What Israel's Protest Leaders Can Learn From Wall Street

Israel's socioeconomic activists would do well to stop a moment and look at the statistics, think, study and learn.

What happened to the Americans? Have they gone mad? Have they forgotten the American dream? Have they forgotten the tremendous might of the most powerful economy in the world? Have they forgotten their soaring creativity? Their innovative skills? The astonishing, inspiring freedom of the citizenry?

The Occupy Wall Street movement has been gaining traction for seven weeks now. What began as a ragtag bunch marked as latter-day pot-smoking hippies who don't want to work has morphed into a front-page-news socioeconomic movement. At first, the conservative American press ignored them, but it was forced over time to acknowledge the movement's existence, and to report on it, with bewilderment - the ideas voiced by the people in protest tents from Manhattan to Chicago and Los Angeles sound so un-American!

Occupy Wall Street protesters - Bloomberg - 08112011

The movement may have arisen with the slogan "Occupy Wall Street," but a second slogan has been brewing under the surface - a more inclusive one, not focused narrowly on the American financial system that collapsed three years ago and sent the West into recession. This is the slogan: "The 99% against the 1%."

In other words, 99% of the population is teaming up against the 1% making the highest pay in America.

In October last year, we wrote about the book by Jacob Hacker and Paul Pierson, "Winner Take All Politics", which analyzed the reasons for the widening gaps in American society. We postulated that the crisis on Wall Street and rising unemployment would lead Americans to doubt the effectiveness of the American dream, and to begin grasping the harsh economic reality.

A year later, their thesis has taken flesh in the form of that new slogan, 1% against the 99%, and it's spreading from Wall Street to the world. Young and old bearing placards along those lines can be seen from the east coast to Britain, Italy, Spain, New Zealand and Japan.

Some of the 1% and many of the American right rejected the data and its interpretation. But in October, Congress published the results of its first, full, authoritative study on the matter, a concise 63-page paper written by its budgets department. Its title was: "Trends in the Distribution of House Income Between 1979 and 2007."

The figures it reports are eye-opening.

Before we start on the statistics, let us recap the prevailing ethos, the narrative about economic inequality in general and in America in particular: It is that the gap between the richest and poorest has been growing fast, as the income of the rich rises, while the poor stagnate. The parameter that explains the leap in inequality is the level of education among the affluent. We live in an age of knowledge economics, and people untrained in the relevant professions stay behind. People with higher education, entrepreneurs and managers make it to the 1%. They leave the rest farther and farther behind, but they drive the engine of growth. They are the backbone of the American economy.

So much for the narrative; now for Congress' statistics.

The share of income (after transfers and taxes ) of the bottom four-fifths of the people (the bottom-most 80% ) declined from 1979 to 2007. The share of income going to the uppermost 20% increased.

Now, let us look at that top 20% with the highest income per household in America. This is where the surprise lurks: Almost the entire leap in share of income lies with the topmost 1%.

Among that 1%, income per household almost tripled from 1979 to 2007 - rising by 275%, to be precise. The income of the other 19% (the 81st percentile to the 99th ) grew by "just" 65% during that time.

Income among the next 60% (meaning from the 21st percentile to the 80th ) grew by 40% in real terms (adjusted for inflation ) from 1979 to 2007. Among the bottom-most 20%, income per household grew by 18% in that time.

So the 30 breathtaking years of the technological revolution, globalization, democratization and Internet, three decades of victory by the American system, were indeed magical years, mainly for that 1%, the super-rich.

They were also good for the people with "knowledge economy" skills; but they aren't even in the same league as the super-rich. They only did a third as well. Look at the charts; a graph speaks a thousand words.

Barack Obama gets lippy

Now, we move to the questions that aren't covered in the report by Congress (which is controlled by Republicans, with a 242 to 193 majority ):

Do the people in that 1% have better education than the other 9% in the uppermost decile?

Is a Wall Street banker in that uppermost 1% better educated than a physics professor lower down in the top decile?

What propelled the uppermost 1% upward so violently in the last 30 years? The technological and globalization revolutions? Or rules of the game set by government?

Who influences politicians (and economic policy ) more - the 1% or the 99% of voters?

But the most intriguing questions are these: What is the real reason the 1% opened such a dramatic gap, moving away from the 99%? And, primarily, what influence did the 1% have to bring to bear on the politicians to be able to stay up there?

Put otherwise, is that 275% leap in income among the 1% a function of their skills, innovation and entrepreneurial spirit? Did it help propel the great American economy forward? Or, with such a vast swathe of the wealth concentrated in such a tiny fraction of the population, is it not just a matter of "driving the economy forward," but of a clique that's writing the rules as it pleases, for its own benefit?

An indication of the answer might be found in analyzing the biggest donors to the parties and presidential candidates by the 1% and by big business in America. In the last year, the richest hedge fund managers (each of whom earns $50 million to $500 million a year ) slashed their donations to Barack Obama, after he said some not-nice things about Wall Street.

As for Israel, our authorities haven't published a similar paper on the growth of inequality. Is it because of spreading poverty in the Haredi and Arab communities because they don't work enough? Is it a consequence of the technology and Internet revolutions? Or is it because here, too, inequality has widened because the uppermost 1% is grabbing more and more of the pie?

Who are the 1% in Israel anyway? Industrialists? High-tech entrepreneurs? Brilliant professors of physics? Architects, musicians, sports stars?

These are fascinating questions that neither the Finance Ministry nor the Central Bureau of Statistics has investigated, though the answers could be edifying and useful to the formulation of economic policy.

The Finance Ministry did publish something, though - albeit not with enthusiasm, let alone fanfare. Only after it was leaked to TheMarker a month ago did it actually release the thing. It is the ratio between executive pay and workers at the 13 biggest business groups in Israel (the ones often called the "pyramids" or "the tycoons' companies" ), which the ministry compared with the ratio between executive pay and workers in the rest of the business sector.

The results are as eye-popping as the paper published by Congress.

The ministry's sample was confined to companies in which the executives also own the companies. From 2003 to 2008, the ratio among the 13 big business groups increased from 10x to 40x (executives now earn 40 times as much as the rank and file ). In the rest of the business sector, the ratio stayed about the same. Look at the graph; it's worth 1,000 words.

This indicates that in Israel, like in America, there is a tiny clique of super-rich who made out like bandits during the last 10 years of market economics, doing much better than anybody else. Ironically, for our 1%, the market is much more reminiscent of the communist and socialist eras than of advanced capitalism: It is highly concentrated, and wealth and government are wrapped in each others' arms.

They say the Americans demonstrating against Wall Street at Zuccotti Park could learn a thing or two from the kids who launched the tent protest on Rothschild Boulevard this last summer. Maybe. The leaders of the protest movement in Israel could also learn a thing or two from the American protest, if they'd only stop a moment and look at the statistics, think, study and learn.