Israel 2021: The Afflicted People of Israel Cried Out, and Big Business Began to Listen

Talking with three business leaders about the social-justice movement and Israel's economic future.

The transformation of Israel's socioeconomic discourse, which began last summer with protests over the prices of everything from cottage cheese to housing, caught the business sector divided and unprepared. Now not only the protesters but the government itself has engaged in this new debate, which centers on narrowing Israel's yawning social gaps and boosting competition, in order to lower prices.

Spurred by a Bank of Israel report that sounded warning bells about the dangers of consolidation and monopolization, the government established the so-called "economic concentration committee" and the Trajtenberg Committee, led by well-respected economist Manuel Trajtenberg. Their tasks were to identify the dangers to Israeli society and the economy, and suggest recommendations for change.

So far, however, the only employer organization to jump on the social-justice bandwagon is the Chamber of Commerce.

At first industrialists dug in their heels, for instance complaining that competition would ruin them. Lately they have been showing some flexibility. The trade unions, by contrast, have remained obstinate. They seem to have no desire to swim with these new economic currents, and in the long run, are liable to pay a steep price for their recalcitrance.

The second annual Israel 2021 conference challenges manufacturers to take a more active role in this process of change.

TheMarker, which sponsors Israel 2021, recently held a narrower socioeconomic powwow, sitting down with the leaders of three central economic organizations to talk about the cost of living: TzvikaOren, president of the Manufacturers' Association of Israel; Uriel Lynn, president of the Federation of the Israeli Chambers of Commerce; and Ilan Flato, president of theAssociation of Publicly Traded Companies.

'Manufacturers done wrong, government done worse'

Oren recognizes that manufacturers erred in some of their policies, and believes that some should adjust prices to keep products from smaller suppliers on store shelves. But he feels the protesters' wrath should be directed at government, not at business. It's Israel's elected leaders who are responsible for the steep price hikes, he insists.

Manufacturers who did meet with activists will stress that industry creates jobs, and that manufacturers' cooperation is essential if one key protest goal, lower prices, is to be met.

Lynn, for his part, welcomes the trend of lowering tariffs, which would benefit mostmembers of the Chambers of Commerce that he leads, he says.

Flato, an adamant supporter of capitalism and the free market, frowns on the new socioeconomic discourse. He thinks it bad for business, bad for the government, and bad for society, in that it will drive unemployment and create losses for investors.

TheMarker: Where was the business sector last year, when the public discourse started to change?

Lynn: We've met with protest leaders, but when society discusses the issue, it distorts one centralfact. At the economy's extremes there are tycoons and monopolies which exploit workers, butpeople forget that the entire state is founded on the shoulders of the business sector, andthat without this sector the state of Israelcannot exist economically.

Oren: I agree we weren't involved enough and we didn't coordinate enough with the protesters. We have important messages to share that got left out of the discourse. When the discussion is only about competition and lowering prices, it's easy to forget that people are involved, people who can lose their jobs because of these changes. When the protest erupted, we were terrified. We didn't know how to deal with it. And that created a situation where the focus of the protest was against us and not the government, which is, more than any other force, is responsible for high prices and concentration in the economy.

Q. The protest erupted because the public felt the business sector was getting richat the expense of everyone else. When a bank CEO earns NIS 53 million a year and thepublic pays NIS 14 billion in bank fees, a lot of people feel they are being swindled.

Flato: It's easy to focus on people who earn NIS 53 million in a year, but at the macroeconomic level, it means nothing. In essence, the protest stems from the genuine needs of young people struggling with high costs of living, particularly the cost of housing. Unfortunately, the protest also targeted areas that weren't relevant. Look at the economic concentration committee, for example. It was presented as a solution to spikes in the prices of housing, gasoline and more. But everyone, including the committee members themselves, knows their work is irrelevant.

Lynn: Concentration depresses competitiveness. Everyone knows that. Competition encourages new players to enter the economy, and it also brings prices down. Without hesitation, I support therecommendation to ban cross-ownership of financial and non-finance assets.

The protest movement raised another important issue: the low income levels of so many Israelis. Too many people earn too little but as a response, steps were takenagainst the business sector, and dividend taxes and other taxes were raised as lip service tothe protesters. A number of small- and medium-sized businesses were hurt by these new policies, while bigexport companies, that get tax breaks and incentives, weren't affected.

Flato: Because of how the government handled the social protests, the protesters will suffer the most. The economy will stagnate and unemployment will increase. In the end, the protest will not achieve its goals.

Oren: The protesters need to understand that we stand with them. We also want to find ways to live better in this country. I agree that there is no need to be ruthless, and that we need to look at wage gaps.

'Boycotting workers isn't right'

Q. How were the companies in your organizations affected by the shift in economic discourse?

Lynn: Some chains saw tougher competition and sustained some damage, but they are powerfuland can deal with competition. If protective customs and import taxes decrease gradually,the consumer will gain from that.

Oren: Industry took a hit, in terms of both revenue and morale. A lot of companies felt profits slump. Some are tottering on the brink of bankruptcy... The Strauss family [owner of one of Israel's largest food products companies] created an exemplary business, operating as Zionist entrepreneurs, and found itself the target of a boycott.

As manufacturers, we will reduce prices and become more competitive, but we can't do it overnight. To boycott hard-working entrepreneurs, men and women who are not tycoons, shows a lack of perspective.

If you think a product is too expensive, don't buy it. It's in all of our best interests to have a healthy industry. If we want our manufacturers to continue to innovate, we have to respect them. Any topic can be put on the table for discussion as long as the people in power don't panic and start acting foolishly.

Q. Is Israel's socioeconomic system fair?

Lynn: The socioeconomic situation is not good, but the government avoids dealing with absolutemonopolies such as the ports and the electric company, which it owns. Because today's government is extremely stable, it will handle the protests differently. Last year, the ministers were terrified of what the protest movement would do to their political careers. The prime minister saw the protest as a threat. He veered off of the policy course he had followed during his years as finance minister and he increased taxes on businesses. The movement's central, legitimate issues, such as low salaries, will continue to be raised, because we live in an unfair society.

When hundreds of thousands of workers earnNIS 4,100 a month and a few earn NIS 400,000 amonth, the economy cannot be fair. This is aneconomy tainted by ruthless capitalism.

Oren: Right now we have a broad coalition government, and that can be a good thing. I hope the government takes action and there won't be any more need for protests. I also hope the protesters realize that the government has more influence on prices than we do, and also that we play a key social role.

We had a number of serious discussions, and we know now that we need to be more efficient and show more commitment to social issues. We have to offer better prices and we have to give space on our shelves to products from smaller companies. The food industry can't lower prices right now. There needs to be discussion with the government, and the government needs to understand what the best time would be to lower prices.

Q. Could the protest movement imperil economic stability?

Oren: There is definitely such a danger. Some countries in Europe, because of their high unemployment, are facing economic instability.

Lynn: The government needs to preserve responsible economic policy. Otherwise, what happened in Greece could happen here.

Q: If you were to meet with protesters today, what would you tell them?

Oren: I would tell them that we need to work together, and make sure that productioncosts drop so that we can reduce prices. And I would tell them how much we admire their willingness to fight for what they believe in.

Lynn: I would tell them among other things that they shouldn't be fighting to bring back price controls. They should demand that customs and import duties be gradually reduced, and they should fight against government monopolies.

Flato: I would try to explain that there is no substitute for the capitalist system, despiteall its flaws, and despite the fact that it creates gaps and inequality. The protest movementproved that the public has power under the capitalist system and that they can exert influence byreducing demand. That method, and not regulation or taxes, is the proper way to protest.