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1. A cynical smirk spread over his face when I brought up the question. He didn’t even think it worth answering. Only when I repeated myself did he trouble himself to reply. “The idea that the executives earning these vast amounts would abandon Israel for the embrace of multinationals because of this legislative proposal to cap executive pay is ludicrous,” he snorted. “Most of them have no relative advantage to offer, or real ability to function in big companies outside Israel. They have no skills, abilities or international network of contacts. They aren’t high-tech people.”

It isn’t that he’s a socialist, my protagonist in conversation. He isn’t. In fact he’s one of Israel’s more extreme capitalists. He embarked on a career in business 30 years ago and by buying, bettering and selling companies became one of the richest men in the land. His entire world is one of returns, profits and payments. I never heard him mention social issues or politics, which is exactly why this issue of executive pay irks him. He is utterly convinced that the gigantic salaries some managers in Israel’s publicly traded companies have zero correlation to economic excellence.
 

If anything, he feels that the sharp increase in executive pay has corrupted corporate management in Israel, he told me last week. “I sit there with managers who are delivering mediocre performances, and who demand high salaries just because they read in the paper that somebody is earning more than them. Sometimes it’s their spouses driving them crazy.”

Whatever the cause, they all want to be among the best-paid managers in Israel. “I say to them, let’s set a mechanism that measures improvement in profitability and share price over five years. But they answer that they got an offer to make big money here and now.”

Naturally, my protagonist in conversation has an interest in this matter. He would like Israel to have a competitive market for managers, and norms of correlation between performance and pay. He is a firm believer that companies rise and fall based on the skill of management. I think he shares his interest with everybody reading this paper, everybody who doesn’t belong to the junta of tycoons that has seized control over the economy in the past decade.

Yet I play devil’s advocate, arguing the case of the junta for a moment and say, “But the prime minister and his advisers say Israel has to compete with American salaries.”
“America,” he grimaces. “Wall Street is the worst example there could be. That’s where the public and shareholders are getting truly robbed. Why do we have to take lessons from the American bandits?”

2. Twenty-six years ago, Daniel Doron established The Israel Center for Social & Economic Progress, which describes itself as “an independent pro-market public policy think tank.” Its purpose is to disseminate the concepts of the free market in Israel. Doron is considered a red flag to most of the people who present themselves as bleeding hearts. He is considered a fervent follower of Milton Friedman, a Nobel laureate in economics who represents the right wing of American capitalism. Doron, formerly an economic adviser to Prime Minister Benjamin Netanyahu, despises intervention by government and its bureaucrats. On the occasion of his 80th birthday last month, some of Israel’s biggest free-market advocates, including Bank of Israel governor Stanley Fischer, showed up and spoke warmly in Doron’s praise.

On the face of it, therefore, it was astonishing to read Doron’s article in the daily Israel Hayom, blasting giant executive salaries. But it turns out that he hasn’t turned communist or socialist in his dotage. Contrariwise: He postulates the giant salaries attest to Israel remaining stuck in the era of Mapai cronyism. “These companies are quasi-public, yet they are also monopolies,” he wrote. “Thus the one paying the price is the Israeli consumer and taxpayer.” It’s a bad joke to speak of Israel and free markets in the same breath while 16 families control most of its assets, Doron writes, “But the joke is on us.”

3. Bank of Israel governor Stanley Fischer is also a great proponent of the free market system and competition. He learned it, taught it and propounded the way of the free market when serving as vice-chairman of the International Monetary Fund. As governor of the Bank of Israel, he also thinks that something needs to be done about executive pay. He also feels that the domination of the economy by a clique is a danger that threatens Israel’s economic growth, productivity, innovation and democracy itself.
In other words, the argument over executive pay isn’t between capitalists and socialists, between the sharks of Wall Street and the cows of the kibbutz. It is an argument between proponents of the free, competitive market, who think that vast swathes of the Israeli economy talk the talk but don’t walk the walk, and a clique who likes things just the way they are. It is a junta of people who don’t like some of the fundamentals of the free open market, such as that competition thing, and equal opportunity.

4. Members of the anti-competition junta, their cronies and wannabe cronies have been warning that if executive pay is capped, management talent will leave Israel. Jump ship. Brain drain to the U.S.

Ridiculous. Out of 1,000 of Israel’s best-paid managers in the past decade, you won’t find 10 who decamped to run a foreign company. It isn’t because they are fervid Zionists, either. It’s because nobody asked them to. The ones who do get such offers are all in high-tech. They are the most talented of Israel’s engineers and academics.

Maybe the prime minister and his foreign minister should talk less with the tycoons and their cronies, and ask these stars of high-tech why they’re thinking of moving away from Israel. They will tell you about the cronyism in the private sector dominated by families, about the neglect of education, about “fixed” tenders for mediocre people throughout the public sector. They may share their general discontent: that Israel is a combination of capitalism and crony socialism.

We have a suggestion for Shelly Yachimovich, who is promoting the law that would limit executive pay. To neutralize the prime minister’s bluff about a “brain drain,” announce that your bill doesn’t apply to engineers and CEOs of high-tech companies, or international companies that don’t feed off the table of the taxpayer.

The public isn’t stupid, and it’s had a bellyful of exorbitant executive pay. But it doesn’t begrudge talented technology executives who become overnight millionaires from selling their startups. It doesn’t begrudge people who founded small businesses that made it. Most of the public accepts the principle of rewarding brilliance and hard work. But it understands that what we’ve been seeing here for the past 10 years has nothing to do with these good things.

It is time for the prime minister and his advisers to set aside the interests of 16 or 20 families and their 5,000 cronies who threaten mass flight, and think about the hundreds of thousands of young people who aren’t threatening to get up and go, if only because nobody’s listening to them. Some would like to. Others know they have no choice. They have no other country.