Just over one month ago, our Prime Minister was flying high. He had given an amazing speech before the US Congress. In fact, I don’t think a foreign head of state has ever rebuked the President of the United States while speaking before both chambers of Congress—and what’s more, received constant standing ovations and applause.
He could be seen on US News shows talking about the fact that there is only one democracy in the Middle East, and while citizens of Egypt, Syria, Tunisia, Yemen and other Middle Eastern countries are seeking to revolt against their government, all is well in Israel. People are happy. The economy is booming.
Not so fast, Bibi. Just as our Prime Minister was basking in pride, suddenly and unpredictably massive protests over the cost of living broke out all over the country. It started with The Great Cottage Protest of 2011. Cottage Cheese prices have nearly doubled in the past few years, while the ability to produce it and the demand for it has remained steady.
The cottage-cheese rebellion started after a major business publication ran a series of features comparing food prices in Israel and abroad. People realized that while salaries in Israel are about half those in America, prices of consumer goods and services are about double. Exorbitant profits, fees and taxes make even the cheapest imported automobiles cost between $35,000-$40,000, and a gallon of gas costs almost $10. A small apartment can cost the average Israeli worker 12 years in annual salary. Water and electricity costs are inordinately high, and poor government-run education leads many families to spend a mint on private tuition.2
This information led to a simple Facebook protest, but when 90,000 Israelis committed to boycott cottage cheese, the Knesset (Parliament) got involved.
However, that was just the beginning. The frustrated middle class (which is really an upper-lower class) saw the success of the Cottage Cheese Protest, so others decided to demand justice as well. Suddenly, on one of Tel Aviv’s most exclusive areas, Rothschild Street, which has grassy park-like medium, tents began to go up, as frustrated young couples began to protest their inability to buy or even rent an apartment. These ‘tent cities’ can now be seen in every city in Israel.
“Tents Cities” like this one on the exclusive Rothschild Street in Tel Aviv, have sprung up in every city in Israel protesting in inability to afford rent, much less, to buy an apartment. (Photo By Rina Castelnuovo)
All this started just over a month ago and I drove buy the Rothschild Street tent city yesterday with my pastor, Ari Sorko-Ram, and we saw thousands of tents lined up over several kilometers. The protest is not going away and it is legitimate—and that is coming from a true believer in the free market.
However, Israel is different from the US. In Israel, 15-20 families control over 80% of the economy. So, as in the case of the Cottage Cheese Caper, instead of supply and demand dictating prices, it’s just a few grocery stores and distributors (or ‘good ole boys’) setting the prices. There is no one else to say, “Hey, we’ll sell it cheaper.” The 15-20 families continue to buy large percentages of corporations, including newspaper and other media outlets, which have the potential to sway public opinion.
Understanding History in a Nutshell Israel was founded on Socialist principles. World War II reparations paid out to the Israeli government in the fifties literally built the nation’s infrastructure. In 1956, reparations from Germany made up 87.5% of the country’s income! This money was given to the national labor union—the Histradut—and they used it to create a network of state-owned ventures.
350,000 Israelis March in Tel Aviv to protest the high cost of living, despite the strength of the economy. (Pic: Ariel Schalit / AP)
That meant that the government or the state-sponsored labor union would own many of the major corporations in Israel, which included railways, banks, ports, telephone services, electronics, Dead Sea raw materials and much more.3
In the late 1980’s, Israel began to focus on privatization and has since made huge strides in this area. Israel’s economy today is considered one of the most unshakable in the world, inspiring the writing of Start Up Nation which climbed to #5 on the New York Times bestsellers list. From the outside it appears we are just swimming in profits. However, the truth is that while a few Israelis have become billionaires, the average Israeli is struggling—not to make ends meet—but to keep his personal debt from getting completely out of control.
Most of Israel’s economic problems are caused by its state-dominated economy, which has promoted privatization to such an extent that it has created monopolies. This has curbed competition and inflated costs. Breaking these monopolies will reduce the cost of consumer goods, potentially enabling millions of Israelis, dependent on government supplementary income, to have a better life.4
Less than a year ago, third generation Israeli and respected economist Daniel Doron penned a piece for the Wall Street Journal that, in plain English, expresses the problem:
But this growth may not be sustainable as long as Israel’s economy remains dominated by about 20 politically connected families that own so much of the country’s traded assets, which they acquired from the government and labor unions in a privatization process with credit provided by the nationalized banks. These cross-sectoral, multi-layered conglomerates have evolved into monopolies that inhibit competition, efficiency, and growth, and choke Israel’s hapless consumers. Israeli citizens—overtaxed and underpaid, and shouldering three years of service in the regular army and a month to 45 days yearly in reserve duty—must also pay monopoly rents of between 20% and 30% on everything they consume, as researchers at Israel’s ministry of finance calculated. All that makes Israelis poorer.5
In addition to this, our state run health care system, while functioning at a high level, has produced a health industry where doctors make less per hour than house cleaners. One doctor lamented on television that he sees his wife, who is also doctor, twice a month, because they are so overworked. This has led to a doctors’ strike for more than half a year.
The Orthodox Sham It is interesting that the Cottage Cheese Rebellion on Facebook was started by an ultra-orthodox Jew, a Cantor no less, because another primary reason that the average Israeli can’t make ends meet is the billions of shekels that the government shells out to the ultra orthodox, less than 10% of Israel’s population, so they don’t have to work.
While the majority of Israelis oppose this structure, ultra-orthodox Jews for the most part do not work. They feel it is their duty to study all day. Their political parties are small, but they often make up the last group of Knesset seats that either the right or the left, depending on who is in power, need to form a government. Because of this they will often “blackmail the budget.”
In addition, they tend to have lots of kids, sometimes eight to ten! The average Israeli worker is left to support them. It costs the Israeli taxpayers around two billion dollars a year to pay for all these entitlements.6
What is the answer? I am no economist, but even a simple man can tell you that a society where a decent percent of able-bodied men don’t work and where less than twenty families control over 80% of the economy will not prosper. The protests are very real and the protesters are not going away. Just last week 350,000 people marched in Tel Aviv, the largest protest in Israel’s history. That would be comparable to twelve million in the US.
We have seen western movies where one businessman buys up all the businesses in the town. Then he can charge what he wants without fear of competition. This is not capitalism, but monopolism. While the town is intimidated, someone finally stands up to the rich landowner—the hero in the movie. In Israel, that is what our middle class is doing now.
Pray for our government. We don’t want to return to socialism, but something must be done about the present situation. Pray for Prime Minister Netanyahu and Bank of Israel President Stanley Fisher, as well as the leaders of the protests. Pray for Professor Manuel Trajtenberg, who has been selected to lead a committee that will seek reforms to ease the pressure on the middle-class. While many were skeptical of this committee, he won high praises when we showed up at one of the tent cities to talk with protestors. He told them that there must be a breakthrough within the next six weeks. Pray for a just and fair outcome. Mostly, pray that God will use this difficult situation to cause Israelis to seek Him and find him in Yeshua.
1 Israel, Helen Chapin Metz, ed. Israel: A Country Study. Washington: GPO for the Library of Congress, 1988, The Economy: 1948-72
2 The Wall Street Journal, Israel’s Cottage-Cheese Rebellion, Daniel Doron
3 Thomas White Global Investing, Israel: The Economics of Peace
4 Breaking Israel’s Monopolies, Economic concentration hurts the country’s viability and the chances for peace, Daniel Doron
5 The Yale Globalist, Israel’s Ultra-Orthodox Problem, by Carlos Gomez