Here Comes the Wolf

Manuel Trajtenberg has a unique opportunity to take action against the tycoons and monopolies, and be heeded this time.

1 The court jester speaketh. "Much of the protest is actually targeting economic concentration and its beneficiaries, the tycoons, of course. Economic concentration is one of the reasons the cost of living has increased so much."

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Eretz Nehederet - August 2011

Where have you heard that lately? Oh, you haven't? But it was said. If you read TheMarker, you've read a great deal about economic concentration and its destructive effect on competition, productivity, economic growth, equality and democracy. But most of the other papers are publishing completely different things. Some ignored the whole thing. Some argued that economic concentration is good. Others averred that it's either a non-issue, or populism. And some went to war against anybody so much as mentioning economic concentration and the damage it causes.

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Who said that quote about tycoons and the cost of living?

It was Eyal Kitzis, the journalist, investigator and host of satire show "It's a Wonderful Country" (Eretz Nehederet ), during a special devoted to the protest last Saturday.

Another satire, "The Daily Show," hosted by Jon Stewart, has become one of the most important current events programs in the United States. A number of Americans (especially those under 25 ) learn about the news and form their opinions based on Stewart's riotous lampoon.

Most Israeli newspapers and television shows have avoided discussion of economic concentration like the plague, though it is a disease metastasizing throughout every nook and cranny of the economy. It is saddening that it took a court jester on a satire show to tell this simple truth about the structure of the Israeli economy, and even that only after hundreds of thousands of Israelis hit the streets.

It is purely symbolic that the "Wonderful Country" skit about economic concentration and tycoons was aired in the week that two of the most powerful newspapers in the world, the New York Times and the Financial Times, disclosed the most tightly-kept secret in Israel to their readers: Namely, the economy is controlled by a handful of families. To lower prices and propel the economy forward, the business groups that control the monopolies need to be dismantled. Thus British and American readers now knew what certain journalists in Israel have been trying to blur and hide for years.

One can only hope that the social media, Internet and international press will take the place of Israel's paralyzed press. Because without massive public pressure, many of Israel's politicians and decision makers will continue to serve in fear, groveling before the powerful business interests.


2 Trajtenberg the Wolf: In the movie "Pulp Fiction," a character called The Wolf, played by Harvey Keitel, is called on to clean up the mess Vincent and Jules left in the car - mainly blood spatter and brain tissue. The two hit men lost it: they can't function without somebody to give them orders. The Wolf comes, gives simple direction and solves the problem.

The prime minister, finance minister and the rest of the ministers are responsible for governing the economy. They have hundreds of economists and senior people on staff, at the Finance Ministry and the other government authorities. But facing 300,000 protesters in a single night, they were helpless without a Wolf and called on Manuel Trajtenberg to rescue them.

The Israeli Wolf will consolidate his recommendations and go on his way. He will share no part of their execution. In the short time he's been allocated, he can't reinvent the entire Israeli economy from scratch. The main tool at his disposal is public pressure, which could create opportunity to make changes that the government couldn't (or wouldn't ) have made before, because of political, public and personal difficulties.

Mainly, the protests and Trajtenberg give the government a chance to stand strong against the pressures of the most powerful interest groups in the land - the military, the unions and the tycoons.

To understand the Wolf's underlying concepts, you may visit the National Economic Council website, which Trajtenberg chaired from 2006 to 2009. He left when Netanyahu was elected prime minister. When Netanyahu found himself cornered two weeks ago, he had to return Trajtenberg to the center of the decision-making process, at the terms the professor laid down.

On April 20, 2007, I wrote a column boiling down a heavy tome Trajtenberg delivered to then-prime minister Ehud Olmert, and his finance minister, Avraham Hirchson, analyzing Israel's economic challenges. But the prime minister and finance minister missed the press conference. The timing was awkward: their personal peccadilloes were just coming to light. Trajtenberg essentially gave his weighty report to a prime minister and finance minister on their way out and in 2009, left the job.

In his report then, Trajtenberg reviewed the state of the economy in a manner not customary in Jerusalem circles at the time. It was 2007, remember, before the great economic crisis erupted. Yet instead of hailing the achievements of the Israeli economy and high-tech, Trajtenberg stressed four areas of peril: the spread of poverty and inequality; the time bomb of the Haredi population; the eroding competitiveness of Israeli high-tech; and the low productivity of the economy.

Four years later, yet again it seems Trajtenberg is expected to come up with a quick fix, a magic solution that will save the economy.

This time around, the solutions he could present are of three main types. One is solutions for grave economic problems neglected for years, now winning attention because of the public outcry. The second is solutions to grave economic problems that couldn't be addressed for political reasons; yet again the public pressure creates an opportunity to do so. The third type is long-term structural solutions to improve the effectiveness of the public sector. All these demand dramatic change in the public discourse, culture and values of Israeli society.

The last time Trajtenberg delivered his report, four years ago, nobody was listening. The report he delivers this autumn will win rating more reminiscent of "A Star is Born" or perhaps "Master Chef."

He has an opportunity to repeat the main findings of his previous report, as things haven't materially changed in the last four years.

For all our narcissism, the Israeli economy isn't that great a wonder. Inequality has been increasing at a terrifying pace. High-tech, which operates as a separate enclave not part of the broad economy, is not a growth driver any more, and its future is being threatened by the deteriorating education system. Most importantly, the Israeli economy is sick, and nobody wants to talk about its disease, though the symptoms have the people screaming in the streets. The disease is low productivity in the industry and service branches that employ more than 50% of Israeli workers.

The protesters are yelling, justifiably from their perspective, that they want a welfare nation like Sweden. But in Trajtenberg's 2007 report, they could read how, from 1995 to 2004, output per worker grew by 35% in Israel, compared with 66% in the U.S. and 80% in Sweden.

Trajtenberg's report also relates how, in contrast to the success story pounded into our heads, Israel's non-tech business sector is backward relative to the world. "It suffers from lack of innovation, low investment in research and development, [low investment in] industrial design and advanced technology, and structural problems that prevent its exposure to global competition," Trajtenberg wrote. Since there is no competition, there is no incentive to innovate or improve efficiency, he noted in April 2007.

But now the public is listening. It is an opportunity for Trajtenberg to seriously prod Israel's decision makers. It is high time we stop bluffing ourselves and admit that we have a "dual economy," as Trajtenberg puts it - a high-tech sector forced to compete with the world, and therefore featuring high productivity and wages; and the rest of the economy, which is backward.

How can productivity in the rest of the economy be improved? Trajtenberg knows how: integrate Arabs and Haredim into the workforce. And - rather quicker to implement - declare a second program to expose the economy.

The first was in the 1980s: products and services were exposed to imports. The result was a leap forward for the Israeli economy. Competition improved, prices dropped and living standards rose.

It's time to repeat the trick with products and services that can't be imported. In other words, break the monopolies and cartels. Tear down the business groups that cultivate these monopolies and cartels. The government needs to adopt an aggressive policy that identifies the most important sectors and sets goals to improve competition and increase innovation and productivity.

3 The tycoons. The monopolies and cartels that stifle economic growth, suffocate productivity, depress wages and increase inequality - we know them well. Can the Trajtenberg Committee possibly tackle them when the decision makers in Israel have not?

It can, because of the public pressure. Because the sentiment in Israel has changed. Until a year ago, any suggestion that might have caused a tycoon to itch or hurt a monopoly got quashed by the Knesset or the press. But now the quashers face the outrage of the people: hundreds of thousands of middle-class Israelis demanding social justice.

Naturally, not everybody has fully grasped that the world has changed. We can expect weeks of PR barrages explaining that the tycoons create jobs.

Therefore, it is high time to define what is a "tycoon."

Tycoon by definition is a businessman who has invented nothing, built no plants, created no jobs: He buys and sells businesses using borrowed money.

His tools are not innovation, commitment and good management. His tools are deterrence of politicians, access to financial institutions and the backing of the press. The tycoon creates jobs only when he has captive consumers to carry the cost.

What about tycoons who do create jobs in competitive sectors? Those are not tycoons, dear reader. Those are businessmen that most of the public, including this newspaper, holds in the highest esteem.