A Small Step for Social Justice in Israel

The Trajtenberg Report is a good start; now, the protest movement must take heart and steel its resolve.

The heads of Israel's big corporate pyramids won't forget the start of Jewish year 5772. Any of them who spent the holiday reading the Trajtenberg Report know the way things are heading. But after five years of a handful of business groups controlling the public discourse, setting economic policy and guiding regulation, one could understand why they're the last to realize the rules are changing.

This is what Prof. Manuel Trajtenberg, Harvard graduate, capitalist and free-market man, wrote in the report he compiled with his team:

protest outside Tnuva - Moti Milrod - 05102011
Moti Milrod

"An onlooker might think that the chapter on the cost of living and competitiveness consisted of no more than a collection of examples of pinpoint failures in the way the state regulates economic activity in the various markets. There would be no greater mistake. The examples and cases analyzed above are part of a bigger, organized picture, part of an established regulative system designed over the years to serve narrow interests that do not coincide with the interests of the general public.

"Changing that system, given its scope, its deployment and its influence over the Israeli economy, will be a protracted process and should be done with caution, as it will certainly be opposed by the persons the regulative system is designed to shield."

It must be done to put the citizen back at the center of the economic stage, Trajtenberg wrote - not the citizen as a means of production, consumer or employee, but as the person for whom the economy operates from the get-go. It is for the citizen's sake that the state must act to revivify the markets and make them more competitive, to allow the market forces to operate for the good, and to blunt their destructive powers when the free market fails. "Simply, this is a process of changing economic priorities in the nation," Trajtenberg wrote.

On Sunday night, the government approved the Trajtenberg Report. The leaders of the protest movement were not pleased. They would like the national budget reopened for discussion; they want a welfare state to arise out of nowhere overnight. But the Trajtenberg Report set directions. It did not indulge in rhetoric or lofty ideas, but in profound concepts that can be quickly translated into activity, because the new discourse, as I have said before, will ultimately have huge influence over the decision makers.

Trajtenberg didn't just suggest tweaks to tax policy, social services and the budget; he rewrote Israel's recent economic history and shed new light on the performance of the business and public sector.

The introduction to the Trajtenberg Report and the chapter on the cost of living are indictments of Israeli regulation. Trajtenberg writes that regulation of powerful economic institutions has failed, that a whole regulative system was shaped to protect the rich and powerful, and that it transfers vast wealth from the many to the few. TheMarker has been reporting on these issues for years, yet the clique of monopolies, privately owned and state-owned alike, abetted by spineless regulators (and former regulators who joined their ranks ) systematically dismissed the claims, arguing there is no economic concentration in Israel and that we have a competitive economy with superb regulation.

Here are some of Trajtenberg's ideas:

The vast wealth and power accrued by a thin layer of people is not an expression of modern market economics; it attests instead to abuse by monopolies, cartels and concentration groups. The damage these cause isn't just in the form of flimsy competition in all too many branches; it is the growing sense of injustice people feel. Trajtenberg sees that thin layer as being one of the two main causes of that feeling.

He categorically states that regulation and politics in Israel systematically lose their battles against the monopolies and strong economic bodies, whether they're owned by "the tycoons" or the state (meaning they're controlled by powerful unions and politicians ). The public is the loser in these battles, which means its money is being given to the few, Trajtenberg states.

Privatization in Israel has failed in many cases, Trajtenberg says. But the rising sentiment against privatization is a failure in itself. Privatization, or government outsourcing, can go well or ill; it's a question of how it's done, measured, supervised and managed. Jerusalem is bad at privatization because it has no management tools, Trajtenberg states.

He reveals no secrets by stating that the public sector is inefficient and, sometimes, dysfunctional. Beefing up budgets as some protesters demand will change nothing, as the money will pour into ineffective systems.

Trajtenberg isn't seeing something that nobody saw before. What happened is that the protest created pressure and conditions for his committee to say things people had known but had been afraid to express. But coming from a government-appointed committee of experts and regulators, these statements resound.

Oink oink

Trajtenberg's first shockwave arrived right after Rosh Hashanah. That Sunday, Zehavit Cohen resigned as chairwoman of Tnuva, Israel's biggest food company, and as chairwoman of Psagot, Israel's biggest investment house. Her resignation followed the Antitrust Authority's decision a week before to investigate Cohen and Tnuva's management. Its decision to act aggressively and decisively against Tnuva, at an early stage of the investigation, reflected a new mood, which arose in the discussions of the Trajtenberg sub-committee on the cost of living and competition.

Antitrust Commissioner David Gilo and his people grasped the change in the public's mood, and in Jerusalem's corridors, toward the great monopolies and their leaders. When Shlomi Prizat, Gilo's chief economist and member of the Trajtenberg Committee, wrote in the introduction to the report about the failure of regulation, he knew he was indicting his own institution, the Antitrust Authority.

The recommendation to force the monopolies to publish financial statements, even if they aren't public companies, helped Tnuva reach the decision to publish its report.

Especially intriguing is a statement by Arik Schor, Tnuva CEO, that the financial report proves Tnuva's profits are reasonable, not excessive. It was the first time the CEO of an Israeli monopoly has admitted that profits can be excessive. Until recently, Israel's business leaders thought the concept of piggish profitability - illegitimate, that is - was communist doctrine or, at best, anachronistic. But when Trajtenberg ruled that some of Israel's business stars pump money from the public not by virtue of talent but via the abuse of monopolistic power, the road to acknowledgment of piggish profitability is short.

Tnuva spent much money branding its cottage cheese as a home we all yearn for. Yet as Tnuva jacked up the price of cottage cheese, the result was a backlash stronger than any before in the history of Israeli consumerism. The beloved company became the most hated in Israel. Consumers report angry glares and rebukes when they reach for Tnuva products at the local supermarket.

But the monopolistic cream Tnuva skimmed from the people is just a symbol. It isn't anything extraordinary. There is a long list of giant companies looting the consumer far more egregiously, both in terms of their profit margins and in absolute numbers too.

The real question is whether the boycott of Tnuva and the company's capitulation are a harbinger of real change in the Israeli economy. Will Israeli consumers rise up against abuses, or will they only react when the gouging touches one of their favorite products?

The question isn't only whether the Tnuva precedent will repeat itself in finance, communication, food, construction or transport. The issue runs deeper. For instance, will the public take on more complex exploitative sectors that abuse not only consumers but taxpayers?

Tnuva is a simple case. That monopolistic cream went into the stomach of a foreign investment fund. It's easy to sympathize with a fight against a foreign investment fund that isn't part of the Israeli business milieu and hadn't finished the process of forging ties with Israeli power hubs like the other tycoons have done. Zehavit Cohen was no different from other abusers of the system, and she wasn't the worst.

But what will the public do about monopolies that feed the cream skimmed from the public to thousands of unnecessary workers earning several times the average wage? Is the moment coming when the public realizes that the road to a welfare state doesn't pass only through tax hikes, but also through efficiency and improving the efficiency of the public sector?

Last week, the public proved that it has power. It can move rocks that had been thought immovable. But true revolution can only happen if the public discourse on exploitation expands. Lowering the price of cottage cheese and yellow cheese does not signal change in the economic system. Real change passes through the issue of what is social justice, what a welfare state is and how it can be created. The question is how to expand the pie, not how to share it.

All must be involved in this discourse - consumers, taxpayers, government, academics; and business too. Israel must not succumb to anti-business sentiment. Business isn't just tycoons; it's also small companies, industry, competitive companies, whose heads must speak out too. The debate must not be abandoned to financiers and leveraged tycoons.

The Trajtenberg Report is just the beginning. It touched on just a few of Israel's structural ills for two reasons. The trivial one is that in seven weeks, one can't rebuild a nation. The second reason is that the courage of the Trajtenberg Committee is the mirror image of the courage of the protesters.

Many sacred cows need slaughtering, including the gargantuan waste in the defense system and pensions paid by the public to government workers. To tackle these, the protest must evolve and take heart. It's easy to demand budgetary expansion and live better today at the expense of the next generation. It's harder to take on true powers and admit that social justice means hurting the pockets of hundreds of thousands of people living high on the hog of the twisted system.

Trajtenberg did well to begin shedding light on the problems. Now, the protesters must do well to say that isn't enough; the protest is here to stay.