Cost of monopolies
Israel's monopolies cause tremendous damage to the economy. The Finance Ministry estimates these damages at NIS 5 billion annually. The damage caused by the monopolies (most of which are government companies) are not only limited to high prices for the public, but also to the raising of manufacturing costs to the business sector.
In the mid-1980s, a newspaper reporter asked Marek Moshevitz (then-controlling shareholder of Elite Industries) how he manages with the harsh reality of supervised prices, since he has to receive approval every time he wants to raise the price of each of the dozens of products made by the company. "This is the very best time for Elite," Moshevitz replied with a smile. "All I have to do is convince one clerk at the Industry and Trade Ministry, and that is much easier than competing with imports."
These words were brought to mind when I read the revolutionary ideas propounded by Industry, Trade and Employment Minister Ehud Olmert, who has decided to set up a committee to examine the prices charged by Israel's monopolies compared to the acceptable prices of similar products overseas. "At the end of the investigation, we will take action if we find substantial disparity," Olmert said. "Only after I see the results will I decide whether to lower prices, and by how much."
In other words - My fellow industrialists, you know which side your bread is buttered. Come and visit me, convince me, talk to me, plead with me, and if I am convinced, I will not touch your prices.
Any beginning economist knows that comparing local prices with those abroad is impossible and unnecessary. The products are never the same: they are many and varied and of different qualities. The market conditions are different, and every manufacturer has a different pricing policy for different clients. Furthermore, price supervision is ineffective. Just look at what Moshevitz said.
Therefore, the only solution to the problem of monopolies in consumer products, whether they are Osem's pasta products or Tnuva's milk, is the cancellation of the customs and import licenses and the opening of the market to competition. The prices will then drop to world levels, even before Olmert has time to issue a press release.
Israel's monopolies cause tremendous damage to the economy. The Finance Ministry estimates these damages at NIS 5 billion annually. The damage caused by the monopolies (most of which are government companies) are not only limited to high prices for the public, but also to the raising of manufacturing costs to the business sector. This in turn harms the competitive ability of Israeli companies, exports and manufacturing decline, and unemployment rises.
The employees are the real owners of the government companies. This means that instead of the surplus profits going to the owner of the monopoly, if it were in private hands, the profits go to the workers - via higher salaries, preferred retirement conditions, and an excessive number of employees, while all of us pay the price daily.
The main monopolies in the economy are:
-The Ports Authority: This is a monopoly that unites the Haifa, Ashdod and Eilat ports, causing increased import and export costs, and therefore, higher prices for all products in the economy. The ports' production is low, work is not done round-the-clock nor on every day of the year, and wage expenses are among the highest in the economy - three times that of the average salary.
-The Israel Electric Corporation: The treasury has determined that the losses to the economy as a result of the IEC monopoly amount to NIS 524 million annually, which we pay via the price of domestic and industrial electricity. The losses are caused by the IEC's inefficiency, hidden unemployment of about 3,000 people, free electricity that is provided to company employees, very high salaries and outrageous retirement benefits.
-Fuel: The monopoly held by the oil refineries causes annual losses of some NIS 200 million due to extra manpower, high wages and inefficiency. Israeli consumers pay 25 percent more than the price, before taxes, that American consumers pay for gasoline due to the refineries' monopoly and the absence of full competition.
-Dairy products: Tnuva is the monopoly in the milk sector, and the whole industry is arranged by a cartel that distributes milk allotments among the kibbutzim and moshavim, which receive higher prices than accepted elsewhere in the world. After processing, the price of milk to the consumer is 35 percent higher than in Europe and 60 percent higher than in the U.S., leading to $110 million annual losses to the economy.
-Water: Due to the highly inefficient monopoly of the Mekorot Water Company, the price of water here is higher than in other western countries, but still does not cover Mekorot's costs, which are burdened with extra manpower, high wages and inefficiency.
-Telephone: Bezeq has a total monopoly over landline telecommunications, with hundreds of superfluous workers and rates that are too high - only because there is still no competition in that market.
-Banks: The banking system in Israel is very concentrated: five banks handle 90 percent of the sector's activity. As a result, consumers pay extraordinarily high service charges and exaggerated interest rates, which finance the extra manpower, high wages and inefficiency of the banks.
Each one of these monopolies has various explanations and different justifications. They say that their prices are low, that they are facing tough competition, that they are undergoing amazing streamlining processes, and other similar excuses that prove that when it comes to wisdom, at least, they do not have a monopoly.