Taking Stock / Permanent Revolution

The cottage-cheese protests were a good start, but the next stages in the battle to decrease the cost of living will be very complicated.

Strauss didn't see it coming. Neither did Tnuva or Super-Sol, or Benjamin Netanyahu or Yuval Steinitz. A month before the social protest and cottage-cheese boycott, not one prominent businessman or politician predicted that the Israeli consumer, taxpayer and client would wake up one morning with a new outlook: My economic difficulties are not because I'm a loser, they're because of the structure of the economy and democracy - and the time has come to take action.

While several protest leaders espouse abstract ideas of social justice, and new political voices are trying to remarket the war against the settlers and the ultra-Orthodox, or are proposing a link-up with workers' committees, the Dear Israel movement is taking a more focused approach. It says the economy is made up of monopolies, oligopolies and pyramids, and the methods for lowering the cost of living are consumer strikes, protests and social-network advocacy.

Dear Israel movement
Tomer Appelbaum

The people connect with Dear Israel's ideas because they realize that the prices of food and many other products are dozens of percentage points higher than abroad. Even the Bank of Israel, which doesn't normally respond to fads, broke with custom two months ago and conducted a first-of-its-kind analysis in Israel. It found that this country really is significantly more expensive than other developed nations.

Dear Israel focuses on gouging - the excessive profits of Israeli food manufacturers and supermarket chains. It wants the companies to lower prices. Its basic message is: You've got room to cut - your financial reports reveal high profitability in markets where competition is low.

Gouging is indeed high at many companies. But anyone who knows how to read financial reports and is familiar with the economy's structure immediately asks himself: If tomorrow morning consumers manage to bite into a quarter, a third, or half these companies' profits, will this significantly reduce the cost of living?

The answer, apparently, is no. Even if tomorrow morning some economic or legal way is found to halve the profits of Strauss, Osem, Unilever and Super-Sol and transfer them to 7 million consumers, Israel's cost of living will still be high. Monopolistic factors, which boost the profits of all Israel's major food companies, retailers, exporters and grocery chains, amount to a good few billions of shekels. We have to lower this. Opening up competition is critical, but that's only part of the answer.

That's the real reason Strauss, Tnuva and Super-Sol are helpless in the face of the social protest. It's not that they're weak, that they didn't make sure to kill off rivals and dupe regulators to prevent competition. It's not that their executives didn't get mega-rich by exploiting concentration in the economy over the past decade. This is all true. But when we're talking about reducing the cost of living significantly, we don't realize these companies' limited room to maneuver.

Show us the money

So where is the money? Where is the cost of living hiding?

The answer, of course, is complex. The money is in many places in the Israeli economy. It's in inflated cost structures at the private and public monopolies that have been built up over the years - including the food companies and retail chains. It's in a quadruple leap in executive salaries at the major business groups over the last decade, it's in the high taxes, it's in the high costs the manufacturers and chains suffer. It's in the real estate and rental prices, it's in the high cost of kosher food, and in backward infrastructure at the ports, as well as in logistics and transportation.

The great damage the monopolies inflict doesn't end with their billions gouged, which is reflected in their profit figures. It extends to their heavy spending, their inefficiency, their lack of innovation, and often in horribly inflated expenses at their headquarters. Put all this together and you begin to see where the cost of living is hiding.

The best example is the Israeli banking system. The banks charge high commissions and interest rates on households and small and mid-sized businesses, but most of this doesn't go to the banks' shareholders but to the employees and managers. The banks' profitability is not extremely high, but that's only because of their tremendous expenditures. Tens of thousands of employees and managers take the biggest bite out of the banks.

The banks are an excellent example of a cost of living caused by monopolistic gouging that is feeding a massively inflated workforce. Most people don't comprehend the size of the problem because the high costs of interest and commissions are hidden inside the spending structure of many manufacturers, retailers and importers.

Taxes are another place where the cost of living is hiding. Israel's tax burden is not among the highest in the world; the problem is that much of the revenue doesn't return to the taxpayer in education, welfare, world-class health services and sanitation, it gets funneled into fat pockets, into inefficiency. The most striking example is the defense establishment, where NIS 10 billion to NIS 15 billion a year is wasted on excessive spending that doesn't increase security.

Ehud Barak, who announced last summer that he supports the social protest, is not just defense minister. He's chairman of the committee of Israel's most profligate sector. The expenses of this sector ultimately feed into Israel's cost of living and quality of life.

Do Strauss, Tnuva, Super-Sol and the other companies that are the focus of the social protest not understand where the cost of living is? Of course they do. But until six months ago they got along nicely in this economic structure, this ecosystem.

Here's how the system worked: Each powerful sector would look after its monopolistic position and shut its eyes to the gouging and inefficiency in the other sectors. Histadrut chief Ofer Eini's guys would get their cut, the tycoons would get theirs, and the defense establishment would get its, as would the protected and powerful public sector.

As long as the public is prepared to pay, nobody squeals on the other. The top decile will grow fat and enjoy tenure in the workplace, the top one-hundredth will get rich and buy apartments for their children, and the top one-thousandth will tell us via their newspapers and television channels that Israel is a huge economic miracle and the most fun country to live in.

Conspiracy of silence

Eight months have gone by since the protest broke out, and the gang that benefits from the existing order continues to protect its friends. The food manufacturers aren't squealing on the grocery chains and vice versa, the manufacturers aren't squealing on the public monopolies, no one is squealing on the defense establishment, no one is talking about the great importance of efficiency in the public sector and the private monopolies, and everyone is hoping the economic woes or ignorance will ultimately defeat the people - who will go back to being silent.

But the people will no longer return to their humble ways of the past decade, for the simple reason that more people are becoming disaffected every day. Many people in the middle class are starting to realize that their economic future and that of their children is expected to grow ever bleaker.

Boycotts of food manufactures or retail chains will only bring about significant change if the pressure is intense enough to make these companies squeal. There's a connection between the billions that go down the drain in the defense establishment, in the public sector, and in the private, concentrated and monopolistic economy on the one side, and the effectiveness of the systems that provide services and products on the other. Only when the public grasps this connection will it be possible to decrease the cost of living.

The first stage in this process is to analyze the inefficiency and low competition in all parts of the economy. The second stage is to understand that exposure to competition and market forces for a long period of time is necessary to create a more efficient economy. The third stage is understanding that slogans like big government, small government, privatization and nationalization are empty - what counts is effectiveness and efficiency.

We are at the beginning of this road. We have gone through the preliminary stage of a revolution in awareness. The next stages will be more complicated and take more time. But who knows, maybe the pressure that consumers are putting on the major companies will shine the spotlight on all the elements that create the cost of living and the other ills of Israel's crony capitalism and socialism.