In May 2012, TheMarker reported on wage costs of top people in the IDB group. They weren’t exactly luminaries of corporate management, but as long the group owned monopolies and cartels and had easy access to the public’s money, through their friends at banks and insurance companies – they could help themselves to sky-high salaries with impunity. How much? More than NIS 600 million (about $150 million) over a decade.
It can’t be said that such information makes waves. People figured they couldn’t do anything about sky-high executive salaries and they also figured IDB was a giant that couldn’t possibly fall. Nor did the public really distinguish between managers who create value and those who take value.
Nor did people see the connection between sky-high executive salaries and their cost of living, and pensions.
Now that IDB has collapsed, now that the court has sent its controlling shareholder packing, now that the banks have to admit that Nochi Dankner - who lived like a king with a private jet and mansion, with executives suites and servants – is bankrupt, people get it.
They get that IDB ostensibly operated in the free market – but only ostensibly. In practice, its monopolistic status, its political clout and its cozy relations with Big Finance made it, essentially, into a private tax militia.
Meanwhile, last week the wages director at the Finance Ministry published his annual report on irregularities within the public sector. As usual, nobody noticed. If any attention gets paid to that report at all, it’s just to the few most egregious examples it describes. Like in IDB’s glory days, the politicians and the watchdogs are evincing zero interest in the report. Nobody asks how much of the money paid to public servants serves the greater good and how much is pure pocket padding.
The total wage cost of the public sector is about 160 billion shekels a year (nearly $46 billion). That doesn’t include wage costs at the private monopolies such as the banks, or indirect wage costs: Add those and we reach 200 billion shekels. At the Israel Electric Corporation, the banks, the Israel Airports Authority and more, a quarter to a third of wage costs go to superfluous workers, and workers who earn double or even more than what they could in the free market. A conservative estimate puts unnecessary wage costs in the expanded public sector, including these monopolies, at NIS 40 billion.
But the people don’t care. They don’t see the link between their impossible cost of living, and the tattered safety nets for the poor, and the looting. They don’t see the link between the bad management and the poor service they get.
The social-justice protests helped tear the masks off the faces of the robber barons at the commercial pyramids and financial institutions. But we didn’t manage to bring the revolution to the pork barrels in the greater public sector, which constitutes the second, major cause of poverty, inequality, low productivity, the brain drain, and despair among the young.
The watchdogs have no great incentive to expose the looted billions. I asked a top source in Jerusalem last week how he explains the public’s indifference to the robbery, even after the social-justice protests. “It isn’t just the public,” he answered, adding that high-ranking managers in the public sector see the waste, they know who isn’t needed. But they have no incentive to lift a finger, knowing they’d just incur the wrath of the workers and even the minister, and wind up on the street themselves.
The people don’t see the connection between the bloated public sector, the corruption and their electricity bill and their taxes. The public sector is a reflection of society: the one is not the other’s keeper. No more mutual guarantees. They do not have each other’s backs. Grab what you can, that’s the principle.
The tycoon-ization and hedonism of our recent prime ministers, the mad dash after big, fast money, as the cost of living rises and private medicine spreads – these have led us all to cannibalism. Nochi Dankner has plenty of company.
The biggest tax militia of all
For years I have argued that in this country, decisions, and resource allocation, is not done democratically: It’s a matter of powerful groups achieving equilibrium. I call some of these groups “independent tax militias.”
It is practically impossible to disarm these independent tax militias and get the public its money back. One magnificent blow for the public was the dismantling of the cellular militias – Cellcom, Partner and Pelephone. Mobile phone bills in 2013 were 5 billion shekels (nearly $1.5 billion!) lower than in 2011, most of which benefited ordinary Israelis.
The tax militias of the banks and insurers is three times bigger than that of the cellular companies, and both these monsters looks like minnows when seen against the other militias mentioned above. But of course the biggest tax militia of them all is the Israeli military.
I have constantly maintained that there is no connection between the threats Israel faces and its defense expenditure. Like all big systems, the defense establishment is preoccupied mainly with its own survival, with increasing its clout and budget. And now let us ask the real question: Do the interests of the defense establishment lead to a waste of billions upon billions, but also block any chance of diplomatic understandings in the region?
I asked these questions of Prof. Oren Barak, of the Hebrew University of Jerusalem, who recently published the book “Israel’s Security Networks” together with Prof. Gabriel Sheffer (Cambridge University Press). The two claim that much of local politics, and economic and social affairs can be explained through the excessive influence of the “security network,” as they call it. They claim that since Israel’s establishment, and mainly since the Six-Day War, an informal but powerful security network has been evident, consisting of security officers (on active duty and retired) and their civilian cohorts. This network affects the culture, the politics, society, the economy and the public debate. It also impacts Israel’s foreign relations. The two experts describe the weakness of Israeli civilian society and explain that it's in the interest of the security networks to keep it that way, relegating economic, cultural and civilian considerations to the margins.
I asked Barak if behind the arguments on the territories and the peace process, something simpler lies – a powerful interest group fighting to preserve its status; a defense clique that managed to bend foreign policy, politics and the budget to its interests.
“Yes, that is exactly what we claim in the book,” Barak says. “It isn’t a club in the sense of a place where people meet, but of people who share the same beliefs and values, first and foremost the supremacy of security as they perceive and represent it, with the Israeli army as its main representative.”
Those involved in this network can certainly collude to advance policy that serves their interests, Barak continues: “The defense budget is an outstanding example of the might and influence the security network has. Each year you can see how they frustrate any attempt to reduce that budget, and often act to increase it after its formal approval by Knesset. That explains the big gap between the approved budget and actual one.”
Fifty-two years ago Dwight Eisenhower warned the American public about that very thing: a club of generals and arms-dealers conquering U.S. foreign and defense policy. He coined the phrase “the military-industrial complex,” and indeed that club has dragged America into war after war during the last 50 years.
Isn’t the Israeli security junta, which inflated the defense budget to 70 billion shekels, essentially an Israeli military-industrial complex?
“When Eisenhower spoke in 1961 about the complex in the U.S., he was talking about its formation following the Cold War and the U.S.’ massive arms buildup, which could create ‘misplaced power’… he was warning the American people about what could happen. What we’re talking about in Israel’s case isn’t theoretical, it’s reality: The security network exists and penetrates a great many public areas, including politics, society, the economy and the culture.”
Take the gas found in the Israeli seabed, Barak says. Right after its discovery, a process of "securitizing" the gas began – meaning it morphed from a civilian issue to being tagged as a military one, with the help of the security network. Since it had become a military issue, it suddenly became important to produce the gas quickly, lest it fall into enemy hands, and now also to protect the gas-drilling sites using costly new boats. “That’s exactly how the security network operates: frame a topic as military, and take it away from the civilian apparatus – the public, the Knesset, the government,” Barak says.
There are claims that a military-industrial complex arose anew in the United States, especially given the interminable war on terrorism, he notes. Israel isn't a military empire like America, but it does have massive defense exports and, of course areas that need protecting within and beyond its borders. “In the book we discuss cases like the Israeli case: a small country facing a genuine or imagined existential threat, which chose to build a large military establishment that is not separate from the civilian sector. Good examples of this include South Korea, Taiwan, South Africa and Singapore,” says Barak.
Both Israel’s left- and right-wing parties frame the debate on the Palestinian issue as ideological, religious, cultural and historic, and associate the inability to reach a solution with the ideology of the leaders, religion, history and so forth. The simpler possibility, the incentives of the leaders, is not seriously discussed in Israel or elsewhere, Barak says.
Could it be that the peace process is stuck because the status quo, meaning war and unending tension alongside an interminable peace process, serve the security, diplomatic and political elites in Israel and the Palestinian Authority, the Arab world and in the other involved countries?
“I think the state of perpetual war in our area serves the security network, because it creates a need for the unique skills of its members as security experts. I do not necessarily claim that all the network members are warmongers. Some sobered up and acknowledge the importance of regional peace … but most still look at things through a gun-sight, and even when involved in a diplomatic process, they view it mainly as a defense issue, not a civilian one . Oslo began as a civilian initiative and underwent securitization.”
The left views Israel’s leadership as bearing the main responsibility for the failure to progress in peace talks. Could there be elements on the Palestinian side who also want to perpetuate the process, because in the event of the establishment of an independent state, they’d have to contend with serious social problems?
“I think that in both elites, the Israeli and Palestinian, some want this perpetual state of a nation-waiting-to-be-born, and benefit from it. An established state means not only grave social problems but also limitations and constraints on the political leadership, such as clear boundaries vis-a-vis not only the nation and its neighbors, but in areas such as politics, the economy, society, the army and religion. It’s a lot easier to be an unborn state fighting for its existence against a hostile world … It’s quite clear that a Palestinian state, if one arises, and that’s highly doubtful, will be a failing state dependent on others, like Israel and the European Union, which is not a tempting scenario for its leaders. Look at South Sudan.”