Cuts for the little guys, as the big guys party
Two private bills were recently introduced in the Knesset: One calls for the banks to pay interest on accounts with a positive balance, the other wants to remove all bank fees on private accounts.
What's circumcision? The little guys are cut and the adults party. The infant screams but can't do anything about it, but the big guys eat, drink and enjoy themselves.
This metaphor is quite relevant to the doctrine of the Israeli economy. The damage is always borne by the little guys, while the big guys continue to party - in many cases, on the backs of the little guys.
Take the banks, for example. Two private bills were recently introduced in the Knesset: One calls for the banks to pay interest on accounts with a positive balance, the other wants to remove all bank fees on private accounts.
The two bills are extreme. Both reflect blatant interference in the way banks do business every day. But both stem from the growing frustration among the people, who feel that they are being taken advantage of, both by excessive fees and deadly interest rates for their overdrafts.
The banks respond that they charge fair prices, on average - but the average is not the problem because there is no such thing as "the public." There are two publics: One comprises the large corporations and the tycoons, and the other includes the middle class and small business owners.
The large companies and the tycoons hold accounts in a number of banks and can move from one to another very quickly, carrying out this or that deal. So the banks compete for their patronage and charge fair prices.
But the middle class and small business owners work only with one bank - that's where they keep their savings and pay their bills. So they are bound to the bank. Note, for example, the amount of money and energy that Bank Mizrahi spends to get "Dvir" to transfer his account to it - as the advertisement goes. Because these are captive clients, the banks charge them maximum fees and murderous interest rates. They can cry about it, but it's the big sharks that laugh.
This is also the case in cellular telephony. Companies charge their individual customer enormous fees. They confuse him with complex plans and an unclear bill, and charge him fees for services he never asked for.
But when the big firms make a deal with the cellular telephone company, the conditions change completely. Suddenly that company is willing to charge only 20 agorot for every minute for a call on its network, and 27 agorot for a call to a different provider. For sending a text message it will make do with 18 agorot. Has an individual customer ever received a similar deal? It's always the little guys who pay above and beyond, and the big guys party at their expense.
This also happens with the investment firms that manage our pension funds. They also think that their management fees are fairly reasonable. But the little client pays the maximum that the law allows at 2 percent, while the big client pays much less.
An employee who makes NIS 20,000 per month on average and puts some of it away in a pension fund for the 37 years he works, in accordance with the law, can save up to NIS 3.7 million at a 4 percent annual return. But he will only receive NIS 2.7 million because 2 percent in management fees takes away NIS 1 million of his savings.
But if someone belongs to a major organization, or is a tycoon who knows how to bargain, he will be charged only 0.5 percent management fees and will have NIS 3.45 million left, not NIS 2.7 million. In this case, too, a bill has been proposed by a few MKs, who want to drastically reduce management fees on pension funds.
What then is the solution? Is it appropriate to support legislation that blatantly interferes with the market? Is the solution in teaching the public to bargain? Should basic economics be taught in high school? Should the regulator ensure that reporting to the public is improved so people can understand what and how much they are paying?
It seems that everything above except the legislation should be done. That should be kept as a final option, because legislation may have negative results. But the banks, cellular telephone companies and investment firms need to know that these bills are like a Sword of Damocles over their heads. If they don't improve their ways, public pressure will produce legislation, and then the people won't be the ones crying and complaining, it will be them.
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