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Mirror, mirror on the wall

In a recent interview to promote his recent memoir, Yaacov Kedmi made headlines. Kedmi, the former head of Nativ, an agency that among other things was behind the great wave of immigration from the former Soviet Union in the 1990s, told Yedioth Ahronoth: We lied to them.

Telling the Hebrew daily how Russian Jewry was coaxed and coerced into making aliyah, he declared: Thus we saved Israel.

The interview provoked quite a storm, with reactions pouring in from all directions. Shedding bright light on Russian immigration is one thing. But if there's one area that could really stand some examination and soul-searching, it's the Israeli economy - especially the technology sector - and the lies we tell ourselves in connection to it.

The Israeli media and public are in thrall to the country's high-tech story, attesting as it does to the genius, power and success of the economy. The success of the tech sector aids the argument of all those who support the status quo, which is that the Israeli system "works."

While the success of Israeli high-tech has been oversold by the media, it is indeed one of the great stories of the last 20 years. Less well-known is the fact that the foundation on which these achievements rests is cracking, which means trouble down the line.

The achievements of Israeli high-tech rely in part on those of the education system of the 1960s and '70s, from elementary school to university. But this system has been in decline for the past 20 years. Israel's scores in the PISA tests (Program for International Student Assessment ) have been among the lowest in the West, lower even than backward states such as Dubai, Greece and Croatia.

The high-tech story also relies in part on technologies developed by the defense establishment. Defense-related technologies have been red-hot for a decade, but there is no guarantee they will continue to be so. Things change.

And while the tens of thousands of physicists, mathematicians and electronics engineers who immigrated to Israel from Russia in the 1990s and found work in high-tech are not usually given credit for the high-tech boom, they should be. We are talking about the backbone of the sector, not the big executives. That infusion of talent was crucial, but now along comes Yaacov Kedmi and tells us that they didn't choose to be here, that they were manipulated into coming here by the state. The State of Israel, that is.

In truth, we didn't need Kedmi in order to make us realize that the likelihood of more quality manpower moving to Israel in the decade to come, compensating for the erosion of Israeli manpower, is vanishingly small.

There is a clear and present danger to the competitiveness of Israeli high-tech because of the deteriorating ecosystem of Israel's economy and the meteoric rise of countries such as Russia and India. Settling for easy solutions like government subsidies, tax breaks and pouring money into venture capital is superficial and shortsighted. It ignores experience around the world in how to create an environment that supports a competitive economy. Solutions that involve nothing more than shuffling money around will not bring results. Real solutions are difficult, protracted and involve conceptual changes. They require coalitions.

But before any of this can happen, the problem must be acknowledged. We'd prefer not to look in the mirror and to keep patting ourselves on the back.

Tiptoeing through the tulips en route to the gulag

One of the long and painful ways to create a world-beating economy is to make the domestic market competitive. But in order to leave behind the culture of cartels and monopolies, we need to take a hard look in the mirror.

That's a tough thing to do. It's so much easier to read the press releases of the bizarrely-named "forum of economic leaders," which claimed in a letter to the prime minister's committee for economic concentration that there is no problem of economic concentration. If there is a problem, it's the lack of connection, not the connection, between wealth and government, says the forum.

Economics commentator Matan Hodorov exposed this rather amusing missive on Channel 10 news. Sadly, we only heard extracts; surely it had other gems to offer, such as "war is peace," "freedom is slavery" and "ignorance is strength."

But never fear: When the forum members complete their conquest of Israeli media outlets they will certainly share other pearls of wisdom about the state of the economy.

Anyway, in the long run they won't have to explain that there is no economic concentration, that the economy is competitive and so on. On the contrary, the electronic and print media will tell us that the status quo is our friend, and as we work the fields of the kolkhoz or the salt mines of the gulag, we will drone the mantra: "Monopolies are good. Cartels are better. Economic concentration is a blessing."

Toothless tiger

Yair Seroussi, awarded the chairmanship of Bank Hapoalim at a wage cost of NIS 12.8 million a year, is adapting speedily to the status and the club. Seroussi hastened to appear before the economic concentration committee, talked to the press about the concentration issue and explained that competition runs fierce in the Israeli economy.

Sure it does. We all know the fierce competition everywhere we turn in the wireless communications sector, in cement, in credit cards, in fuel and especially in Seroussi's sector, banking. The banks are estimated to have anywhere from 10,000 to 15,000 more employees than they need and about the same number of employees earning 50% above market price. Yet Israel's banks earn double-digit return on equity. How do they do it? Is this marvel a figment of competition?

Here is a conundrum for Seroussi and his colleagues in the club who keep telling us how competitive the economy is. How do you explain that none of the giant monopolies and cartels in telecommunications, banking, retail and domestic industry are active internationally? If they were so competitive, and given their huge profits in the domestic market, they should have conquered the world by now.

If Seroussi can't explain it, maybe we can. Most of these monopolies aren't competitive, not even slightly. Their immense profits are based on the Israeli economy being closed and on tycoons watching each other's backs. The management of these monopolies is backward: They wouldn't stand a chance in the global markets. And when they tried, when these tycoons believed their own press and dipped their toes into the global marketplace, it did not end well.