Narcissus Gazing Into the Yarkon

Sublime overconfidence is becoming a national hallmark along with falafel, chutzpah and total ignorance of boundaries

Last month General Electric published an international survey called GE Global Innovation Barometer 2011. In honor of the survey's release, Commstock's marketing VP met with a writer from TheMarker.

At meetings of that sort we're used to hearing GE representatives gush about Israel being the most innovative, creative, advanced or at least intriguing country in the world. TheMarker editors were expecting more of the same. But they didn't get it.

The survey by GE, a global giant in industry, energy and finance, didn't put Israel at the top of the list or even near it. Among the thousands of executives questioned, only 6.5% mentioned Israel in the context of innovation.

But what's that "49%" the report also mentioned? Ah, there is one criterion in which Israel is near the top after all. It turns out that among the gentiles, only 6.5% think Israel is some sort of bastion of innovation, but among the Israeli executives GE questioned, 49% think so.

Is this quality unique to the business scene? Not at all. Much the same happens with the international PISA tests, which gauge the performance of school children. Israel has been receiving among the lowest marks in the world for a decade now, but when Israeli children finish the test and are asked how they did, they usually show supreme confidence. "Went great," they say.

Narcissism and sublime overconfidence are becoming national hallmarks, along with falafel, chutzpah and an utter lack of interest in boundaries of any kind.

Last Sunday the government decided to let the Israel Electric Corporation into the Internet market.

Mirror, mirror on the wall

Six years after Bezeq was privatized and 12 years after the Yes satellite television broadcast company sailed into the telecommunications scene, the government had to admit: Its telecoms reforms had failed. Government has to get back into the telecoms market, and it's doing so through the biggest, most elephantine monopoly of them all, the IEC.

But we shouldn't complain about the government. For years we've been telling ourselves fairy stories about how advanced our telecoms sector is. But Communications Minister Moshe Kahlon looked hard in the mirror and saw the reality. He saw that the prices Israelis pay for mobile communications are among the highest in the world. He saw that Internet service, that symbol of progress and technology, is not only dreadfully expensive in Israel, it's slow as molasses.

The most expensive Internet service in the world is in Mexico, Turkey - and then Israel. In Britain, Italy and Germany, prices of high-speed Internet are 50% to 80% lower.

How does Israel's image as a technological, happening nation sit with its position on the bench with Turkey and Mexico?

Pretty well, actually. In the PISA tests, too, Israel found itself nearer the results of the OECD's laggards such as Mexico than to the advanced countries such as Finland, Singapore, Sweden, the United States, Britain and Japan.

According to World Bank analysts, a fiber-optic network reaching all Israel's homes could boost the country's GDP by NIS 10 billion a year. It's a shame the Communications Ministry didn't ask the World Bank to estimate how many billions of shekels the Israeli economy has lost in, say, the last five years because of its backward systems.

Privatization isn't a policy, it's an excuse

The ones responsible for the state of affairs in Israel's telecoms market are the finance and communications ministries. Instead of setting goals for competition, productivity and effectiveness, they based their policy on privatization.

Yet privatization has generally proved to be a flop, since under Israeli regulation, market mechanisms have failed to trigger competition, productivity and effectiveness. Mainly, what the privatized companies generate is monopolistic income for their owners.

The government's policy in the financial scene was about the same. Instead of setting goals to increase competition in the financial sector, instead of encouraging efficient resource allocation, strong corporate governance and cheap, advanced services, the government "privatized," selling off controlling stakes in Bank Hapoalim and Discount Bank.

The policy of privatizing the banks failed. Just ask any CEO of any Israeli bank in the last 10 years. Most agree that the Israeli banking system is glutted with manpower and is hindered from slimming down by agreements made in the past. This manpower glut is costing NIS 3 billion to NIS 5 billion a year. Meanwhile, sweetheart profits at the banks are shared among owners, managers, employees and possibly affect loan terms to cronies of the banks' management.

The dollars that the state has transferred when privatizing companies such as Israel Chemicals and Bezeq from taxpayers to a handful of businessmen are not the greatest damage these policies have wreaked on the economy. The hidden damage, the damage nobody wants to talk about, is that the privatization policy was a substitute for a policy that would spur competition and productivity.

Twenty-five years after the great "economic stabilization" plan of 1985, much of the business sector is regressing and starting to take on the trappings of a government sector, led by inefficient monopolies and cartels, bloated with manpower it doesn't need, making little contribution to the broader economy.

Why is there no public debate on these matters? Maybe because the public debate is directed by three main groups.

The first is the workers of the government monopolies and the politicians who derive their clout from these workers. The second is the owners and managers of the private monopolies and privatized companies, who also happen to control most of Israel's media, directly or indirectly. The third is people in government. Top officials gaily make the leap to the private monopolies when their stint in government is over. No surprise then that so few are willing to lead true reforms.

Turkey and Mexico are far more corrupt than Israel. In Mexico one man, Carlos Slim, controls the country and has made tens of billions of dollars from his monopolistic income at the expense of the people. But Israel can't afford what countries like Turkey and Mexico, Italy or France can afford. If we don't improve productivity in the public sector and competition in the business sector, there is no chance of making the global big leagues, not in GDP and not in social solidarity and equality.

Testimony to the nature of Israel's management dynamic can be found in the high-tech scene, which offers the best rewards for success and doesn't feature people who originated in government. One may entertain a nasty suspicion that the chief talent in executive circles at the cartels and monopolies is keeping competition low.

A few weeks ago we happened to go into the private room of a Tel Aviv restaurant. To our surprise, at one of the tables were the CEO of one of Israel's big companies and the regulator currently working on reform of that company's sector.

Why were the two meeting over what turned out to be a very long lunch? Why not at the regulator's office?

We thought of kidding the CEO about the length of the lunch break he was allowing himself. But then we came to our senses. Chances are this was the most important meeting the CEO has held this year.