Taking Stock / Options for the Masses

Finance Minister Benjamin Netanyahu just doesn't sit still for a second. The threat of mega-strike still looms, he hasn't pushed his budget cuts through the Knesset yet, but Bibi's still churning out ideas and headlines.

This time, the brain behind the campaign is his latest star, Yaron Zelekha, appointed to the powerful seat of accountant-general at the tender age of 34. Zelekha is reviving a not entirely new idea, of giving every adult in the State of Israel options for shares in Bank Leumi (TASE: LUMI) at half price, thus killing two birds with one stone. It would give the public a nice present and get rid of the shares the state has been stuck with since the great bank shares scandal of the early Eighties.

The idea is not devoid of advantages. The state gets to shed the shares despite the absence of demand, no particular business baron would benefit by buying out the state through a leveraged buyout. Instead, the state's interest would be disseminated among the people. The stock market would benefit from the increase in negotiability and depth.

The idea isn't devoid of disadvantages, either. Selling options to the people at half-price is akin to handing out money to the public, just as the government is struggling to scale back its deficit. Any profit the option recipients make is the state's loss, and ultimately the state is financed by taxing the public.

Will receiving the options change the public's behavior in any way? Will the people of Israel storm the markets and buy products? Not at all. The public knows this is a one-off. What matters to the people is fixed income, and projections of the government's economic policy.

Handing out equal portions of options to all is an unequal gift. When the state forgoes full compensation for assets it's selling, by handing them out to the general public on the cheap, it reduces the scope of resources it can allocate to the poor. The options will be given to hundreds of thousands of Israelis to whom a few hundred shekels here or there will make no difference at all.

One could go on quibbling about the idea, comparing it with a successful similar plan carried out in Britain, or with the fiasco in Russia. One could argue it would enable a controlling group to consolidate while others opine that having a controlling core in the banks is unnecessary.

But the truth is that the whole issue is trifling. The options plan is unimportant, the benefit to the people after tax comes to a few hundred million dollars, which are a few percent of the deficit. Nor does the plan address any of the economy's real problems, such as the government's towering deficit, the flawed structure of the labor market, the endless red tape, or the creation of conditions inviting to investment.

Nor will it substantially affect the banks in any fashion. Bank Leumi and Bank Hapoalim will continue to be a bloated duopoly crushing the households and raising salaries for their workers every year, rain or shine.

The options plan is the kind of thing that generates a lot of noise, which will die down a few months after its completion, leaving no mark whatsoever on the economy.

The great upside of the plan, says the finance minister, is clear: it has no opponents. The bank chiefs like it a lot because it preserves their control for a few more years. The general public likes it because everybody will get a few hundred more shekels. The stock market chiefs like it, the brokers like it. Indeed, why object at all?

The easy road

But that is the whole point. Very few crucial economic changes are easy. The structural reforms Israel needs generally hit at very powerful interest groups. If a plan isn't arousing opposition, it probably isn't worth its salt.

It is easier to lavish Bank Leumi shares on the people than to slash the deficit to 4 percent of GDP, in order to institute real tax cuts and stimulate the business sector.

It is easier to lavish Bank Leumi shares on the people than to grapple with the bank barons over their domination of the system, or to wrest the mutual funds from their grasp.

It is easier to give shares to the masses than to expose the ports to competition. It is easier to negotiate with the banks and brokers about the options than to negotiate slashing profligate army pensions with the balky Defense Ministry.

If the options plan is designed merely to decorate an economic program based on increasing public sector efficiency, elimination of flab and introducing competition, it could well serve as a symbol of creative thinking.

But if the great options plan becomes front-page news over months, or turns out to be the cornerstone of the treasury's plans for the economy, or crops up as a constant motif in the finance minister's speeches, it would be a bad sign. It would indicate that Netanyahu has wearied of trying to institute genuine change, and has decided to settle for taking the easy road and, mainly, marketing.