Finance Ministry Unwittingly Reveals Israel’s Worst-kept Secret

Ordinary people are forced to pay top-dollar prices, while connected people get special privileges at the general public’s expense.

Illustration showing a guy in a hamster wheel.
Iospheredream / Dreamstime

“Quo Vado?” has been quite the hit in Italy, taking $39 million at the box office in its first week, compared with a mere $23 million in three weeks for the new “Star Wars” flick. And what is it about, this blockbuster comedy that Italians prefer to the space fantasy starring Harrison Ford and Carrie Fisher, Chewy and [SPOILER] Darth Vader’s grandkid? The hero, played by the comedian Checco Zalone, is a balding nobody approaching 40, who has a dream: il posto fisso (a job for life). In other words, tenure and a noncontributory pension.

Or, in other words, he wants out of the rat race. He doesn’t want to compete for a job any more. He wants security in the pubblica amministrazione (public sector). His great achievement, as presented to his boss, is the speed and strength with which he can wield his rubber stamp.

“Quo Vado?” (“Where Am I Going?”) is funny, but the real reason the movie has done so well, The New York Times explains, is that it stamps on the most painful corn on the Italian boot today: the widening gap between the haves and have-nots – not money, but job security.

Corruption in Italy (both criminal and legal) and the rigidity of the job market are slowly but surely pushing the Italian economy down, widening social gaps. Unemployment among young adults is more than 40%.

A poster for the Italian film 'Quo Vado?' starring Checco Zalone.
Courtesy

Meanwhile, back home, the Israeli Finance Ministry just delivered its verdict on the deal Cellcom announced two months ago to acquire Golan Telecom: No. Don’t allow it, the Finance Ministry states: Allowing the merger will reverse many of the achievements of Moshe Kahlon’s cellular reform and consumers will suffer.

Cellcom is one of the three big cell-phone operators that existed in Israel until Kahlon came along as communications minister and ushered in competition, slashing monthly phone bills for consumers by as much as 90%.

Anyway, it seems that when it chooses to, the Finance Ministry (now headed by the same Kahlon) still has teeth and can explain very clearly how the little man is being screwed.

Usually, though, the Finance Ministry doesn’t feel like doing that. Rather, it trembles before the powers, such as the gas companies and the defense establishment.

A chart just issued by the Finance Ministry shows how much various communities in Israel paid for cellular services in 2010, before Kahlon’s reform.

The chart begins with the ordinary consumer, you, whom the Finance Ministry describes as “unorganized.” According to the ministry, the humble consumer paid 59 agorot (15 cents) per minute of call time and 55 agorot per text message. “Unorganized” families could wind up paying four-digit mobile phone bills every month.

The next group of cellular consumers the chart shows are government employees and their families, who pay roughly 30-40% less: 35 agorot per minute of call time versus 59 agorot for the unorganized people.

So the state that sets the rules arranged a cute discount – really, a dramatically lower price – for its own employees and their kinfolk: 24 agorot less per minute.

Next, at 34 agorot per minute for talk time, we find El Al workers, whose text message costs dive groundward to just 10 agorot per message – a fifth of what jes’ folks pay. The chart goes on to show other groups – at the end of which is the good people of defense contractor Elbit Systems, who pay a mere 20 agorot per call minute and 10 agorot per text message. Sweet.

Elbit Systems is a flourishing, publicly traded company that’s been around for some 20 years. The company is best known for its international arms deals, but its best customer is the Israeli defense establishment. One reason for that is that Elbit Systems hires generals and high-ranking officers right out of the army to its ranks (as do Israel Aerospace Industries and Rafael Advanced Defense Systems). All these companies have legions of workers who get double and triple the pay of their peers anywhere else, plus all those ex-army officers (who aren’t anywhere near retirement age) also get their fat, noncontributory pensions on top of their delicious salaries.

All of which led the Finance Ministry to admit, plain as day, that a situation of tacit collusion exists in many areas of the Israeli economy. A small number of players divvy up the market and collude on prices, without the need to wear trench coats and whisper in dark parking lots. The fewer players are involved, the higher the coordinated prices.

How powerful is El Al’s cartelistic “tacit collusion” with its main “rivals” such as United Airlines, Delta, British Airways,etc.? Well, oil prices have fallen by about 70%. Let’s wait to see what happens with ticket prices.

Hmm ... a small number of players, tacit collusion over the price of service, raking it in – does all of this sound familiar? Oh, right, the banks! In Israel, the two biggest banks have been tacitly colluding for decades, and a not-inconsiderable group of middle management is taking home paychecks of 50,000 to 100,000 shekels a month while overseeing a culture of cronyist lending – billions to tycoons who may be bankrupt but continue to live like lords in their gorgeous mansions, while the Bank of Israel watchdog snoozes on.

Why doesn’t the Finance Ministry analyze the banks like it did the cell-phone operators? Or the gas monopoly? The defense budget?

Anyway, the workers of Israel can be divided into five or six (undeclared) castes based on their retirement conditions, which are completely different in each case (based on the government’s decisions – meaning, politicians’ decisions), even if they do the same jobs. An economist working for the Israel Defense Forces doesn’t do anything different than an economist in a civilian job, but his pension will be three times bigger. A logistics officer in the army will get a pension six times bigger than his peers in the business sector.

In other words, the pensions scene isn’t unlike the cell-phone scene before Kahlon forced competition onto it. Ordinary people pay, and connected people just aren’t treated the same – as the Finance Ministry’s own chart demonstrates. I argue that this system of castes permeates practically the entire Israeli economy: there are people who have tenure and noncontributory pensions who are “protected” from the vagaries of the free market; there are some select people who get pensions and salaries in parallel; people who work in industries that face no competition and still get hidden subsidies from the state.

It can’t be like that, Israelis protest – the restaurants and cafés are full, and Israelis travel all over the place. But could it be that the restaurants and cafés and Ben-Gurion Airport are full of people who hail from the upper castes? That they are plied by that quarter or fifth of the Israeli population that is protected by politicians and regulators and, too often, the press? Could it be that ordinary consumers, whom the Finance Ministry carefully calls the “unorganized,” can’t afford such luxuries?

Almost all Israel’s sectors have the same method – cross-subsidies, overt or covert, that transfer tens of billions of shekels a year to the haves (with their political power) from the have-nots. Hotels in Israel are notoriously expensive and 75% of overnight stays are booked by the labor unions at the big monopolies. Have you ever wondered who can afford a hotel room in Eilat at 1,000 or 2,000 shekels a night? The weaker you are, the more you get screwed. It isn’t that mobile communications prices are intrinsically that important. But they serve to show that the government, politicians and regulators aren’t serving the general public. They’re serving the interest groups.