Bakers outfox Eli Yishai - Haaretz

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Wed., November 28, 2007 Kislev 18, 5768

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Bakers outfox Eli Yishai

By Nehemia Shtrasler

Tags: Eli Yishai, economy, Israel

Eli Yishai's flip-flopping proves that populism is a poor consultant. The more concerned you are about public opinion, the more mistakes you are apt to make. The less you understand about market economics, the more easily you fall into traps.

In any event, bakers are laughing now, at how easily they managed to pulled the wool over the eyes of Yishai, the minister of Industry, Trade and Labor. Bakery Association head Yohanan Aharonson is smiling all the way to the bank.

Just two weeks ago, it was Yishai himself, in his hat as an MK, who proposed that the government deregulate bread prices, in exchange for which the treasury would provide special compensation to National Insurance stipend recipients. Bakery owners got a whiff of the plan, and balked.

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Foreseeing that the easy life was about to come to an end, they conferred, and in a well orchestrated move, they announced to the press that they intended to raise the price of bread by 50-70 percent as soon as deregulation took effect. Yishai took the bait, and alarmed, withdrew the proposal. He will stick with the regulated bread.

Yishai believes that the bakeries can control prices. But if it's so easy, why make the announcement in advance? They could have said that they'd consider their next steps, and make their decision when the time came. This would have lulled the minister into going ahead with deregulation, at which time they could have increased prices by 70 percent and raked in the profits. So simple, so easy. So why didn't they do that?

Because they can't. They know how the market works. What they really wanted was to scare Yishai, and prevent deregulation.

Manufacturers love price controls. No government knows the real price of manufacturing a loaf of price-regulated bread. Bakers provide data, with which they have performed miracles through attribution of costs to different products. The public, which confidently believes that someone is actually checking this data, pays the price without thought or doubt. Nor do large institutions that buy tens of thousands of loaves of price-regulated bread, like the army and hospitals argue - after all, "it's regulated."

Mark Moshvitz, founder of Elite, told me once that Elite's best years were when it was subject to price regulation: "Back then I just needed to persuade a single government official in the Ministry of Industry, and it was quite easy to do. It's much harder to persuade the market."

The big bakeries know that their party ends the moment bread is deregulated. They will have to start competing over every supermarket, hospital and army base. They know that there are no barriers to entering the sector. Anyone can buy an oven and open a bakery. Producing price-regulated bread is not rocket science, and if they dare raise prices too much, now competitors will step in to squeeze them out of the market.

If Yishai understood economics he'd have told the bakers: "If you intend to raise prices by tens of percent, that means there must be a huge shortage of bakeries, so I'll allocate a few tens of millions of shekels to encourage new bakeries. Any comer will get a special grant to open a new bakery, because it's very important to me to make sure there is no shortage of bread." Berman and Ahronson would have folded in no time.

Yishai needs to know that even now, in the midst of a false crisis that he himself has created, some bakeries grant discounts to grocery chain stores on regulated bread - so that the chains will promote their sales. He needs to understand that the moment that competition begins, some chains will even cut the price of bread to attract customers. He should be made aware that as soon as price-regulated bread is deregulated, it will be upgraded. It will no longer be stacked unwrapped in cardboard boxes in the doorways of stores. It will be wrapped and handled in a manner that befits bread.

So perhaps it would make sense for the minister to rethink his position, perform one more flip-flop, and revert to his original plan to deregulate the price of bread, and thus remove the issue from our national agenda.

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