Who is to blame for inequality? Israel as a case study

Can you join the dots?

Item 1: Approximately 25% of Israel’s population live below the poverty line.

Item 2: In the OECD’s recent “Better Life Index“, Israel ranked in the lower third of countries. Specific issues of concern included lack of affordable housing and poor education facilities.

Item 3: Despite Israel’s highly efficient milk industry, the prices of dairy products are 44% higher than the OECD average.

Item 4: Israel’s government issued the Kedmi report this week, which proposes mechanisms to lower the price of staple groceries and household items. The main emphasis appeared to be on blaming the strength of large supermarket chains amongst barely 8.8m people.

Poverty does not just exist in a vacuum. It is the result of multiple socio-economic forces coming together at one time. In Israel, the problems are compounded by two externalities:

  • Ultraorthodox families are encouraged to have children; 8 or 10 is not uncommon
  • Arab families are also large, and there are often less employment opportunities in such areas.

Imagine you are a business mentor and you had one challenging question that you could pose to an Israeli decision maker. What would it be? I suggest something like: “Why do governments continue to support positions that only support dominant commercial powerhouses and thus detract from price competition?”

For example, excise and regulation make the import of fruits and vegetables totally unprofitable except under specific conditions. The result is that even when there is a drought of a certain product, the consumer has no choice but to pay or to forgo. The winner remains the farmer or the shop owner.

Similarly, two chains control around 60+% of the food retail market. With the price of land high, little space available for out-of-town shopping districts and prohibitive advertising costs, the two companies look set for long and safe future. Again, the winner-loser break down is clear.

What next? Time for Israel’s government to do its job rather than act on behalf of interest groups who pay for its election campaigns.

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