How to (really) fight poverty in Israel

The Jerusalem Post
14 Sep ’05

‘It is three years now that poverty has been bothering me,” interim Finance Minister Ehud Olmert recently intimated.

So how can he mitigate poverty, when all Israeli governments have tried and failed, after spending billions upon billions of the taxpayers’ money? First, he could help by not repeating past mistakes, and not throwing more money at welfare policies that have already cost so much and delivered so little, by not shifting more funds to failed government “anti-poverty” programs whose sole benefit is political dividends to the distributive politician.

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‘It is three years now that poverty has been bothering me,” interim Finance Minister Ehud Olmert recently intimated.

To show that he means business, the minister led a delegation of officials on a well-publicized tour of Negev soup kitchens. The Negev has become a backdrop to poverty after having benefited from decades of strenuous government “development” efforts costing billions. Olmert subsequently ordered the establishment of a commission to recommend how to abolish poverty in Israel. As the Bible reminds us, the total abolition of poverty is a mission impossible, poverty being such a complex, intractable problem, but we, and especially our government – the cause of so much poverty – can still do a lot to mitigate it.

Cynics were quick to dismiss Olmert’s initiative as yet another ploy to exploit poverty as a cover-up for massive government hand-outs in an election year. Rumor had it that in a recent meeting with Likud mayors Prime Minister Ariel Sharon already indicated that Olmert will soon possess a large shwarma barrel to be divided among the faithful.

If it is not the approaching election that impelled Sharon and Olmert to suddenly become so concerned with the poor, cynics asked, why have they waited for three long years (by Olmert’s count) to launch a battle against poverty; what stopped them from doing it earlier?

Fighting poverty is too vital to be dismissed with cynicism. We all believe that even criminals deserve the benefit of doubt, so why should not politicians enjoy the same privilege?

We can assume that Olmert truly cares about poverty and that he failed to do much about it only because he was too busy with his many other jobs. What is important is that should he sincerely want to abolish poverty he could do much to advance this goal.

As to why Olmert failed to fight poverty earlier, and in fact always sided with monopolies and oligarchs that hurt the poor – is it not better that he joined the fight later rather than never?

SO HOW can Olmert mitigate poverty, when all Israeli governments have tried and failed, after spending billions upon billions of the taxpayers’ money?

First, he could help by not repeating past mistakes, and not throwing more money at welfare policies that have already cost so much and delivered so little, by not shifting more funds to failed government “anti-poverty” programs whose sole benefit is political dividends to the distributive politician.

Instead, Olmert can improve, very quickly and considerably, the lot not only of those defined as poor (by a perverse and misleading formula based on the Gini Coefficient) but also of the hundreds of thousands of families that cannot make ends meet on the measly salaries that most Israeli workers earn. He can do so by increasing the purchasing power of the little they do earn by 30 percent, 50% and sometimes even 100% – a huge improvement.

Olmert can achieve this dramatic improvement by simply opening the Israeli consumer market to true and full competition, by the abolition of most import restrictions and levies.

As the commissioner in charge of regulating monopolies stated, Israeli consumers usually pay some 30% to 50% above international prices on everything they consume because of the “monopoly rents” exacted by Israeli monopolies dominating our economy in every sphere: food, most consumer goods, water, electricity, credit, housing, education, health, you name it.

As we learned in the field of telephony, even a partial opening of the market to competition can result in a dramatic decrease in prices. There is no reason why the same should not happen, and as quickly, in every other sphere were monopolies exploit the poor Israeli consumer.

NEXT, OLMERT can cut in half, if not more, the cost of housing, a big ticket item that burdens Israeli families with heavy lifelong mortgages (thus reducing their capacity to save and the availability of capital for productive investment).

Olmert can easily cut costs by a massive release of lands by the Lands Administration which he controls, and by fighting the cement, building materials, contractors and credit-providers monopolies and cartels which greatly inflate housing costs. He could also streamline regulation and planning boards’ foot-dragging tactics that also increase costs.

Thirdly, it is in the hands of the very smart Olmert to make government performance a little more efficient (we are not dreamers!), say by 10%? This should bring down the cost of education, water, electricity, transportation, communications and a slew of other products and services that government inefficiency and waste inflates their cost by thousands of shekels annually for every family.

This would also enable the government to reduce taxes. Both will help making poverty less prevalent.

Olmert can do all this with relative ease because these steps are all within his scope of responsibility. All he needs is political will and administrative determination.

Sure, there will be powerful vested interests that would do their damnedest to foil such reforms. But if Olmert would dare launch such reforms he might prove he is not the tool of the oligarchs, as some charge. He would also get so much public support that he need not fear any opposition or political loss. Just see how Binyamin Netanyahu benefited from taking on the strongest interests in the economy – the banks, even though the banking issue and the reform’s outcome are far more complex and hard to sell.

So instead of envying Bibi and attacking him, Minister Olmert, why not emulate his success?

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