Last week the Knesset voted in favor of capping salaries for bankers and other financial-service executives. That was a milestone, in a way the law’s backers didn’t intend.
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Yes, it should put an end to what almost everyone agrees is inflated pay at the banks. But the crude politics that went into designing the law augur bad times ahead.
Since the 2011 social-justice protests, Israel has drifted away from its all-too-brief fling with more-or-less free market economic policy, directed by treasury mandarins with little input from the public. Nowadays, the agenda is set by the media and social media, political activists, NGOs and posturing politicians. Officials have been put on the defensive.
We saw this new politics of business when Antitrust Commissioner David Gilo abruptly reversed his own decision on the gas companies. Mere months after he gave a nod to the cartel, he decided that it was no longer acceptable and had to be broken up.
Or take Eugene Kandel, who stepped down as head of the National Economic Council, saying he was tired of being endlessly accused as a sellout to powerful interests. “There’s a popular slogan, ‘Corrupt people, we’re sick of you.’ What exactly am I — a civil servant — supposed to do with a slogan like that? If everybody thinks I’m corrupt whatever I do, what’s the point in striving to prove otherwise?” Kandel told Haaretz last year.
Replacing policy with witch-hunting
Not all the economic populism emerging over the last five years has been bad. Before the 2012 revolution, the cellphone industry was uncompetitive and rates were excessive. Gas policy needed to be revised. The big holding companies needed to be cut down to size (and have been, with the Business Concentration Law).
But as time goes by, sensible policy aimed at regulating business and addressing real problems with carefully constructed rules has been giving way to policies based on name-calling, conspiracy theories and witch hunts.
Let’s take bankers’ pay. It is certainly out of line, although it has gone down by a about a third in the last five years, at least for CEOs.
But instead of addressing a complicated problem systematically, bankers’ pay morphed into a political competition about who could sound toughest on the issue.
The 3.5 million-shekel ($920,000) cap Yair Lapid proposed when he was finance minister in the last government dropped to 2.5 million when Moshe Kahlon took over and revived the legislation. In the Knesset, another, more onerous cap was added: top pay was limited to 44 times the lowest salary at the bank. Later, that number was cut to 35 times.
Israel has serious issues with income inequality; contending with that is how the laws’ backers have justified the pay cut for bankers.
But, of course, the law won’t change much. Maybe 50 people will be affected by the legislation. Even if it is widened to the entire corporate sector, as MKs Shelly Yacimovich and Zehava Galon are promising, we’re now talking about a few hundred people. No more.
Relatively modest pigs
The infamous 1% that has become Public Enemy No. 1 for social activists around the world is actually not that piggish in Israel.
The top 1% of income earners in Israel accounted for 5.3% of all income after taxes and allowances, making us eighth among the 22 countries. Stripping out taxes and allowances, the rate was 6.3%, putting us at just No. 15.
The real problem of income inequality is a little further down the ladder. But going after bankers scores more political points than going after the upper middle class.
So does going after tycoons, even though the era of the tycoons is rapidly coming to a close. Nochi Dankner, Moti Zisser and Yossi Maiman have lost their empires. Lev Leviev, Eliezer Fishman and Eduardo Elsztain are all struggling to dig themselves out from under a pile of debt. Idan Ofer is slowly bailing out of Israel. Yitzhak Tshuva is going strong, but far from spreading his tentacles through the economy, he is trying to divest everything but his energy business.
Whatever populists tell you about what they are trying to accomplish – laudable goals, like ensuring fairness, competition and free markets -- what really drives them is hatred of the business establishment. They are convinced tycoons and bankers and CEOs are all-powerful. They make their money by ripping off the public and contribute nothing in return. If one businessman is more successful than another, it’s only because he is a bigger thief. No policy can be counterproductive because tycoons and their hired managers don’t deserve a single shekel they get.
The demonization of the cellphone market four years ago is a case in point.
Allowing in new players and allowing users to switch their mobile operator easily worked wonders for consumers, who saw their rates tumble. For the cellphone companies, however, it has been a disaster. Even after laying off thousands of employees and cutting other costs, most are still losing money. Golan Telecom, the upstart company that has been leading rates lower, isn’t a viable standalone business and has huge debts and in December, it agreed to sell itself to Cellcom Israel.
It’s quite obvious to everyone that in its current state the cellular industry is unsustainable and that Golan will inevitably drop out, with or without the merger. When it does, however, there will still be four major companies competing in the market plus some smaller ones, and switching providers will remain easy. So it’s not as of a Golan-Cellcom merger will bring us back to the old monopoly days. Rates will probably go up from their unsustainably low levels, but not by much.
For the populists, none of this matters. They want the merger to be barred and the cowed regulatory and political establishment seems to be on board. The point isn’t to ensure reasonable phone rates via a competitive market, but to torture the mobile companies, all of whom are controlled by one tycoon or another. As it is Israel, was hardly ever a business paradise, but now it’s becoming a business hell.