Fix, Don't Sell, the Public Sector

Economic inequality hampers growth, says government adviser Zeev Rotem.

Oren Majar
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Oren Majar

Prime Minister Benjamin Netanyahu told Prof. Manuel Trajtenberg - the man he appointed to head the committee formed in response to the tent protest - to change his perspective. Government adviser Zeev Rotem believes that what's needed to realize Netanyahu's vision is a change in the government's goals - from maximizing economic growth and stability, to aiming for greater economic equality.

The best way to do this is not through privatization, but by making the public sector more efficient, Rotem says.

As CEO of Rotem Strategy, he knows the work of the government well. His company offers strategic advice to businesses and the state, and it helped Bank of Israel Governor Stanley Fischer implement structural reforms at the central bank. Rotem Strategy has also helped government companies and ministries, including finance and health.

Rotem did a post-doc on global competitiveness under Prof. Michael Porter of Harvard, a luminary in the field of competition and strategy, and chaired a discussion on competitiveness at the Israel 2021 conference.

How would you translate the prime minister's statement into deeds that would satisfy the protesters?

"The protesters' list of demands isn't bad, and when the prime minister directs the teams, he has to talk about changing the government's goals, from achieving economic stability and growth to achieving economic and social equality. In fact, the two goals reinforce each other."

The United States and Israel star at the top of inequality indexes, he says, together with Portugal, Singapore, New Zealand, Italy, Britain, Australia, Ireland and Greece. These are precisely the countries that are now in trouble, while the countries deemed to have the greatest equality - Denmark, Sweden, Norway, the Czech Republic, Slovakia, Finland and Germany - are in great economic shape, Rotem points out. Why? "Because there is a direct link between the level of economic inequality and economic growth."

What should the government do to increase equality?

"The first step is to give the communities that don't work a real chance to do so. Also, the huge, weakened sector of small and medium businesses needs help. These companies are the heart of business, but they have no access to capital sources. Let them grow, develop, and watch the economy leap forward.

"Also, the policy of support for the weak, unemployed and aged has to be changed. If these communities return to the consumption cycle, they will strengthen the economy.

"The second step is to reduce the inequality in access to basic products and services, and to supply them to all at reasonable prices.

"I was a student of Prof. Porter, who published an article that made waves some months back. He argued that companies shouldn't be oriented only toward profit, but should think how they can help the economy; how to make products at reasonable prices; how to assure proper corporate governance and how to provide fair pay and opportunities to workers. Porter said anybody who fails to reach such a balance will fail as a business. If that's true of commercial companies, it's all the more true of governments. They must to find a balance between economic and social values."

Does the enactment of the "Vadalim law" show Netanyahu is changing his economic views as he said he would?

"The nation controls three economic assets. The first is capital, control over which it transferred to a concentrated few in the last few years. The second is labor, control over which the government has been systematically fighting by breaking organized labor. The Histadrut protects the big unions and anybody not in the game gets worn down.

"The third asset is land, which the government is privatizing through the Vadalim law, which aims to handle the housing problem and bypass the dysfunctional Israel Lands Administration. But the law will just make privatization worse. Who will sit on the committees? The rich and powerful. For instance, if in a given town in which land is going to be privatized there are two or three rich people with ties to City Hall - need I say more?

"What should be done instead is to make the effort and improve the ILA, improve mechanisms by shortening processes, strengthen the people who will create a more effective administration.

"What applies to the ILA also applies to the rest of the civil service. It needs to be rehabilitated, not privatized."

What steps need to be taken?

"First of all, cut the number of ministries. The multiplicity of ministries creates conflicts, resulting in endless committees. We looked at the number of ministries in nine advanced nations. They have five to 12, because more aren't needed. Switzerland, for example, has five. The second step is to handle the professional echelon. A ministry director-general needs to be a five-year professional appointment with an option to extend for five more years. It shouldn't be a political appointment. Public service needs to be a career."

The state must to be able to fire people who no longer add value, Rotem said. People should not be able to work for the public for 10 or 15 years and then take a job in business, or keep stagnating on the job, he said.

Rotem adds that the Finance Ministry, Bank of Israel and civil service commission have become too powerful, at the expense of other agencies. The bottom line is that Israel needs a new set of national goals, he said, including to restore pride to the civil service. "If we decide that is a national mission, then the civil service could be rehabilitated within five years," said Rotem.