mandatory draft of Haredim. Of course, the economic problem with the Haredi community is not the fact that the overwhelming majority of Haredim do not serve in the military. It’s the exceedingly low participation of Haredim in the labor force that must be addressed. My policies on that matter will be the subject of a separate address.

Now, to the core of the matter. I believe that last summer’s protests and the undercurrent of unease among large percentages of the Israeli public came not only from the uneven burden carried by the silent majority, but from the literal burden of living here– beyond military service. I mean, the high actual cost of living here. The price of food in Israel is substantially more than the cost of food in the United States. At the same time, salaries are substantially lower in Israel, than in the United States. The median annual salary in Israel is now a little over $19,000, compared to double that amount in the United States.

As someone who has lived in both the US and Israel, the greatest surprise upon returning to Israel has been the epiphany that items that were once expensive are not. Alternatively, things that were once inexpensive are now exceedingly high-priced. Cell phones, iPads, and even computers are not substantially more costly than in the United States. Yet food is much more expensive. It was hard to believe that food, the one thing that everyone must consume, is outrageously pricey. The exorbitant price of food is annoyance for those benefitting directly from the information revolution. However, for everyone else, with modest salaries, the relative of cost of basic necessities make living here a true economic challenge.

Why is food so expensive? I do not have all the answers. It is clear the monopolies that control the food market are part of the problem. Most of the milk in this country used to be produced by T’nuva, a cooperative that produced milk and dairy products, (formerly owned by Kibbutzim and Moshavim). However, they sold T’nuva to provide pensions for their members. As a result, now T’nuva is a private company, acting with Strauss as a duopoly, trying to maximize their profits. Today, T’nuva pays dairy producers 2.1 shekels for a liter of raw milk. Once the milk is processed and packaged, that same milk is sold for 7 shekels a liter in the supermarkets that works out to almost twice the American price. A second reason for higher prices of food in Israel is that Israel is one of the few countries that collects V.A.T. on food. Thus, all food in Israel costs 16% more, at the get go.

If I am elected I will devote a substantial part of my time to designing a ten-year plan that will enable wages, especially in the public sector, to rise to the levels that are comparable to what workers receive in the Europe and the United States. We must work to bring the wages of teachers, social workers, nurses, and a host of other professions in line with the accepted wages for these professions abroad. This is not something that can be done immediately. However, a country cannot have a cost of living that is higher than much of the rest of the world, and provide wages that are forever lower.

Far too many hard working people find it a challenge to make ends meet today. We cannot wait to devise a long-term strategy, in order to begin providing solutions. Thus, I have four suggestions we should implement immediately, while we work to devise long term solutions. First, we should eliminate the V.A.T. on food.  Second, we should make a concerted effort to convince either Wal-Mart or Costco to open stores in Israel. We must allow these companies to freely source their foods in the world, with the most limited bureaucratic interference. Nothing brought down the high cost of furniture in this country faster than the opening of Ikea. Third, we should eliminate the need for Hebrew packaging on imported foods. This will allow for the much wider and less expensive importation of food– including through grey market sources, instead of the solely through the official importers. Lastly, we should force the Chief Rabbinate to accept any established Orthodox Kashrut certification from abroad. These four items would have a major impact on Israel’s food market, and, I believe, result in a lowering of food costs to a level that is more in line with food prices in the rest of the western world.

To conclude, I promise to continue to have frank discussions with you, the voters. Everyone must understand that dealing with the problems of income disparity is not easy. But, these problems cannot be ignored. Israel is not the United States, where the spirit of the individual is the highest ideal. Here, our mutual responsibility “Ze la’zeh” (one for another), is our most important national ideal. However, there is no free lunch solving one problem can easily cause others. Problems like the high cost of housing will not be solved easily. Some solutions may take years. But, we can take some action immediately, as outlined above. Now is the time to begin.

About the Author
Marc Schulman is the editor of Historycentral.com -- the largest history web site. He is the author a series of Multimedia History Apps as well as a recent biography of JFK. He holds a BA and MA from Columbia University, and currently lives in Tel Aviv. He is also a regular contributor to Newsweek authoring the Tel Aviv Diary.