When regulation is strangulation

bureaucracy  image: Shutterstock

Despite ministers' declarations, Israel continues to fall behind in the only global efficiency index that counts.

1. In 2003, then-Minister of Finance Benjamin Netanyahu declared, "What the Israeli government is doing with the economy will turn an over-centralized, inefficient, and corrupt economy with an enormous regulatory burden and inflexible monopolies into a healthy economy."

18 months later, in 2004, Netanyahu states, "After 18 months of reforms, I am glad to inform you that a fat man who weighed 55 kilo and a thin man who weighed 45 kilo now both weigh about 50 kilo. The bad news is that in the other developed countries, the thin man is the public sector whose proportion of the economy averages 40%, and we have gone only a third of the way."

If the figures were accurate at the time, they have long since been reversed. Bank of Israel figures show continual growth in the public sector greater than growth in the private sector. And no, this does not mean we have more doctors and nurses, as the bureaucrats like to tell us; there has in fact been no real growth in those areas.

In 2012, Netanyahu was saying the same things as prime minister: "Israel suffers from excessive regulation in all economic sectors. Excessive regulation must not control the economy." In 2014, the government approved a plan to reduce government bureaucracy by 25% and thin out regulation. On that occasion, Netanyahu said, "Regulation is an important tool, but Israel has wild over-regulation."

In 2015, Netanyahu stated, "We will fight with axes against excessive regulation in the economy. We are harming all Israelis with terrible regulation. This is the first goal, and it will be achieved much more quickly than people think."

2. In reality, Prime Minister Netanyahu's war on regulation looks a little different. A government paper on reduction of the regulatory burden in 2017 was released for publication yesterday. There were no axes - not even a plastic hammer. There was hardly a nail file; it was merely a manicure-pedicure at the edges and margins, a little lacquer, and that was it.

Take the "important measures for reducing the burden" in the Ministry of Justice, for example. The Estates and Trusts Department in the Ministry of Justice Administrator General's Office announced an impressive cut in regulation - "creating a 'green track' for approval of inheritance orders as a default option. Instead of all requests being sent to a representative of the Attorney General, only complicated requests will be sent." Really? Who decides what is and is not complicated? Will they set up a committee? Appoint another deputy Attorney General? What about the red tape? The demands for multiple copies of dozens of pages? What about the speed of reporting on the Estates and Trusts Department's website?

Another regulatory "revolution," this one involving several ministries, is "a combined measure of the Registrar of Amutot (non-profit organizations) in the Ministry of Justice and the Israel Tax Authority and Accountant General in the Ministry of Finance - coordination between three regulators in the government whereby the need for duplicate reports to all three of them will be eliminated. Instead, non-profit organizations will report only once, to the Ministry of Justice, and the amount of information that must be reported will also be reduced."

First of all, all of this is in the future tense. Whether or not it will actually happen remains to be seen. The obvious question is what all those clerks to whom we have had to report again and again and again in each ministry will do. The Israeli solution is that they will invent a requirement, another document, in order to justify their existence, their promotion, and an increasing in the unit's staff.

Another point is that the burden reduction paper makes no mention at all of the requirements that were added during the year, which indicates that the burden reducing project will continue forever.

3. Prime Minister's Office director general Eli Groner, who never tires of declaring that reducing bureaucracy and regulation is a national goal, writes at the beginning of the paper, "The figures recently published by the World Economic Forum for Israel show that Israel has jumped within two years from 98th place in the world to 41st place in government regulation." The problem is that the World Bank's figures contradict the index of the World Economic Forum, which is a non-profit organization founded by Prof. Klaus Schwab, organizer of Davos conferences in Switzerland.

The critical index as far as regulation is concerned is the World Bank's Ease of Doing Business Index, which covers 190 countries and assesses the efficiency of the system for investment and business. In this index, Israel is fifth from last among the OECD countries, and its global rating is getting worse year by year.

In mid-December 2017, the Knesset Lobby for Industry in Israel held a conference, led by chairperson MK Roy Folkman (Kulanu) and MK Ayelet Nahmias-Verbin (Zionist Union), under the heading "Rising on the Doing Business Index." Before the conference, the Israel Democracy Institute prepared an analysis of the World Bank report.

Israel has declined 25 places since 2008, from 29th to 54th, including a fall of 21 places in five years. At stake is Israel's position on an index that is critical for attracting investment and investors from around the world, Studies have found that a 1% improvement in a country's index rating is likely to cause a dramatic rise of hundreds of millions of dollars in inward investment in the country in question.

4. One small story highlights the extent of the gap between the promises and declarations of the ministers and ministry directors-general, and actual performance on the ground. Before the most recent revision of the Ease of Doing Business index in 2017, the government made a great effort to switch the Land Registration and Settlement of Rights Department to online reporting.

All the agencies concerned put their shoulders to the wheel, and installation of the system was completed on time. Internal assessments in the government spoke of a dramatic rise in Israel's rating under the registering a property heading, from 126th place in the world straight to 80th, or even 70th. When the index for 2018 was published, however, it turned out that Israel had done the incredible: instead of a big improvement in its rating, Israel slid from 126th place to 130th place - such a low rating that it will be difficult to fall any lower. How did this happen? It turns out that the World Bank was not notified that the Land Registry had been put online. One simple e-mail in English would have been enough.

The lesson of this ridiculous story was learned. Accountant General Rony Hizkayahu took responsibility, and decided that he would take care of liaison on the index with the World Bank. Hizkayahu's team checked all the categories and discovered that Israel's rating could easily be improved. In the category of connection to electricity, for example, Israel is rated only in 77th place for the sole reason that no one in the government had spoken to the Israel Electric Corporation in recent years to learn about its improvements.

Israel is in 99th place in payment of taxes, but this rating does not reflect the transition to online income tax reporting, which was completed this year. Does this mean that Israel's rating will finally improve dramatically in the 2019 index? Not necessarily. The Ease of Doing Business rating is relative, and Israel is not the only country to discover the idea of focusing on improvements in categories used for the rating. The world is not waiting for Israel.

5. Regulation and bureaucracy - as long as MKs are judged by the number of bills they propose, which usually increase regulation and bureaucracy, and as long as the Bank of Israel reports, as it did just a week ago, that salaries rose in real terms by 2.7% in the private sector and by 3.2% in public services, which also enjoy job security, and as long as the number of "public service" employees continues to grow faster than the number of employees in the private sector, and as long as the dream of every young person is to be a state employee, thereby guaranteeing good wages and conditions, overtime pay, longer vacations, accumulated paid sick leave, subsidized studies, and tenure with no measurement of efficiency, which is liable to cause idleness (certainly not everyone, but people who need service seldom obtain it easily and on time, without shouting and anguish) - there is no reason that regulation and bureaucracy should really shrink and service for the public improve. Mere words are cold comfort.

Published by Globes [online], Israel business news - www.globes-online.com - on May 7, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

bureaucracy  image: Shutterstock
bureaucracy image: Shutterstock
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