Israel’s Media Have the Tycoons’ Back

Bankers, manufacturers and oligarchs remain keen to curb competition and prevent high prices from falling. They even have the media doing their bidding.

Eytan Avriel
Eytan Avriel
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Fish market in Iran.
Fish market in Iran.Credit: Reuters
Eytan Avriel
Eytan Avriel

Is there a whiff of an economic revolution in the air? In the United States, the new book by young French economist Thomas Piketty, “Capital in the Twenty-First Century,” is causing a storm, asking if democracy can survive when wealth is concentrated in the hands of a few.

In his New York Times column last week, U.S. economist Paul Krugman argued that the extreme reactions to Piketty’s book don’t stem from new data on inequality. Rather, the French economist “demolishes that most cherished of conservative myths, the insistence that we’re living in a meritocracy in which great wealth is earned and deserved.”

Krugman explained that the conservatives' last line of defense — the contention that wealth enables the rich to create jobs — collapses when it becomes clear that most of the rich’s income is derived from returns on investments. And in many cases, this wealth has been inherited.

The conservatives, meanwhile, often use slogans to attack Piketty’s book. They call it Marxist, for example, but the fury that the book has unleashed doesn’t appear to be going away.

Here in Israel, in Friday’s edition of the Yedioth Ahronoth daily, there was also a call for a break with the conventional wisdom. Financial columnist Sever Plocker wrote about what he calls the “price dybbuk,” roping in the demon from Jewish folklore.

“A dangerous bacterium is attacking Israel — the ‘cost-of living’ bacterium,” Plocker wrote. “Nothing is important but prices — not the economy, not the country, not the Zionist enterprise, not social justice. When price is king, competition is destructive and dangerous for the economy.”

Was this a late April Fool’s joke? No it wasn’t. Plocker mentioned a document he obtained from the Finance Ministry about price comparisons and wondered why a government ministry was dealing with such trivialities. He then surveyed the work of the committee headed by Health Minister Yael German, a panel concerned about the price of private and supplemental health insurance — insurance that supplements the coverage every Israeli receives.

Plocker also analyzed the financial troubles of the Steimatzky bookstore chain, citing the company as proof that the quest for low prices harms service and market diversity, with consumers of culture coming out the losers. The same goes for food and retailing overall. It goes for the entire economy and even politics, Plocker said.

‘Competition isn’t a value’

Beyond individual examples, the idea is that the public clamor about the cost of living has been stinging companies' profits, which in turn will hurt their employees, and that the entire issue is morally suspect. “The whole country will ultimately look like a fish market; competition in and of itself is not a value,” Plocker wrote. “It’s just a means of managing markets.”

So what should be done? Yedioth Ahronoth didn’t offer an alternative approach. Should companies be required to work on a “cost plus” basis in which they're allowed to earn a fair profit while the customers are stuck with the resulting prices? That would ensure that businesspeople, including the tycoons, take in higher profits, which would let them pay their employees more. But what about average consumers? Their cost of living would jump.

The argument against competition and lowering prices that are dictated by inefficient markets raises another matter: the club of bankers, manufacturers, tycoons and their assistants who until recently were reaping handsome profits and enjoying easy credit. They’ve apparently been under so much pressure they've been convincing the media outlets they’re chummy with to publish things that are absolutely baseless.

The arguments presented by Yedioth Aharonoth are used by members of that elite club whenever they seek to move the debate in a more convenient direction. Just as the quest for “peace and security” often gets in the way of economic considerations, so do calls for Zionist deeds and activities “for the benefit of the economy” and “social justice.” Most of the time these involve safeguarding someone else’s money.

Most of these arguments are emotional propaganda not backed by logic or economic research. Yedioth Ahronoth is calling on the people to stop thinking about the prices they pay. It’s calling on them to stop thinking about their savings, pensions and children’s future. Instead, they should pay more for groceries, books and medical insurance for the sake of Zionism and social justice.

But how will Zionism and social justice be boosted in the process? Yedioth tries to suggest that if businesspeople enjoy higher profits, they can pay their employees more and there will be a wider range of products at reasonable prices. That recalls the trickle-down theories of right-wing American economists: If the rich turn a profit, they will create jobs for low-level service workers.

Excess leveraging

In the Israeli context, this means halting demands for a lower cost of living because “they’re creating jobs.” But no one takes such theories seriously anymore. They have been refuted by economic studies and are simply cover for perks for the well-to-do.

One of the few studies in Israel on pyramids of corporate control, through which a holding company at the top can control a business empire with relatively little investment, was carried out by the Finance Ministry. It focused on the IDB group.

IDB, which was controlled by Nochi Dankner at the time, includes Israeli fixtures such as the Super-Sol supermarket chain and the Cellcom cellular service provider. The study refuted the argument that corporate tycoons create jobs. On the contrary, it found that the tycoons’ business activities, with the credit and leveraging for buying companies, almost always leads to corporate belt-tightening and layoffs. In more extreme cases, this approach can make companies go under.

Plocker’s column may mark the beginning of a campaign, perhaps a sophisticated one, by oligarchs to fight efforts to reduce the concentration of economic power, to increase competition and to reform the economy. When reforms in the food, housing, automotive, medical insurance and banking industries come up, the members of that elite and their media supporters, along with Knesset members who are brought on board, will warn of the alleged harm the reforms would inflict on workers.

It’s no secret that the tycoons are afraid of these reforms. They’re afraid of competition and of the resultant price declines — a replay of the huge price drops this decade that followed the reform of Israel’s cellular telephony industry. In those days, too, interested parties warned about layoffs, poor service and bankruptcies stemming from the policies spearheaded by Communications Minister Moshe Kahlon, but the cellular telephony reform is proof that competition is good for the people and the economy.

It’s good for the people because it lowers prices, and it’s good for businesses because it improves their productivity and helps them compete overseas. True, when it comes to certain complex industries such as financial services, competition isn’t enough and regulation is necessary. Sometimes regulation is necessary so that competition doesn’t do harm.

This isn’t the first time the Yedioth publishing group has come out against reforms, including the law limiting the concentration of economic power. But it raises the question of whether social justice and the Zionist ideal can be achieved without reforms and without addressing the aspects of the economy that aren’t working well. Or maybe the real goal is to preserve the prevailing order and adopt catchy slogans along the way.

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