An open letter to Ehud Olmert

The Jerusalem Post
8 Apr ’04

Dear Minister of Industry Trade and Employment,

First, congratulations on helping initiate legislation to limits destructive strikes in the public sector.

You showed admirable political courage in opposing public monopoly unions who wield great economic and electoral powers.

All the more the pity that you have not shown similar courage in other important matters, especially in your additional role as Minister of Communications.

There, instead of opening the field to more competition, you side with the Israeli oligarchy in restraining competition, thus harming the consumer, your real electorate, and inhibiting economic growth.

Filed under:

public policy • reform

You have been widely, and justly castigated for these anti-competitive moves, so I will not belabor the point. Instead I want to concentrate on your stand about the disposition of government lands, on the over 93% of the landmass of Israel that are now controlled by the Israel Lands Authority, that is under your jurisdiction as Minister of Industry, Trade and Employment.

In a recent Herzliya Interdisciplinary Center conference you claimed that the land the government holds is not just another economic asset, but a “national patrimony” embodying unique values and sentiments. Its disposition must therefore express, you insisted, such “values” as interpreted by their guardian, government. Government must set priorities for land use, allocate it to activities it wants “encouraged”, such as the dispersal of population, public housing, industrial centers etc. In addition, The Israel Lands Authority, you argued, must protect land for future use.

Your assumption that government land must not be subject to economic considerations is wrong, however. Land might possess value beyond its material use, but such values are already expressed in market- determined prices. Land is primarily an economic asset just like capital or work. The attempt to ignore this basic truth is a cause for the colossal failure of government land management, and it has cost our economy dearly.

Why do we compare land to capital? Since Israel’s establishment, its governments have been convinced that they knew best what our “national goals” are and how they could be realized by the government’s domination of the economy, exactly what you claim now about land and its use. Israeli governments believed that they must determine capital use, direct it to various sectors, the way you suggest they do with land. They therefore made the banks buy government bonds with over 90% of savings, and allocated capital as credit for sectors that reflected the government’s – namely the politicians – “values”, as you call them. Namely, the capital market was nationalized, just as land still is.

The results were catastrophic. A country that boasts the world’s best human capital and that benefited from a great influx of foreign capital was never able to supply stable employment to a considerable portion of its workers. Those who did work mostly earned shamefully low wages, barely enough to sustain a family. Huge amounts of credit were misallocated or squandered, when governments, as they must, allocate credit according to political rather than economic criteria. Government allocation of credit (and, yes, of land) to politically well-connected persons or entities and to the bureaucracy’s cronies has created the huge concentration of economic and political power in the hands of the few, seriously curbing competition and efficiency and causing the ever-widening income gaps that have reached obscene proportions.

The nationalization of the land led to similar results. I do not know what national goals it has helped accomplish, as you claim. But if you allude to the dispersal of our population to outlying areas the irony is that it was so “successful” that while few Israelis moved to the Negev or the Galilee many found themselves dispersed to Los Angeles, New York or Sydney, even to Berlin. In those places a young person without political connections could find decent, reasonably-priced housing without mortgaging his future because his government speculates in the land that he is called upon to defend with his life, but is not allowed to use. Nor, I might add, is he forced to shell out in those places 30 to 50% of his meager income to a monopolistic system that exploits him with the full help and sanction of our politicians, and of government offices such as your own ministry. It seems that Israeli politicians have long forgotten what it means to support a family on a wage of, say, 7,000 shekels a month; how difficult it is to be saddled with the yoke of high taxes and inflated prices, especially of housing.

Since you are a very smart politician, you probably know the truth about the total misrule in the area of protecting government land, how huge tracts of government land are being simply taken over by strong-arm tactics. I therefore find it hard to believe that you really trust that unwieldy – and alas, sometimes corrupt – bureaucratic body, the Israel Lands Authority, to protect our land for future generations, as you claim it must do. Altogether, I fail to understand how a government bureaucracy can ‘protect’ land better than private ownership. So perhaps the real reason for the continued existence of the Israel Lands Authority is to enable politicians to grant favors to their cronies, make some of them multi-millionaires by a discriminatory allocation of lands and rights, as it has been doing.

Considering what steps you have taken recently as a Minister of Communications I do not hold much hope of convincing you to introduce competition into land use through the selling by open tender of most government lands and abolishing the Lands Authority. When you were Minister of Health, the bold steps you initiated to incorporate government owned hospitals as a prelude to their privatization led us to hope that here was at last a smart Israeli politician who understood the role of markets and was willing to pursue long term pro-competition policies that would benefit all. But it seems you have recently chosen to serve, like most of our politicians, short-term interests that you believe will benefit you politically at our expense. What a pity.

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