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Thursday, August 18, 2022

Runaway cost of living in Israel? It’s politics, stupid!

It’s about time we wake up and smell the coffee: The government will not solve the high cost of living problem out of its own volition.

Recent price hikes, like the ones that came before them over the last few decades, are the result of two factors.

A lack of competition to drive food manufacturers and distributors to compete for our hard-earned money, and low productivity that forces an intrinsic inefficiency on them.

The productivity issue is rather complex to solve, but as for competition, on the other hand, that could be solved immediately.

The only problem is that it’s a long haul, and Israeli politicians notoriously lack patience.

Running an economy is like sailing an aircraft carrier — once you steer the rudder by a couple degrees, the ship will take a few good miles before it settles on its new azimuth.

Everyone knows what reforms are necessary to increase competitiveness in the Israeli market. Ironically enough, the current government is even trying to do just that.

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אסם

Osem logo hanging outside one of the food giant’s distribution centers in central Israel

(Photo: Calcalist)

It has initiated several import and Kashrut reforms that are supposed to stimulate competition across the food industry and various others, all while backing them with a complementary regulatory reform that would grant more leeway to entrepreneurs who decide to dip their toes in the relevant markets.

The crux of the problem is the jarring lack of correlation between the political and economic returns of such reforms.

Any politician trying to do the right thing to solve for the rising living costs will only reap the recognition they deserve several years down the line, while also drowning in a choir of boos and hisses in the immediate term.

One great example would be Benjamin Netanyahu model 2003. Then an ambitious finance minister who did exactly what needed to be done — he raised the retirement age for both men and women, forced commercial banks to spin off their long-term savings and ended welfare dependency that kept entire sectors of the population out of the workforce.

The political blowback from the affected sectors, namely the labor unions and the ultra-Orthodox, was so massive it was seared into him to this day. His conclusion was simple: Better have a scandal on your hands than actually do something.

Almost all his governments since toed that same line and did not move as much as a finger to tackle inflating living costs, despite knowing full well what needed to be done to stimulate competition in fossilized industries.

The same will happen for the Bennett government as the negative political implications of its reforms dawn on it, having to pick a fight with farmers, labor unions and other interest groups whose representatives sit in the government. Its enthusiasm to enact these long-term solutions will also dissipate.

Even Bennett knows full well that if he really wishes to steer the ship clear, the passengers who hate sharp turns and get seasick would let him know exactly what they think about him. He knows that by the time the ship reaches the golden shore, the passengers will be hugging him also understands our political system well enough to know that his chances of holding onto the captain’s seat by then are slim.

The signatories of said letters — Economy Minister Orna Barbivai and Finance Minister Avigdor Liberman — look like some random commenters on an online message board at best, and like trolls at worst.

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שרי האוצר והכלכלה, אביגדור ליברמן ואורנה ברביבאישרי האוצר והכלכלה, אביגדור ליברמן ואורנה ברביבאי

Economy and Industry Minister Orna Barbivai and Finance Minister Avigdor Liberman

(Photo: Alex Kolomoisky and Hadar Yoavian)

Large firms that are committed to turning a profit can’t even start to wrap their heads around their ludicrous demands.

Under such circumstances, all the public has left is to take matters into its own hands, and that could well amount to something big.

Never before had the consumers so many tools available to menace food producers and distributors.

The media — and social networks in particular — facilitate a much more efficient transfer of information and make blitz consumer boycotts a reality, while lawfare provides a hefty arsenal of sundry legal tools.

The potpourri of available options is a nightmare for businesses, though it is hardly a solution to the long-lasting problems of competition and productivity. As long as we fail to reward politicians who are willing to take risks and act in the long run, nothing will change.

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