Taking Stock

For the Israeli Army, the Taxpayer's Money Is Up for Grabs

The real battle in Israel today isn't between left and right, free market or big government: It's between interest groups and the man on the street. And the most powerful interest group is the army.

Reuters

During their first month, new Army Radio reporters learn about the enormous scope of their job, and the techniques they’ll need to use. Among other things, they learn about “musts” – which are, actually, the opposite of important events that should be reported.

A “must” is a story regarding the defense establishment. The correspondent’s mission is to get out there and interview this or that general, or observe some operational mission, and write a glowing report. But that isn’t journalism – it’s public relations. Novice reporters at Army Radio accept these things unthinkingly: Army Radio is a station run by the Israel Defense Forces so it seems natural for it to glorify the greatness of the country’s military establishment. Or of some general who happened to be in favor.

Over the decades, Army Radio has produced some great journalists indeed. But the thing is that the young people who serve there do not only learn the basics of journalism and reporting, and develop technical skills: They become imbued with values, hidden norms that aren’t discussed but are very much there.

For example, a reporter who learns at age 19 that there are some areas in which Army Radio serves as a PR arm for the military, not as reporter, will not have difficulty accepting the same idea when working for a national newspaper or television station.

Even the most powerful newspapers and TV stations in Israel have their “musts” – friends of the publisher or the CEO, for instance, and others who need treatment with kid gloves.

All this came to mind less because I served at Army Radio too, and more because of an interview a former budgets director of the IDF gave Haaretz reporter Rotem Starkman ("Does the Israeli army cheat the treasury out of millions?", May 14), in which he said some interesting things.

The IDF, he explained, files inflated reports of expenses and other items in order to get more money.

“They calculate costs of activities at 30 percent higher than what it costs in practice, and the treasury has almost no ability to challenge it. The military presents details of all the resources it used – reserve duty days, flight hours, tank engine hours, ammunition, etc. – and the treasury has almost no way of ascertaining the quantities, even if it attempts to reduce the costs.

“During the Second Lebanon War [in 2006],” he continued, “we kept two Excel files: One for internal use, which showed how much things cost us in reality; and the second, intended for external use, which showed how much we were asking for. Of course, in the external file the costs were higher. The Second Lebanon War was the chief source of funding for the military for a year or two afterward.”

Routine activities also get over-estimated for the sake of budget manipulation. For instance, foreign travel by the prime minister or president (when they used to fly with the Israel Air Force) were priced higher than they really cost. The same goes for delegations dispatched abroad, or even army-related missions such as helping to douse a forest fire.

“They do it all the time,” the source added. “As if they are saying to the country, ‘You want us to help you? Okay, but we also want to make something from it.’ Let’s say now, there were flights to Nepal – I assume they will price them higher when they submit their bill to the treasury.”

“We would use the same methods when we built a new base, too,” the man continued. “We would make crazy demands. But after we received the budget, in reality we would do much less. For example, the air force would explain why it needed to build another control tower at Nevatim [airbase, near Be’er Sheva] or another runway. But after the money arrived, it turned out they no longer needed so many control towers The problem is that no one can supervise what is carried out. The defense budget officials in the treasury simply are incapable of containing so much information.”

Ultimately, the source bolstered a statement that a former IDF budgets officer posted on Facebook: “Wars, operations, special incidents were our way of bridging the budget shortfalls and even keeping reserves for coming years.”

Well, we knew the IDF was wasting money and living on bloated budgets. Actually Starkman’s source wasn't a former army officer, but a banker, who was horrified at the personal wealth certain retiring IDF officers had accrued, and decided to share some numbers with us.

It was only after the social protests began in 2011 that the public started to wake up and get mad about such issues. Only in recent years have people begun to make a connection between the gargantuan pensions former officers get and the high cost of living in Israel, the inequality, and the deterioration of social services.

Two years ago some internal IDF figures were revealed: It turned out that 60% of the career officers retire with pensions worth $1-2 million, five times the norm in the private sector.

Which brings us to our opening point about Army Radio: putting aside the waste of taxpayer money, the problem lies in norms. In this case, norms regarding the use of other people’s money.

Whether you’re a 19-year-old soldier learning to parrot the party line, a young officer fabricating Excel sheets, or a middle-aged man in reserves – the system’s message is that for the army, taxpayer money is up for grabs.

A few years ago I met with one of the most important economists to emerge in Israel. The purpose of the meeting was to understand how to deal with local interest groups: the independent taxation militias in the public and private sectors, which transfer vast sums into their own pockets at the expense of the great amorphous public. Among other things, I mentioned that the biggest, most powerful and organized group of all is the army.

He paused, then said: ‘Well, in this regard, I must admit I had a bit of a problem. In reserves, I serve in the IDF unit whose main role is to prepare presentations and papers for the Finance Ministry, showing why it should increase the defense budget.”

The damage caused by the waste and corruption with respect to the army’s budget could be anything – 10 billion shekels ($2,600,000,000) or 20 billion shekels a year – but in any case, surely enough to make a real difference to widows and orphans, the sick and the disabled, and so on.

Yet the real damage could be far greater.

Since the social protest, a debate has been raging in the country about economic policy, and whether we should aspire to small government that lets the free market do what it does – or big government and a welfare state. But that’s a sterile argument.

In the jungle

Let’s start with the free market. There is no such animal and never has been. Business relies on laws, rules and regulations, without which the economy couldn’t function. It wouldn’t be a free market, it would be a jungle and as we all know, in the jungle, only the strong survive. There is no equal opportunity in the jungle.

The “invisible hand” school of economists, calling to eject the government from the market, evidently didn’t read Adam Smith, the most important economist in history and father of the “invisible hand” theory, who explained 256 years ago exactly why government involvement is crucial.

Unlike most of today’s economists, Smith was a philosopher of morality and was preoccupied with a question more important than how the market works. It was: How should people work – in other words, norms.

As for small or big government, aficionados of big government obsess over its size, but should be asking what it achieves; how it allocates resources; does it objectively regulate the market; and are its people honest.

Nobody who’d served in the Israeli army could be surprised by Starkman’s revelations. They just confirmed what we had long assumed about the army, and the system in general, and the way these systems treat other people’s money.

The real battle in Israel today isn’t between left and right, free market or big government. It’s a battle between interest group and the man in the street. It is a hidden battle between the people who control the public’s money and the people whose money and pensions, and children’s future, are at stake.

Many politicians and business elements would like us to believe the solution is technical. But it isn’t. Social capital is just as important as the physical capital, which means, the degree of faith within society. An economy with a low balance of social capital will never achieve quality government or independent, professional regulation.

That is because when the balance of social capital is low, anybody who chooses to act fairly and with integrity pays a higher economic and social price. If everyone cuts the queue at the bank, or in line to the bus, and you’re the only one standing there – you’ll probably never reach your destination. If every military unit prepares double spreadsheets and inflates their spending, and you’re the only one using real data – you will pay a high price.