The protesters missed the point

Yakir Plessner

Many thousands of Israelis, mostly haredim, do not work, and live off those who do.

The social protest, which reached a high point on Saturday night, succeeded in winning media support across the board, and even its encouragement. I wish to voice a dissenting opinion.

Most of the social protest's rage is directed at the high cost of living in Israel, and this is a big mistake, because the concept is meaningless. There is no way to compare price levels in different countries, and the only relevant comparison is the purchasing power of income in different countries. The reason is straightforward: translating prices in Israel to prices in dollar terms depends on the exchange rate. When the shekel is strong, the conversion of shekels into dollars results in a relatively low number; when the shekel is weak, the opposite in the case.

This is exactly why each year the University of Pennsylvania publishes all exchange rates against the dollar in purchasing power terms. These are the exchange rates for the cost of the same basket of goods in every country in dollar terms. In 2009, this exchange rate was NIS 3.70/$, compared with the shekel-dollar representative exchange rate of NIS 3.78/$.

The protest against the high cost of living is not only misguided, it also ignores what has happened in Israel in recent years. It may be hard to remember, but in 2008, a global financial crisis erupted, which brought all the world's economies, especially in the developed world, to a slump not seen since the 1930s. As for Israel, if we take the fourth quarter of 2007 as a baseline, by the first quarter of 2011, private consumption per capita rose 5.8% in real terms.

At the same time, the government increased individual expenditures (spending on items that create goods and services of a private consumption character, especially education and health) by 18.1% per capita. Therefore, the standard of living rose by 8% per capita over this period - a development seen nowhere else in the developed world. These are objective figures, not subjective figures of the protesters.

As for the protest and the housing issue. It is true that housing is very expensive in Israel, and it has been ever since independence. For example, in 1985, a person had to devote his entire salary for 16.1 years to buy an apartment. The figure peaked in 1997 at 17.9 years of disposable income. These are insane figures: it is acceptable for a family to spend 25% of its income on housing. If, in 2010, 14.7 years of the entire income was needed to buy an apartment, then if a quarter of a family's income is spent on housing, it takes 4x14.7 = 58.8 years to buy an apartment.

As mentioned above, this is unacceptable. But the solution is also unacceptable to the protesters: the privatization of the Israel Land Authority. It is the lack of supply that is driving the insane home prices, and it is the Israel Land Authority that is restricting the supply.

There are other factors driving the prices, such as the cement monopoly, but the supply of land is the primary factor.

The real burden - citizen who don’t work

Finally, the protest movement has not targeted the most important cause of all for the burden the public carries: the fact that many thousands of citizens, mostly haredim (ultra-orthodox), do not work and live off those who work and pay taxes. (At least the last time that I looked, the haredim did not receive manna from heaven).

If the participation in the labor force were to rise from 58% (in Israel) to 70% (the OECD average), everything here would look different - higher GDP and a lower tax burden. This is the protesters' great miss.

Published by Globes [online], Israel business news - www.globes-online.com - on September 15, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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