Israel's Government Is to Blame for High Cost of Living

Instead of fighting monopolies and cartels, the government prefers to criticize those who leave Israel.

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Milky (left), the pudding snack that has triggered a consumer protest.
Milky (left), the pudding snack that has triggered a consumer protest.Credit: Daniel Bar-On

The protest that erupted this week over the price of “Milky” chocolate pudding in Israel compared to a similar product in Berlin once again brings up the economic and social truth that everyone in Israel knows: Everything is expensive here – Milky, apartments, apples and banking fees. Things are expensive even compared to Western European countries and the United States, where salaries and quality of life are higher than in Israel. That is, the real gaps in prices are even higher than a nominal comparison reveals.

There are many reasons for this state of affairs, most of them having to do with a non-competitive economy, which includes many points of economic concentration that go against consumers’ interests. In the dairy industry, for example, the market is bolshevik, with milk production in the dairy sheds controlled by the Dairy Board, which is controlled de facto by the dairy farmers themselves. And so it should come as no surprise that the price of milk in Israel is much higher than in Europe. Add to this the milk cartel of Tnuva, Tara and Strauss, and there you have the explanation for the price of Milky, three times higher than in Berlin.

But not only the price of milk is inflated in Israel; the prices of other products are also excessive. This also stems from the non-competitive structure of the economy, which the government does not deal with sufficiently.

The government should reduce the high duties (55 percent to 212 percent) imposed on imported basic food products, deal with monopolies and cartels controlling all areas of life and create competition. It begins with the public sector – the Israel Electric Corporation, the ports, the Israel Airports Authority, Israel Railways, the Egged and Dan bus cooperatives and the postal service – and continues into the private sector with firms that have monopolistic powers in the food, banking, insurance, gas and cement industries and other areas.

The government should also deal with exclusive importers who raise prices, the Israel Standards Institute that blocks imports, the agricultural production boards as well as the high cost of kashrut certificates. Finally, the serpentine Israeli bureaucracy must be dealt with and the moderation of regulations examined.

All these obstacles are the result of economic concentration and excessive protection of strong groups, both public and private. The government must fight them, for the benefit of the public. But instead, it prefers to talk and criticize those who leave. That alone will certainly not lower the cost of living.

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