We have not witnessed such an impressive show of wise consumership since the cottage cheese boycott two years ago. Droves of Tel Avivians lined up last week to purchase a cup of coffee for the bargain price of NIS 5 (a little less than $1.50) at the new Cofix chain of coffee shops. In so doing, they presented the better side of contemporary Israeli consumership: a wise choice of a basic commodity at a reasonable price, instead of sitting in one of the exploitative coffee shop chains that charge the exorbitant price of NIS 10-12 ($2.80-$3.40) for the very same product.
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That is how we Israelis react. Give us an opportunity to show our consumer clout and we will demonstrate right on the spot. We will do our military reserve service, pay our taxes, endure traffic jams but no one will screw us because no one can take us for suckers. A cup of coffee for NIS 5? We will run out and buy it.
On the one hand, it is hard to resist that cup of coffee. Israel’s high cost of living hits us wherever we turn: food, housing, car expenses, bed and breakfasts, restaurants. Everyone is ripping apart our wallet. So when someone comes along, offering us a product for such a low price, we, of course, will line up for this bargain. After all, we should stand up for our rights as consumers. How often do we buy something and feel that we are getting a real bargain? This is the basis for the concept of Cofix, or a whole chicken for NIS 1 (28 cents), or a mobile phone for only NIS 100 ($28) a month with no restrictions. Such deals are founded on our desire for bargains, our desire to prove that nobody can pull the wool over our eyes and to demonstrate that we are nobody’s fool.
On the other hand, every day we pass up several opportunities for real bargains. There are at least three cost of living levels that enable us to get a bargain and to pay less or to receive more for the price we agree to pay.
The simplest and most basic level is a wise choice of products and services: buying at a discount retail chain, instead of an expensive urban retail chain; withdrawing cash from a bank’s ATM, rather than from the one that is operated by a kiosk, which charges NIS 5.90 ($1.67) for each withdrawal; buying foreign currency at the post office, where the currency conversion charges are lower; choosing to fill up your car’s tank with gasoline by yourself and at a lower price; flying with a low-cost airline company; buying products on the Internet, instead of at stores operated by importers; and so on. This level is simple and highly visible. All that you need here is a drop of consumer awareness and a willingness to make an effort.
The second level is not as visible, but it offers the opportunity for far greater savings. This is the level at which we can utilize our bargaining power and our prerogative to choose. It exists in those very places where consumers are passive and lazy, where they do not take advantage of their right to switch suppliers; it is particularly present in the realm of financial services. The high prices we pay at the bank on interest rates and for bank charges and at our credit card company are not acts of God. One of the major reasons for their existence is the fact that some of us are simply unwilling to do what the purchasers of the NIS 5 cup of coffee did this week: switch suppliers.
In their battle for the pocketbook of householders, the banks are not really competitive, although, from time to time, we hear of this or that bank that is offering an exemption from management fees or annual bank charges. You should try out one of these offers. It will enable you to save in two ways: Either you will receive the special benefit granted to new customers, in which case you will be exempt from payments for management fees for an entire year, or else your bank will suddenly become a knight in shining armor and a champion of competitiveness and will offer you identical benefits – just to hold on to you as its customer. A well-known rule of thumb is that the most lucrative deals are the customer retention bargains that suddenly surface when a customer threatens to abandon a supplier.
Have any of the people who bought the NIS 5-shekel cup of coffee this week even once tried to utilize their power as consumers vis-à-vis their respective bank? Similarly, they can obtain huge savings on other financial products, such as provident funds, car insurance, and management fees for investment portfolios, and they can also arrange for a recycling of their mortgage loan. With the money they save in the various financial institutions, they can buy themselves numerous cups of coffee.
The third level is the most complicated of the three and is for people who are really willing to probe just why things are so expensive here in Israel. Here the enemy is not a particular business establishment or the owner of an expensive bed and breakfast or a robber-grocer. Here the problem lies with the mechanisms that are responsible for the high prices in Israel. These mechanisms are ubiquitous: the agricultural production councils, which control customs on, and prices of, fruits and vegetables; importers who block foreign competitors with irrelevant standardization procedures; the bureaucracy that has a voracious appetite and makes life so difficult for the private business sector; aggressive, monopolistic economic infrastructures; the powerless governmental agencies that are unable or unwilling to solve the nation’s housing problem; the addiction of the tax authority and the government to easy revenues – from gasoline, vehicle import duties and purchase tax; the trade unions that control public services and milk them for all their worth; and a business culture of “grab it while you can.”
An example of that business culture was given a few years ago when the Israel Antitrust Authority investigated the country’s banks. In the course of the investigation, it came across a document at Bank Leumi that contained a clarification the bank had received from Bank Hapoalim. That document describes the way Bank Hapoalim calculated its bank charges: “A bank charge is a relic from the past that has no justification except for the concept of ‘grab it while you can.’”
Here the guilty party is the government. In many instances, the government has the power to open markets up to competition; to remove barriers to free trade, such as, for example, tariff barriers set up to protect local industries from foreign competitors; to neutralize powerful, aggressive trade unions; and, of course, to manage its own affairs more efficiently and with greater determination. Regarding the last item, the government could do far more, for instance, in the land market or in its handling of “black capital.” (A black-market economy flourishes when the cost of living and taxes are high and actually makes the cost of living index rise even higher). However, the government will not act unless the public pressures it.
Although the social protest that began two years ago did exert some pressure on the government and on companies and did create a revolution of awareness, the public is neither consistent enough nor determined enough to do something serious in order to lower the cost of living. If it were really determined, the public would line up in front of the Prime Minister’s Office and demonstrate against apartment prices and against the staggering inefficiency in our seaports. If it were a wise consumer, it would line up in front of its respective bank branch and would ask to transfer to another bank. If it were a truly concerned consumer, it would line up in front of the offices of the Finance Ministry and demonstrate against the high purchase taxes on gasoline and vehicle imports. However, in the meantime, the public prefers to line up for a NIS 5 cup of coffee. In order to really lower the price of basic commodities and services – in such key areas as transportation, food and housing – the public must simply wake up. But, first of all, let’s have a cup of coffee. Perhaps that will wake us up.
P.S. O.K., after all this flagellation of Israel’s consumers, those who are supposed to take measures in order to lower the cost of living must be told to do their job. In Israel, there are many regulatory bodies with that responsibility or which are at least supposed to exercise it: the Israel Consumer Protection and Fair Trade Authority in the Economy Ministry, an authority that barely functions; the Israel Antitrust Authority that has no real powers in the financial sector; and the financial regulators – the supervisor of banks and the supervisor of insurance – who are mainly concerned with preventing the collapse of a bank or an insurance company on their watch rather than with the issue of competitiveness. The long line for the NIS 5 cup of coffee is proof that the Israeli public knows how to vote with its feet as long as everything is simple and accessible: The product is clearly defined, the price is low and the benefit can be easily measured. In more complex markets, such as the banking system, pension funds and insurance companies, a more strenuous effort is required. This is where the regulator must step in and do everything in order to ensure that consumers understand the meaning of savings on management fees or interest rates.