Populism for 32 agorot
Subsidizing bread means paying the bakeries from the state budget. It sounds simple but it's the worst possible solution, from both economic and social aspects.
Every year or so we get this song-and-dance - price hikes from one end, protests from the other. In the first act, the Ministry of Industry, Trade and Labor announces the bread price is rising. Immediately the second act begins, with the known, unsurprising and oh-so-populist response of certain MKs.
They want us to believe they're the good ones while the prime minister and government are the meanies who want only to harm and hurt the lower classes.
This happened again on Monday, when the state-controlled bread price rose by 32 agorot (from NIS 4.92 to NIS 5.24 ). Opposition leader Shaul Mofaz hastened to declare it a punch in the weaker classes' empty bellies. MK Amir Peretz (Labor ) said it was rubbing salt on the wounds of lower classes. And Meretz MK Ilan Gilon said it was a bomb thrown on lower-income earners and demanded to know how Netanyahu dare roll the wheat prices onto the consumer.
Must Netanyahu finance the bakeries from his own salary? Nobody denies production prices are higher, fuel is more expensive, wheat prices are up and so is the dollar. So how can the bakeries continue working without compensation?
There's one way - subsidize the bread. That means paying the bakeries from the state budget. It sounds simple but it's the worst possible solution, from both economic and social aspects.
Until 1990 bread was heavily subsidized. But it wasn't the poorer classes who enjoyed it. They, it turned out, spent twice as much on pita as on price-controlled bread. So the middle class enjoyed the subsidy, but paid for it with ever-increasing taxes.
The bakeries loved the subsidy. After all, who can check how much flour goes to the price-controlled bread and how much to the rest of their goodies?
In the '80s bread was so cheap it served to feed animals. It was also in high demand in the territories, whence it was exported to Jordan, and beyond. In those years, when a budget problem arose, the government had to cut subsidies, which prompted a huge public outcry. So it was decided in 1990 to revoke subsidies for bread, chicken, eggs, milk, cheese and oil. Instead of subsidies, the government controlled the price of bread and some dairy products.
The solution is simple enough: Remove that control. Once the price is decided by market forces, it will not only not rise, it will drop. Bread quality will improve. That's the power of competition.
The problem is, the moment the bread price is no longer state-controlled, the periodical ritual song and dance will come to an end. The Industry, Trade and Labor Ministry will no longer be able to make dramatic announcements about the rising bread price and the MKS will have to find another horse to ride all the way to the polling stations.