Israel's Finance Minister Needs Riki to Help Him Help Her

If Yair Lapid is serious about helping Riki Cohen, whatever class she belongs to, he'll need to win the public's support for reforms to wrest control of the economy back from interest groups.

Guy Rolnik
Guy Rolnik
Guy Rolnik
Guy Rolnik

The "Riki Cohen" post that the brand-new Finance Minister Yair Lapid put up last week tells us a lot. About him, that is.

The good news is he still remembers why he was elected and is trying to bring the message of actual concrete service, as opposed to lip service, to the Finance Ministry and possibly to the entire public sector – service for real people and real families. Here, Lapid could conceivably blaze a trail and start an organizational and cultural revolution among the civil service's 900,000 employees: We are here to serve, not to make a living!

The less good news is that Lapid seems to be sticking with slogans, which are fine for election campaigns, seemingly not realizing that now is the time for action. It is hard to find signs of vision turning into meat-and-potatoes policy.

Maybe the most interesting part of his post was the lament against the "incessant march of numbers" presented to him during endless Finance Ministry meetings. Lapid evidently isn't a man of figures and spreadsheets, but he came to government with the slogan "Where's the money?" and the ministry he chose to lead is finance. If he wants to take care of the emblematic Riki Cohen of Hadera, whatever class she actually represents, he'll have to study a lot of numbers. He can use PowerPoint presentations rather than Excel spreadsheets, but he can hardly be finance minister without dealing with data.

If he'd devoted more time and attention to the numbers, Lapid would probably have realized that Riki and her equally fictional husband couldn't earn NIS 20,000 a month together, that they probably don't own the apartment they're living in and, more importantly, that Ricky's husband isn’t really in high tech.

If he'd studied the numbers, Lapid would have known that the median wage in Israel (which is what most of the middle class makes) is NIS 6,500 a month, which is NIS 2,800 below the average wage. The yawning gap between the median and average wage is the real story of the last 30 years, during which inequality drastically worsened, and wages at the right-hand end of the spectrum – the 1% and 0.1% – rose a great deal (and not only in Israel).

When Lapid delves into the digits, he will find it highly improbably that Riki's husband is a high-tech man. Only 7% to 8% of Israel's workers are in high-tech and of that number, many aren't truly in technology but in some sort of support or auxiliary role.

If Lapid revisits Riki's situation based on the real numbers, he'll find that with just a median or average wage, she couldn't really own a home in Israel and so is probably carrying a huge mortgage on her back as well.

That's where the money is

If Lapid asks his ministry people for numbers with interest too, he'll find that the only reason Riki might be able to buy an apartment at today's crazy prices and meet her interest payments is because interest rates on mortgages have collapsed.

And if the minister decides to really crunch the numbers and asks for graphs showing historic interest rates and sensitivity analyses (the rate of mortgage repayment at each level of interest), he'll discover that if base interest rates climb back to their historic average, a huge proportion of borrowers in recent years will default, because they took out loans with variable interest.

If Lapid dives into the financial statements of Israel's big banks (he starred in ads for the biggest of the lot in the past), he'll learn that they're the biggest, strongest lobby against a real drop in housing prices. That's because they lent about half a trillion shekels to property developers, contractors and homebuyers based on the inflated prices of recent years. That's where the money is.

If Lapid turns his attention to the labor market in recent years, he'll discover that the stereotypes of the teacher and high-techie aren't accurate. Teachers are meanly paid but can get tenure, while many high-tech people find themselves obsolete at age 45 or 50, sitting at home mailing out resumes by the hundred to employers who prefer younger, cheaper and more promising. The same goes for hundreds of thousands of people in the cut-throat business sector.

Lapid should also ask his ministry people for tables they've never compiled before: a chart showing the income flow for a "connected" Israeli worker with tenure, a non-contributory pension (paid by the taxpayer) or both; versus the income flow of an "unconnected" Israeli worker who has to save for his pension and could lose his job at any time. It would be especially interesting to compare a retired army non-com or desk warrior with a machine engineer or software programmer in high-tech. By the age of 46 to 50, retiring army personnel will be eligible for pensions amounting to millions, while the private-sector workers will have built up a few hundred thousand by that time.

Having crunched and digested those numbers, as well as the numbers regarding the defense establishment's actuarial liabilities (how much it has to pay out in pensions), the ticking time bomb of other pensions and the labor market and the cost of economic concentration in business and the capital market – Lapid will understand that "the economy is in excellent condition" sounds terrific but is hardly accurate as far as most Israelis are concerned. Mainly, they're worried about their economic future. That "excellent condition" hasn't reached the unconnected.

Great big elephants and Mrs. Cohen

And then will come the hard part.

One can only hope it comes sooner, not later. It is the moment one of those young finance whippersnappers decides to provoke everyone else in the room and reminds them that in that very meeting room at the Finance Ministry and in every ministry in the land are great big elephants, some right out there trumpeting and stamping and some concealed in the shadows – great big pachyderms that nobody wants to mess with. But until somebody does, the whippersnapper points out, there's no hope for change for Riki.

These elephants have various names: declining competitiveness, low productivity, low effectiveness in the public sector and the tremendous monopolistic rents in certain markets. But all have a common denominator: The great growth engines of the Israeli economy have been losing strength in recent years and unless there are profound changes in the structures of the public and private sector, including with respect to economic concentration, there will be no improvement Riki's situation and certainly not in that of her children. Nor can the reforms happen unless the new finance minister tells the public the truth and asks for its help, the help of men of deed and vision, to oversee these reforms – starting now.

The fictional Riki lives in Hadera, home also to the huge Maor David power plant. Every time Lapid comes to visit the Cohens it will remind him that Israel has dozens of states within a state, for whom supplying service to the nation is a secondary goal and whose organizational culture is based first and foremost on preserving their power and grabbing more of the budget. The Israel Electric Corporation is just one of dozens or hundreds like that.

Crocodiles and Facebook

The problem is that the government has difficulty leading big reforms. The system seems stuck fast. Worse, even though the public voted for Lapid and Naftali Bennett because of their calls for reform, the same public seems unlikely to support actual reforms that change the status quo. Change is scary, and sometimes the public seems to actually admire the brutes taking advantage of it. But none of the big reforms Israel so badly needs will happen without sweeping public support for the government wresting back control from interest groups.

Lapid's decision to handle his dialog with the public through Facebook has been widely criticized in the press, in some cases with reason, and in others, because reporters are miffed at being sidelined. The press is an interest group too. But the day could come when Lapid, or his successors at the Finance Ministry, decide to stop spouting empty words and slogans about equality and Riki Cohen and actually set out to revolutionize. Online dialog does reach the unconnected, and if the dialog is based on actual numbers and not slogans, it could be effective.

But if Lapid wants to send a clear message, he should have the Finance Ministry state loud and clear that it will build an iron wall, a ring of fire or a moat filled with crocodiles, whatever it takes to protect the money the state gets from Israel's natural gas reserves, present and future.

It is tempting to use that money to fill budget holes and put off painful reforms. But that gas could prove to be Israel's ruin if the government doesn't decide that the money is to make life better for future generations. Nations are built from human and social capital, which create competitiveness and quality of life, not from natural resources. Finding some is an opportunity to build a healthy economy. It shouldn't be wasted on shoring up rotten system or appeasing the muttering masses.

Yesh Atid leader Yair Lapid delivers a speech to his supporters after winning 19 Knesset seats.Credit: AP

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