Summa Cum Fraud

Top-level business administration students are sweating bullets.

Companies seeking recruits have adopted a new tactic. They'll give the student a $45,000 bonus cash just for signing an agreement, they say ? if you accept our offer by mid-October. Each passing day after that, the bonus shrinks and shrinks, until vanishing entirely.

To Israeli students just starting the new university year, the story sounds insane, but it's absolutely true. Thing is, it isn't happening here, but in the U.S. It's another escalation of the cut-throat competition for talent in the American labor market.

The New York Times described the phenomenon last week, complaining about the depths to which companies will resort to recruit good people. Students moaned groused about the stress they suffer as the companies clamor for their favors.

To the Israeli reader, their griping sounds absurd.

The affair of the recruitment drives came to mind because of the stock options backdating scandals, the fraud committed by dozens of Wall Street listed companies, by failing to properly account for their options to workers and management.

Naturally, most of the attention goes to the corrupt managers who committed the fraud to enrich themselves and choice workers, without hurting corporate profits, and last week I speculated on why Israeli companies, that aren't hi-tech firms listed on Wall Street, don't indulge in the practice. Some accountants wrote in that the difference lies in the method of recording costs and reports to the Income Tax Authority.

Yes, there are differences, but that is not the story. The story is Wall Street's need to pad workers with growing numbers of stock options because of the fierce competition over good people.

Who's your daddy?

Hi-tech is the only Israeli sector where there is a competitive labor market. It's no coincidence: the Israeli hi-tech scene is part of a greater global sector. Its clients are outside the country, financing also originates mostly from the outside - and so does the business culture.

But Israel's hi-tech is a bubble, that exists outside the Israeli experience. Elements pass from it to the rest of Israel by painfully slow osmosis.

In other sectors, there's no competition over talent. Opportunities are limited.

It all begins and ends with the structure of the Israeli economy, with the elephantine and dreadfully inefficient public sector, with the tremendous proportion of the economy controlled by public and privately-held monopolies, with the supreme power of a handful of companies and the feebleness of the small businesses, with the sectors where profits are determined by political circles in Jerusalem. Not by the skills of workers.

An American student wants a job. He writes his resume and looks for work. He may access websites and calculate what he might expect as pay. He knows that if he does well at a reputable university, he'll be able to repay his student loans quickly.

An Israeli student wants a job. He asks himself, "Who will arrange one for me? Who do I know?" If he's from the right socio-economic and military background, he need look no further than his cousins or army buddies.

Much has been said about the deterioration of the Israeli education system, and the growing gaps between it and the world.  At first the talk was of primary and secondary schools, then it spread to higher education.

But Israel's education system exists in the context of Israeli society and economy. It adapts to the environment, therefore more budgets and improved teaching methods will not do the trick.

The question is what labor market awaits the students as they graduate: a market of competition over talent, or a corrupt swamp where what matters is who you know, not what your grades were; a market willing to pay for excellence, or a market where capability is secondary.

The good news is that the value of excellence is spreading to other sectors thanks to the hi-tech boom, economic reforms, and globalization. The bad news is, it's too little, too late, compared with the speeds at which rival economies are advancing.

Students who want to make it, or who have the means, reach their own conclusions and move abroad. Some may some back to fight the Israeli methods. But many will stay abroad, with their families, their talents, and their taxes.