Short-term Populism

The tariff policy is diverting the spotlight away from the real problems of the economic policy. As if the budget was perfect, the deficit was low, infrastructures were being built, trains were cruising ahead, and roads and junctions were being built.

Last week, Industry and Trade Minister Dalia Itzik visited the Tafnukim factory at Kibbutz Amir in the Galilee. After a brief courtesy address, the minister followed standard procedure and sat down to watch a presentation about the factory. However, instead of seeing a glittering and uplifting presentation, the minister watched something comprised entirely of complaints and problems and primarily "proofs" about imported paper diapers flooding the market and a request that the minister impose a tariff "in order to save the factory."

Itzik is now facing the consequences of her actions. Because when she reiterates at every opportunity that the government must intervene to save industries facing a crisis and impose protective tariffs, the result is obvious: all of the traditional industries line up in order to get this protection, which is worth a lot money. At the same time, the same industry will not fix what needs to be fixed in its own factory. For example, the same Tafnukim factory did not invest enough in marketing and it also lacks the money to refurbish its equipment, but found it easier to come to the minister with a request for tariffs, since it is easier to work on the government than it is to work on the machinery.

Therefore, it is essentially a matter of education. If the minister had said there are, and will be, no tariffs, she would have suddenly found that factories were able to begin a process of streamlining instead of running under the government's apron, since these things have been known to happen.

Itzik is just now working on imposing a 21-percent tariff on imported textiles and clothes from Third World countries such as India, China and those in Eastern Europe. Here too, the stated goal of this step is to help the industry and prevent dismissals, but it will in essence be a capitulation to ongoing pressure from textile industry executives. The tariff would mean higher clothing prices for all Israelis, and therefore, a blow to the living standards of those who earn a low salary.

If it was just a matter of one product during a specific time period so be it. But the truth is that Itzik believes this is the way for her to save Israeli industry. Immediately after taking office, her ministry imposed a 17.7-cent tariff to protect against flooding the market with imported fresh yeast from Turkey, "because the price they sell for in Israel is too low," and it creates difficulties for the Paca Industries factory. The result was an increase in the price of baking products, bread and cakes. Then a 4.5-percent security tariff was imposed on imported oils, because the Shemen company's operating profit turned into an operating loss and now we pay more for oil. In December 2001, Nesher, the Israeli cement monopoly, complained about the market being flooded with imported cement, and now a tariff on cement is under consideration even though the company has been accumulating huge profits for years. Recently, a decision was made to impose ceiling limits on steel for construction imported from Turkey and a temporary bond on imported steel arcs. It will all eventually be reflected in higher apartment prices.

Itzik also wanted to impose a security tariff on imported plywood to protect the three plywood factories here, but in this case the Knesset's Finance Committee did not approve the tariff. Had it been approved, the local plywood factories would have gone back to work for a short time and closed when the next crisis surfaced. And in the meantime, furniture, kitchen and closet prices would have risen, because the cost of the raw material would have increased. As a result, demand for those products would have dropped and there would have been dismissals in the carpentry workshops and furniture stores. In other words, the standard of living would have dropped and there would have been dismissals.

The tariff policy is diverting the spotlight away from the real problems of the economic policy. As if the budget was perfect, the deficit was low, infrastructures were being built, trains were cruising ahead, roads and junctions were being built, the unemployed were being handled properly and sent to appropriate professional courses, the unemployment service operated efficiently and found jobs for all applicants, foreign workers were not flooding the country and the education level and the number of years of schooling in the periphery was fine. What's the only problem? The awful imports.

The policy of exposing local industries to imports started in 1991 and it led to a welcome streamlining in the industrial sector, a switch to more lucrative industries, and dramatic price drops which raised everyone's standard of living. Who does not recall that 12 years ago a simple knit shirt cost NIS 100 and a small television sold for $1,000 (instead of NIS 1,000 today). Does anyone miss those days when it was necessary to break open a long-term savings plan in order to replace your bathtub?

But Dalia Itzik thinks in short-term political considerations. The declarations about "import tariffs" and "saving factories" sound good in the press, and "a fight against unemployment" gains broad popularity. But they are bad solutions that do not solve a thing and only make the economy regress.