Opinion

Why the Majority of Israelis Have Good Reason to Feel Sour

Days after his “sour grapes” speech, in which the prime minister made fun of his detractors and boasted that millions of Israelis can travel to Berlin or London for the weekend, Benjamin Netanyahu flew off for a 5-day visit to London

Travelers at Israel's Ben Gurion Airport check in for their flights.
Dan Keinan

The prime minister’s need to travel abroad just when the police want to ask him about his alleged involvement in corruption in recent months looks fishy. Moving beyond appearances, his political cronies have made legislative proposals that eliminate any doubt: Netanyahu would do anything to stop Israel’s democratic institutions from investigating him.

One of several democratic institutions that Netanyahu and his people have been attacking in the last year is the state comptroller's office.

Last week the state comptroller, whose job is to be a government watchdog, wrote about the Israel Airports Authority. The authority is a tax militia by virtue of its monopoly over the gateway into and from Israel: Ben-Gurion International Airport, through which the “millions of Israelis” who represent the good life travel.

Netanyahu probably hasn’t visited Terminal 3, the main terminal at Ben-Gurion, for a decade. His cavalcade takes straight to a private plane. If he had gone through the terminal, and compared it with other terminals in the world capitals he visits, he’d have discovered that the much-ballyhooed edifice, launched as part of “Ben-Gurion 2000,” at the turn of this century, hasn’t changed at all in the last 15 years. Meanwhile, most of the other airports in the world have been markedly upgraded in order to handle rising passenger traffic and service standards. If anything passengers passing through Ben-Gurion feel they’re traveling back 20 years in time.

Now comes state comptroller Yosef Shapira and sheds a ray of light on the IAA. And Netanyahu is right, passenger traffic through the airport has enormously increased, mainly thanks to proliferation of low-cost airlines. Opening aviation to competition proved itself and indeed, Israelis in droves flee the high local prices of vacation for cheaper climes elsewhere.

The increase in passenger traffic through Ben-Gurion also dramatically increased the IAA’s income from the fees it charges each and every one of them and also, especially the fees it rakes in from the duty-free franchises.

How does it work?

The state comptroller showed us the math.

It turns out that the IAA charges the duty-free stores “licensing fees,” meaning their rent is six times higher than at the ritziest mall in Israel. Which means that for every $100 tourists pay for perfume or booze, between $30 to $60 goes straight to the IAA.

Elsewhere in the world, the norm is for the airport management authority to get $20 to $30 of each $100.

One could view the IAA’s fees from duty-free stores as legitimate tax of people rich enough to be afford to travel overseas. Okay. But what is the IAA doing with our money? The comptroller didn’t say – but the wages director at the Finance Ministry is more enlightening.

The IAA has 3,500 employees, divided into three types: about 1,500 are tenured “Generation A,” who make zero pension provisions – the state budget (i.e., taxpayer) pays it all. The remaining 2,000 employees are “Generation B” and subcontract workers, whose employment terms are the accepted norm.

Many of the generation A workers belong to clans. Yes, actual families where the privilege of working for the IAA has passed from father to son or brother-in-law, etc. That asset passing down the line is a gem. The average wage cost of Generation A workers is 40,000 to 50,000 shekels a month, and several hundred run wage costs of 50,000 to 100,000 a month. And they have tenure: they are protected from the vagaries of the free-wheeling, flexible labor market that the prime minister ostensibly supports.

The method of the IAA – charging passengers through the nose, by inflating the prices at the duty-free, and divvying up the loot among its people – is characteristic of Israeli economics in the last 20 years, a period when the nation was ruled by Netanyahu, and before him Ehud Olmert, Ariel Sharon and Ehud Barak.

Netanyahu didn’t invent the wheel, but he did nothing in the last decade to handle the independent tax militias like the IAA, or the Electric Corp, or the entire defense establishment. If anything, he struck alliances with them, to gain support and buttress his rule.

Middle class people who fly abroad for vacation, but don’t belong to one of the special small cliques protected by politicians, have good reason to feel sour. And the millions of Israelis who can’t afford to fly anywhere have even better reason to feel sour. While Netanyahu and his finance minister, Moshe Kahlon, preen about their plan to cut taxes, in Israel, civil spending on welfare and healthcare is among the lowest in the West.

Cyber this

Meanwhile, in his “grapes” speech, Netanyahu dwelled on the wonders of Israeli high-tech, which he tends to refer to as “cyber”. But even the success of Israeli technology could make most Israelis, mainly the poor, feel sour. Very few of them share the fruits of this success, as a report by the Taub Center for Economic Policy pointed out in October.

Gilad Brand, a Taub Center researcher who studies why Israeli productivity is so low, looked at the pay, background education and productivity of high-tech workers, among all the others. It turns out that Israeli high-tech really is a sort of bubble. Wages of high-tech workers are twice the average wage in the business sector, which is greater than the gap elsewhere in the West.

Economic growth in a modern economy stems from the export sector, says Brand. The growth potential of the rest of the economy isn’t high. But the various industries comprising an economy are inter-related, so the success of one sector causes wages to rise, and a nominal increase in productivity, in the rest of the economy. Not in Israel, though: it seems to have evolved two separate markets. Why?

Because the composition of Israeli exports centers on hi-tech industries that employ a very specific profile of employee, so there isn’t much mobility between the workers on the export side and the rest of the economy, Brand explains. Moreover, the skills of the people who work in high-tech aren’t like their peers in other industries — an engineer in high-tech won’t be like an engineer in local industry. Israeli industrial workers are among the least-skilled in the developed world, he added.

Nobody questions the success of Israeli technology, but its contribution to the rest of the economy is much lower than one might have expected. Israeli high-tech employs about 10% of the total workforce, and in contrast to other countries, their success doesn’t filter down, not in productivity and not in mobility and not in wages.

If anything high-tech may make conditions elsewhere even worse. The massive influx of money entering Israel from a tiny group of high-tech companies is strengthening the shekel, which weighs on industries with narrower margins than their peers around the world.

Also, the high-tech contingent raises the cost of living in certain areas, such as Tel Aviv.

The sourest fact of all is that acquiring higher education in Israel doesn’t lead to greater reward, outside of high-tech. And in high-tech, a lot of people lose their relevance in middle age, and find themselves tossed out of the bubble, into that big, amorphous greater economy.

Now they have real cause to feel sour.