In the Money

Yair Lapid: The Meek Link in the Chain

Much-needed economic reforms are being shelved by the Finance Ministry because its leader is seemingly afraid of confrontation. As a result, the public is losing out.

Ofer Vaknin

What is the connection, you ask, between a law encouraging startup investments by private angel investors, changes in price-control procedures and replacement of the Office of the Chief Scientist with a new government research and development and innovation authority?

The answer is that these are the only structural changes contained in the 2015 Economic Arrangements Bill, the supplementary legislation that is to accompany next year’s budget bill.

And in actual fact, it is only the first two that are really changes. The third, relating to the chief scientist’s office, is still teetering. And if past experience with the current finance minister is any guide, nearly anything that teeters later falls.

You can always count on Yair Lapid. Any minute now, we will get high-flying explanations on the field of structural changes. The finance minister will explain that the Economic Arrangements Bill is an abomination of sorts that should be consigned to the past, and he will is the first finance minister to be attentive to the actual will of the people and the Knesset, and so will do away with it. One can only utter a sad chuckle in response.

The issue isn’t really the Economic Arrangements Bill at all, but rather whether the government intends to push for structural changes that would make things better in the country in the future. Ultimately, the arrangements bill is only a technical tool that, over the past two decades, has provided the basis for most of the important structural changes. They could have been enacted through other legislation, but don’t expect that to happen in 2015.

The de facto elimination of the arrangements bill is the result of the de facto elimination of any desire on Lapid’s part to enact reforms of any kind. And so, with the death of the bill will come the quiet death of any of the reforms planned by the Finance Ministry and then shelved by the finance minister.

It’s worth noting that just six months ago, for the first time in its history, the Finance Ministry came out with an impressive strategic plan. Ministry director general Yael Andorn led a brainstorming team that developed an economic work plan for the ministry – in practice, for the entire government – for the medium- and long-term. The plan’s priorities were innovation-oriented growth and creating value for the working person (in other words, dealing with the cost of living).

These two major priorities were broken into nine subsections, including infrastructure, employment-related education, improved government operations, the cost of living and undeclared capital. Reform plans were devised for all of the nine areas.

And let’s not forget the social-justice protests that erupted in the country three years ago and the strategic plan the ministry developed at the time with the National Economic Council, which was designed to address the protesters’ demands.

Lapid, who was elected by those same protesters, should have welcomed the strategic plan and its priorities. In reality, however, he has done precisely the opposite and has dismantled every reform the ministry staff has sought to advance in recent months, thereby giving us a pitiful Economic Arrangements Bill and a strategic plan that is completely devoid of content.

Holding the population hostage

Examples? A group of 140 sheep and goat farmers have the entire country by the throat when it comes to the quantity of sheep and goats’ milk available, and at what price it is sold for. As with the market for cows’ milk, the sheep and goat market is totally planned – from the number of producers, to their production quotas, to the target price for the milk produced. It’s a perfect cartel – courtesy of the government.

However, unlike the cows’ milk sector – which is huge and supports most of the farms in Israel – the sheep and goats’ milk sector is tiny. Surely it should be possible to protect these 140 families without holding the entire Israeli population hostage?

The Finance Ministry, with the preliminary consent of the Agriculture Ministry, therefore undertook efforts to eliminate the planned structure of the sheep and goats’ milk sector, to open the field to new farmers, increase production and lower prices for the consumer. It would have come in return for compensation to farmers who leave the sector, and provide investment grants to those who decide to remain.

But after the plan was proposed, the sheep and goats’ milk farmers’ guild woke up and began to pressure Agriculture Minister Yair Shamir to withdraw his consent for the plan. In turn, Shamir pressured Lapid at the Finance Ministry. The result, of course, is that the reform plan was scrapped and sheep and goats’ milk prices will continue their upward climb.

And then there’s the Finance Ministry plan – this one opposed by the Agriculture Ministry – to reduce egg prices, in addition to providing incentives for the merger of small, inefficient egg producers and the payment of investment grants to make them more competitive. There was also a plan to lower fish prices by eliminating quotas on fish imports in exchange for direct subsidies to Israeli fish farmers.

It should also be noted that the scrapping of customs duties are within the exclusive purview of the finance minister, so Lapid could even have acted on this issue on his own. But Lapid can be counted upon to do nothing on his own – or in conjunction with anyone else, for that matter. He is simply taking no action at all, lest, heaven forbid, it would involve confrontation with anyone at all. He is doing nothing other than gift wrapping his inaction for public relations purposes (reminding us, for example, that he has saved the country from the Economic Arrangements Bill).

No desire for confrontation

There are those at the Finance Ministry who say that some of the reform efforts are continuing and will be implemented outside of the Economic Arrangements Bill. These include reduction of customs duties on milk and meat, and food-import policy reform, as well as reforms involving day care and summer camps. There’s an impressive list of remaining reforms, but even Finance Ministry staff acknowledge that reforms requiring a significant amount of confrontation with opponents have been shelved for the time being. There is simply no desire for confrontation.

And that’s the problem. You can’t create innovation-oriented growth through nice newspaper headlines. And you certainly can’t address the cost of living through sweet talk alone. That’s because reforms like this require tough decisions and a readiness for confrontation with major powers within the country.

Agricultural cartels, problematic work rules at the Israel Electric Corporation, port monopolies, public sector tenure without regard to productivity ... all involve situations in which small groups of workers and holders of capital benefit at the expense of the public as a whole. And it will never change without confronting those who have an interest in the status quo.

But Finance Minister Lapid isn’t taking on anyone, so in reality his confrontation is with the weakest group of all: the public at large, which is paying the price. That’s the bitter truth, even if Lapid tries to gift wrap it.