It’s Time to Get Down and Dirty for Social Justice

And some lessons after a thunderous collapse in Portugal, where one pyramid’s implosion dragged down the stock exchange by 22%.

Reuters

1. If you want to shoot, shoot

Nissan Slomiansky made Stav Shaffir’s week, maybe her month, by ejecting her from the Knesset Finance Committee that he chairs after a particularly acrimonious exchange last week. Within minutes Shaffir, a Labor MK and former informal spokeswoman of the social-justice protest movement, was making headlines on the Internet, which reached the papers the next day.

It would be tempting to say the incident proves that the spirit of the protest is alive and well in the Knesset. For months Shaffir has been taking a very vocal approach in the committee regarding transparency; she keeps demanding that the Finance Ministry explain various odd, sudden money transfers.

But media ruckuses about transparency and money transfers don’t constitute progress toward the goals of the original 2011 protest movement. In some respects they even reflect a real retreat – another sign that interest groups pull the strings in the Israeli parliament.

If Shaffir and the other relatively new Knesset members hailing from the protest movement want to serve their constituents – the Israelis who don't have connections in the right places, who took to the streets three summers ago – it’s time to end the stage of yelling about transparency and dubious dealings, and get down and dirty.

We already know where most of the money is. It’s time to demand it back.

Terms like “transparency” have become quite the bon-ton among certain civilian groups and Knesset members too since the social-justice protest erupted. All well and good; it’s inspiring to see people using their technological skills to expose more and more data to the public.

But exposing figures is no substitute for the real thing – understanding and analyzing the data, and consolidating clear opinions on the reforms that are needed, the decisions that have to be made, and the identity of the independent “tax militias” that need tackling.

Do we want a free, competitive and advanced market, or do we prefer to avoid speaking about such ideas and take care not to prod the interest groups sheltered under the government’s wing?

More data and graphs and figures won’t help. At some point they’ll just hurt. What’s needed is deeper knowledge and analysis of the data. Of what’s important and what’s not. That information is concentrated in the hands of the interest groups. So is willpower and consistency, which is why they continue to win in battle.

Military profligacy: Not exactly top secret

The defense budget is a good example. It’s still largely a sealed black box, but we don’t need the armies of auditors that the Finance Ministry wants to wedge into the military in order to expose its waste and legal corruption. The data was published more than a year ago: 60% of military pensioners get pensions worth between $1 million to $2 million apiece, five to ten times what their peers in civilian life can get.

Look at the “redemption values” line in your pension savings reports. Less than 3% of Israel’s workers and savers in the business sector reach age 45 to 50 with redemption values like those of the average army pensioner.

The vast majority of people who get military pensions (which they don’t contribute to personally, the state – the taxpayer – pays it all) leave the army still at working age. Many get a second salary from some public body, or arms manufacturer that feeds off the defense budget.

The data is clear. Now it’s time to act.

Instead of making scenes at the Knesset Finance Committee and squabbling over procedure, it’s time for Shaffir and her friends to get into the substance of things: initiate legislation, reforms, and battles that take the money from the robbers and return it to the people.

Her tactics, attacking the Finance Ministry, is public relations genius – the public hates the Finance Ministry. But paradoxically, it’s much like Finance Minister Yair Lapid’s own tactic, which is to avoid talking about where specifically the money is going; he isn’t dwelling on numbers; he doesn’t declare war on the interest groups but leaves everything at the level of slogans. Shaffir and Lapid are ostensibly pitted against one another, but in fact together they’re preserving the status quo.

Work with the ministry, not against it

If Shaffir and her friends want to change things in Israel, their tactics should be the opposite: They should hound the Finance Ministry day in and day out to present reforms that tackle the tax militias in the private and public sectors. They should attack the tycoons’ monopolies over food, vehicle imports and finances. They should attack the regulators who are blocking competition from advancing in those areas. And they should demand that dozens of government entities that are serving themselves, not the public, be shut down.

The financial statements of the Jewish National Fund have been exposed. We see billions of shekels were being spent each year to finance a gigantic and largely superfluous machine involving non-contributory pensions and jobs for retired politicians. But opposition and coalition alike prefer to whip up a public battle with the Finance Ministry instead of working with the ministry to nationalize the JNF, and restructure it as a small unit under the auspices of a one of the ministries.

The public sector in Israel is strewn with independent tax militias like the JNF, the Israel Airports Authority, the Electric Corp, the Mekorot water utility, the Aerospace Industries, the Military Industries, and the bloated administrations at the ministries and municipal and local authorities and monopolies. Everybody knows how things go: Veteran workers earn sky-high salaries and deliver bottom-crawling productivity, while subcontract workers beneath them earn a pittance.

But instead of marking these bodies one by one and starting to return the people’s money to the people, Shaffir and her friends continue to hum the tunes of the protest – “transparency,” “scams,” “money transfers” – in the Knesset corridors, without delving into the billions we know are flowing to the folks in the right places.

Food prices just keep climbing

Three years have passed since the social-justice protest began and food prices just keep climbing. It’s the Knesset members’ job to demand that the regulator force competition into all these protected industries. But Shaffir and her friends don’t want to delve into the complexities of regulation, the structure of markets and standards; they’d rather turn the budget into the crux of an artificial argument between left and right, between coalition and opposition.

Three years after the social-justice demonstrations erupted, and 18 months after Yair Lapid entered the treasury – the real estate bubble (a mechanism that siphons wealth from the poor to the rich) continues to grow. In July, new mortgages totaling 5 billion securities were taken out (about $1.4 billion). Thousands of additional families bought housing at inflated prices that will weigh on them for decades.

If Shaffir and her cohorts wanted to change reality for hundreds of thousands of Israelis, they’d be demanding that Lapid lower housing prices to where they were five years ago, not settle for arguing the case of public housing; it will be years before the latter can truly help all those families. The MK and her friends should be demanding that the minister immediately impose a heavy tax that discourages buying housing for investment, and reduces the allure of property as investment.

Shaffir and her colleagues fought, and are still fighting, the Economic Arrangements Law, turning it into a symbol of all that is wrong with the country's economy. They do have a point: The law has enabled significant policy changes without serious debate in the Knesset.

But ahead of the 2015 budget discussions, the problem is quite the opposite. August is nearing its end and we have yet to see their planning reforms in writing; we have not seen how the ministries mean to tackle the cost of living, which has been jacked up by the private monopolies of the giant public sector, large parts of which serve themselves, not the general public.

It is high time for the opposition, the "graduates" of the protest movement and members of civil society who have awakened to decide if they just want to beat drums, or if it’s time for the painful stage, the one that could really lower the cost of living and improve the quality of services: taking on the interest groups that benefit from the status quo.

2. Fallout from Portugal

When the economists at the Finance Ministry, Bank of Israel and Israel Securities Authority began in 2011 to study the state of economic concentration in Israel by international standards, they were astounded. While the tycoons and the economists they hired, and the regulators hoping for jobs, sold the story of Israel as a competitive market, it turned out that in many parameters, Israel looks like one of the most concentrated countries in the world.

In some tables, two European countries stood out when it came to competing with Israeli economic concentration: one in the north and one in the south. Studying the northern one, Sweden, in depth shows that Swedish economic concentration is a myth. A large part of the Wallenberg family’s business group, Investor – the giant conglomerate responsible for the “concentration” in that country – is global. Therefore, the company’s huge share of the total value on the Swedish stock exchange has zero effect on competition in the domestic market.

On the other hand, the Israeli concentration is entirely due to the business pyramids and giant companies whose entire monopolistic and cartelistic operations are in the domestic markets – telecommunications, finance and industry.

What about the southern country, Portugal? How does it cope with its terrific economic concentration and the stranglehold that a handful of families have over most of its economy?

Over the last three years, Portugal has been in the throes of acute financial and economic crisis, and last week its system of pyramids was exposed: The Espírito Santo group, the biggest pyramid in the economy, an Israeli-type one including both industrial and financial activities, collapsed with a thunderous roar and dragged down the entire Portuguese stock exchange. Its chairman, Ricardo Espírito Santo Silva Salgado, scion of a family that effectively controlled politics in Portugal for decades, was arrested.

We may assume that the whole story of the family and how it gained control over regulation and politics in Portugal will start coming out. Meanwhile we have learned that Salgado's nickname back home is “owner of all he surveys” and that his pyramid had been loaded with debt.

The Portuguese, unlike another country on the other side of the Mediterranean, didn’t have the sense to tackle economic concentration and the pyramids in their country in time. This month they’re paying a heavy price, with the Lisbon stock exchange down 22%, foreign investors fleeing the finance sector and the country's president stating that the group’s collapse could hurt the economy.

The developments in Portugal are just another reminder that the work of dismantling economic concentration in Israel has just begun, and that the dangers it poses are greater than had been imagined.

Emil Salman
Ofer Vakhnin