Social protest - Michal Fattal - September 2011
The people took to the streets demanding social justice. Photo by Michal Fattal
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Bloomberg
Robert Shiller, co-creator of the Case-Shiller Home Price Index. Photo by Bloomberg

Following the large-scale demonstrations of last summer and everything that has happened since then, many Israelis feel that the social protest failed.

"When all is said and done, nothing happened," they say. "The government hasn't been replaced and Bibi is still doing whatever he wants. Prices haven't dropped. The Haredim haven't gone to work. They aren't putting up low-cost residential towers in Tel Aviv that would lower apartment prices."

As far as they can see, the 25-35 age group still cannot see daylight at the end of the long tunnel of high apartment prices - both for purchase and rental - or the general high cost of living that has sent their family budgets into deficit territory.

But they're wrong. As a direct result of last summer's protest, quite a few processes have begun or been accelerated that could score important points in the battle for social justice - the official target of last summer's protest.

Some of the recommendations of the Trajtenberg Committee, for instance, are becoming reality. Similarly, the economic concentration committee, which is addressing the excessive power wielded by a handful of tycoons, could not have presented its recommendations without the tailwind provided by the protest.

In the political arena, the social protest has led to a perceptible increase in the strength of Shelly Yachimovich, who took over the Labor Party. Yair Lapid entered politics on the same exact ticket - "Where's the money?" and "To whom does the country belong?"

Even the Supreme Court decision to strike down the Tal Law, which is also a legal issue, was buttressed by the protest's demand to augment the number of participants in the labor force - by integrating Haredim in the economy, for instance.

More than any single decision or proposed legislation, last summer's protest focused the national public discourse on the civil issues of economy, society, equality and income gaps - more or less for the first time since Israel achieved statehood.

More reforms are needed

So why do so many people continue to feel that the protest failed? There are several reasons. The first is that reforms and shifts of priority take a great deal of time, especially in a democratic political system that allows all parties - including those not interested in change - to express their opinion and exert their influence.

The real effect of the protests of 2011 will be seen only in five years' time, if not 10 years' time. Only then will historians be able to determine whether the demonstrations of hundreds of thousands of people in Rothschild Boulevard and Kikar Hamedina were the beginning of a new trend on the way to a more just and efficient society, or a one-off event that did not hold up in the face of the superior strength of those opposed to change.

The second reason for the lack of belief in the success of the protest is a confusion of sorts when it comes to appraising society versus politics. Too many people are drawing parallels between what they see as the realization of social justice and the identity of the ruling political party - and particularly that of the prime minister.

These are people who believe that a political-security solution is the prerequisite for rapid progress on the social front, and therefore are not even open to considering such progress without new leadership.

There is no doubt that the magnitude and political power of the security establishment in Israel is delaying the formation of a more just economy and society, but the accomplishments of the summer protest prove that it is possible to make progress even without a political breakthrough. If the protest proved anything, it is that there is no need for regime change in order to carry out socioeconomic reform and change.

Netanyahu, who was strong at the ballot box before the protest and is strong now as well, is the individual who appointed the Trajtenberg and economic concentration committees, and he affirms his desire to carry out reforms in real estate and transportation. Decisive protest, it turns out, can be an effective tool for revamping the public discourse and encouraging changes and reforms - especially if it is not combined with the private political aspirations of those interested in replacing the regime.

The third reason is the most important of all: Not enough reforms, revisions and shifts in priority have been carried out yet to make the majority start believing that the future is going to be better and more just. The tables of executive salaries in public corporations, the wage gaps and shows of force by the larger unions prove that the basic Israeli formula has not changed. In Israel, there are the well connected - in both the monopolistic private sector and the public sector - and then there are all the rest.

The money is with the financiers

So what else can be done?

The list of immediately needed reforms is well known: dealing with the employment of Haredim and Arabs, effectively addressing the public sector and attending to the excessive economic concentration and lack of competition in the economy. But there are other ideas, as well.

In an analysis of the U.S. economy that appeared several weeks ago, the economist Robert Shiller, co-creator of the Case-Shiller Home Price Index, described the makeup of the ruling class in America. If you would ask Shiller "Where is the money in America?" his answer would be unequivocal: The money is found within the financial elite.

It would not be hard for him to prove it. When he scans the Forbes 400 list of America's wealthiest people, he finds that nearly all of them have grown rich from the capital market - or that they inherited their wealth from others who did so. The list includes financiers and money managers, those who are very actively taking part in the financial markets and in the buying and selling of corporations.

And he asks: How is it that on the entire list there isn't a single scientist or Noble Prize winner? Is there something substantively unjust and immoral about the economic system, as increasingly more people in America are thinking?

Shiller's answer is negative: The capitalist financial model was the agent of progress in America and contains no basic moral defect. Conversely, he says, the institutions and mechanisms around it are not designed or intended to promote equality of income or social justice. In order to alter this reality, Shiller raises a few practical proposals.

For starters, he talks about the taxation mechanism. In parallel with income tax, he proposes, it would be possible to think of a tax on consumption, one that would progressively increase as the consumption level rises. This tax would not adversely affect incentives to succeed and grow wealthy, and would also encourage saving, philanthropy or both. The problem: This tax would not be at all simple to implement.

Shiller speaks of estate taxes, which in his opinion is one of the most effective mechanisms for creating a national sense of justice. People have no problem expecting extraordinary wealth that is attained by virtue of extraordinary ability or talent, but they are more uncomfortable with wealth attained by other means - including inheritances.

In a survey conducted by Shiller and two colleagues in 1990 in the U.S. and Russia, it emerged that the public felt that such a tax ought to be levied on the order of about one-third of the value of the inheritance.

Shiller argues that even ordinary income tax - a progressive tax - is built improperly. The system, the principles of which are identical in Israel, was not designed out of any express intent or plan to contend with inequality.

If this were the case, it would be possible to think of a dynamic mechanism that links between tax brackets and the level of inequality in income among the general population - such that when the measured inequality would begin to climb, the tax brackets would be adjusted so as to reduce it to former levels.

Shiller found that if it were decided to restore the income gaps in the U.S. to the level they were at in 1979, it would be necessary to raise the current marginal tax on higher incomes to 75 percent. This finding painfully demonstrates just how great the gap between the wealthy and the rest of the population has grown.

To sum up, Shiller stresses that we must not create a society in which all incomes are equal. A certain level of inequality is critical and desirable in order to foster creativity and success, as well as offering an outlet for relieving aggressions and craving for power. Yet in our opinion, more progressive mechanisms must be created in order to set boundaries to the inequality.

Shiller's opinions are progressive: He refers to integration of insights that have accumulated in recent years in the realms of economy, taxation, psychology and even brain science, in order to create a more egalitarian social-financial system, while supporting and encouraging the better sides of human beings.

And what does all this have to do with Israel? Since the social-financial system in the U.S. is also in need of a series of fundamental modifications, it would be worthwhile for us, as well, to consider new ideas - including those that might seem revolutionary - instead of making the same mistakes that others have made.