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Middle-class rage is upsetting Netanyahu’s apple-cart

Israel is experiencing a new and unexpected mass upheaval: its lower and middle-classes are in revolt against a massive decline in its standard of living, due to neoliberal policies of market liberalization over the last decades. But this also stems from the huge indirect costs to the taxpayer who supports the occupation

By Eyal Clyne

Protesters in Tel Aviv, August 6 2011 (photo: Oren Ziv/activestills)

About a month ago an Israeli, outraged at the cost of cottage-cheese, started a Facebook group calling for a consumer boycott. Within days, thirty-four thousand members had joined, and the group made it onto the evening news. Netanyahu quickly promised to ease the import of dairy-products to increase competition and decrease costs, but he failed to see that cottage-cheese was merely a symptom. Cottage cheese is perceived an elementary must-have Israeli product, and the boycott symbolised to many something much bigger than just cheese: the growing inability of the middle class to sustain itself financially. Indeed, while shop prices in Israel are usually similar to (or even higher than) those in the UK, the average Israeli salary is 60% lower. This small and successful consumer boycott was a sign of what was to come. About a week later, a group of young Tel-Aviv residents decided to start living in tents pitched on Rothschild Boulevard in Tel Aviv, in protest of the exaggerated and disproportionally high cost of housing and rent. Within days hundreds, then thousands, had joined, as dozens of tent camps quickly appeared in many Israeli towns across the country.

At the same time, other protests have been taking place: doctors and specialist registrars escalated their months-old strike (protesting their incredibly low pay); thousands of parents joined several pram-marches in protest of overall costs of raising childcren; privatised teachers declared their support; more consumer-boycott groups formed on Facebook; student unions joined in, and later the main settler organisations; the entire country flared up in protests. What had started as a protest about housing, quickly moved to the cost of living, the lost benefits of the good old welfare state, and the government’s general unwillingness to protect the public. Last Saturday saw over 300,ooo Israelis marching in towns all over the country, appropriating Tahrir Square’s famous slogan and shouting: “The People Want Social Justice!”

Economic and political background

There are several reasons for the current crisis of costs and of housing. The first is the radical liberalization of the market. Many outside Israel imagine it as relatively socially equitable, remembering the socialist ethos of Labour Zionism. The reality is that since the Likud took power in 1977 all Israeli governments have adopted neoliberalism to varying degrees. The most radical amongst them have been Kadima and Likud (which have governed Israel for almost 15 of the past 16 years). They along with Lieberman’s party, Yisrael Beiteinu, explicitly support and impose a very extreme version of capitalism. Among other things, they have simultaneously reduced taxation on the most wealthy and the benefits of the very poor, and have shrunk any regulation to protect the public. As a result, Israel’s GDP and the strength of the shekel have grown massively – as has the gap between rich and poor, which is now among the widest of OECD countries . The only OECD country with higher poverty rates is Mexico.

Most importantly, salaries have grown significantly slower than prices. People now work harder for much less. The younger generation of the Israeli-Jewish middle class, who usually live in the Greater Tel Aviv metropolitan and coastal area, are generally well educated. But despite having several jobs , they are sinking into debt, and see no real hope for improvement. They no longer enjoy the generous support and responsible supervision of the state as their parents had done, and they are left to survive under the brutal forces of “nature”, exploitation and greed, while financial tycoons may do with them as they please.

The sharp increase in the cost of housing is one of the most important results. In two decades (from 1990 to 2011) housing costs have risen six-fold as the result of government policies: selling the government construction-company, which had helped to regulate prices of land and housing; selling of land strictly to the highest bidders; waiving taxation on owners of several houses; and leaving “the market” to regulate itself, even in times of massive purchase of real estate as a safer investment. While in Montreal, Sydney, Amsterdam, Berlin, and Paris, regulation is at 100%, in New York about 50%, and in London about 25% through public housing; the comparable figure for Tel Aviv is about 2%. (1)

Internal migration

Nevertheless, Israeli governments have sometimes invested in development, where they have perceived a threat to Jewish demographic dominance and presence in the periphery. Given the ongoing internal immigration towards the coastal region, (mostly to cities and Greater Tel Aviv), Israeli geographers predict gloomily that the presence of Jews in most other parts of the country will reach an all-time low within decades, and bring about a de-facto two-nation geographical divide, with Jews voluntarily confining themselves to the coastal area.

The reason for this slow internal immigration is, in general terms, that Israel’s peripheral areas suffer from neglect, lack of resources, and poor infrastructure and transportation. As a result, for decades, Israelis have slowly moved towards the center, accelerating the price-rise there even more. Several Israeli governments have tried to challenge this trend, but unsuccessfully, as they have not been willing to invest enough in the unpopular northern and southern regions of the country.

Over the green line

There is another area which is a popular destination for internal migration, but more importantly – where governments have consistently invested much more, and succeeded to encourage migration to it. As Prof. Shlomo Svirsky puts it: “the free market ends when you cross the Green Line”. When it comes to efforts to populate the West Bank with Israeli-Jews, the government does invest – big time. Between 1994-2009 close to 50% of the construction in the settlements was government-initiated and funded, while in the entire country (including the settlements) it was less than 21%, and in the Tel Aviv District 3% (Between 2006-2009 – not a single government housing-unit was built in that district.)

Clearly, government investment in the settlements comes at the expense of poor Israelis. The settlement of Efrat, for example, where the average income is almost NIS 8,800 a month, was defined as a Priority Zone and was given precious benefits, while places like Ramle, with an average income of NIS 4,400, were not. The “settlers first” policy affects not only the lower class, but also the middle class. The government spends about 40 thousand shekels a year on the average Israeli, but 93 thousand a year on a settler. After all, it was not for no reason that Rabin’s successful election campaign in 1992 (after other popular protests) chose the slogan “Money for Education, Not Settlements.”

The middle class awakens

The current wave of protest is an authentic popular movement. It is not led by organisations and political parties, but by street parliaments (and attempts by main opposition parties to join the protests have failed). The protests vary from place to place, and are often arranged through Facebook groups. Tzvika Besor, a 34-year old middle class Israeli, started a group where he announced that he intends to strike on August 1. “I’ve had it!” he started his text, describing how he and his wife work hard, but still can’t afford to plan a second child. Within four days tens of thousands had joined his campaign, and between hundreds and thousands of them actually went on a one-day strike.

The unbearable financial distress of the growing lower Israeli classes is not new (especially among the ultra-orthodox, residents of the ‘periphery’, and Arab citizens). What is new is the fact that the middle class has also reached rock bottom. In fact, for more than a decade we have seen a growing apathy among secular middle-class Israelis, who chose to avoid politics (and in particular the existence of the occupation). Once, their protest vote was big enough to grant an unknown pensioners’ party 6% of the parliament’s seat; now many no longer bother to vote. As long as their condition allowed it, they focused on their immediate, individual wellbeing. Now, all of a sudden an eruption occurs.

On one hand, this seems just like Marx’s recipe for a revolution: when the middle class joins the lower classes’ struggle, he believed, a potential revolutionary moment is created. On the other hand, given the erosion of the status, influence and resources of the previously dominant class of secular and pluralist Israelis, protests are also an expression of their frustration, of their attempt to restore some of the lost old order, rather than fighting for a new one.

It is still too early to predict the results of this protest. On the one hand it is larger, more comprehensive, unified and long-lasting than any previous popular socio-economic protest in recent decades. The media is also very supportive of it, and the distress is real. However, the platform of all the big political parties (Kadima, Likud, Yisrael Beiteinu and Shas) is in direct contradiction to the protestors’ demands. Moreover, there are no signs of escalating the protest into causing any serious disobedience, so it is possible that it will fizzle out with a few small reforms, as protestors tire and have to return to work (similar to the way the anti-cuts movement in the UK eventually lost its momentum). Others suggest it will dissolve with the next wave of violence in the Israeli-Palestinian conflict.

Skeleton in the closet

The last word must be reserved for the unspoken skeleton in the Israeli closet: the cost of the occupation. For decades Israel used to profit from the occupation, but this is no longer the case. Since 2001, due to the combination of the sharp increase in the security cost of controlling the West Bank , and radical neoliberal policies, the balance had changed drastically. Massive privatisation has led most of the profits to go to private companies and individuals, while the Israeli public has been left to foot the bill. Now the cost is already estimated to be about $9b p.a., three times the size of US aid. In 2007, the Israeli government spent almost ten percent of its budget on settlements in the West Bank. Expenditures include the price of settlement security, construction of expensive infrastructure (such as tunnels, bridges and walls), and incentives and benefits for settlers – let alone lawsuits, divestments, Hasbarah and diplomacy).

This cost keeps growing, because settlers and their benefits keep growing. Considering that the Israeli budget grows at 2.3% p.a., and the settlement population at 8% p.a., (compared to a 2.2% p.a growth rate in the general population including settlements), it is clear that the settlements, which are already more than Israelis can afford, are an increasing threat to the Israeli economy. The growing gap in the figures above suggest a silent killer-disease at work beneath the surface of Israel’s fiscal economy. Are we now witnessing the middle class cracking under the financial burden of the growing problem its members strive so hard to ignore? If so, then the Israeli economy, which presents itself as stable and prosperous, is nothing but a bubble about to burst.

Note:

(Another reason, some say, is empty flats in Jerusalem and Tel Aviv, bought by European and North American Jews, whom use them for holidays, but keep them empty most of the year. As a result, demand grows, supply decreases, and costs rise. Moreover most Israelis cannot compete with the financial ability of Jews from abroad, who end up offering higher prices for the houses, and thus also affect the market’s prices. However, I have no figures on this phenomenon, but my guess is that it is true at least to specific luxurious neighborhoods).

Sources:

Dror Etkes, “If only Rothschild were a settlement”, Ha’aretz (2011, Hebrew)
Prof. Amnon Frenkel, “It’s not the real-estate, stupid”, ynet (2011, Hebrew)
Tamar Godzansky, Socio-Academic College, ynet (2011, Hebrew)
Shir Hever, The political economy of Israel’s Occupation (2010) & an interview to Ha’aretz (2011, Hebrew).
Prof. Shlomo Svirski, (CEO of Adva Centre). The Cost of Arrogance (2008, Hebrew) & “Double Faced Country”, ynet (2011, Hebrew).
Tani Goldstein, “It’s not the prices, it’s the salaries”, ynet (2011, Hebrew)

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Eyal Clyne is an Israeli researcher of society in Israel-Palestine. He focuses on the conflict and other Israeli political issues. This post originally appeared on Jnews, and is reposted here with the author’s permission.

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    COMMENTS

    1. Anthony

      Really interesting article.
      A couple of other factors worth mentioning:
      * Import tariffs and lack of competition in markets drive up prices. In the UK we have large supermarkets and online companies aggressively competing to bring goods to market at the lowest possible price. We also don’t have high import tariffs on foreign cars, food etc.
      * The planning system. There are lots of sites in prime locations in Tel Aviv which have sat derelict for years – I assume a planning system that is either corrupt or incompetent is responsible for this, as officials and developers restrict permission to build to drive up prices and maximise profits.
      * Many of the trends mentioned are common to other OECD countries – such as the polarising labour market – and are due primarily to globalisation. The high prices are special to Israel though – in the UK we’ve seen the price of fridges, bikes, cars etc come down significantly in the last decade due to cheap imports from China and greater competition in our retail markets.

      Reply to Comment
    2. Carl

      Anthony, the aim of competition is to win, that’s to dominate as regards markets. After any competition, the losers are eliminated and you’re left with the winner and the runners up. This is why high streets look the same the world over: the longer competition goes on, the less choice you end up with. Not to mention the fact that ‘free market’ competition is about as fair as a race between Usain Bolt and an under fives’ hod carrying team. Please, set up a shop near a Tesco and see how you long you can compete against loss leaders.

      The idea that unrestrained competition leads to the lowest prices is lunacy. PLCs have a duty to maximise profits for the shareholders, and any low prices are tangential to this or a stepping stone to greater profits.

      As for high prices being an Israeli preserve, have a look at UK inflation and the median wage: or try buying a house. The wholesale transfer of public wealth to private hands has been going on apace in the UK since the early 80s. Around two thirds of UK land is now owned by 0.3% of its population. Israel has suffered the same process, but sadly didn’t have as much of a welfare state to dismantle as we did, so the starting point was worse, and the process quicker.

      It’s strange, but when the Berlin Wall came down and the USSR collapsed, everyone was quick to point to the how USSR style socialism was doomed to failure. When it comes to capitalism, it can tank as many times as it likes, repeatedly be resurrected by public money (that’s socialism, but only for big business) and still we just need even more of the same to make it work.

      Reply to Comment
    3. Taoist

      If the Israeli lower and middle classes are hurting this bad, I cannot even begin to think about the plight of the Palestinian people, whose livelihood is under constant aggression by the occupation.

      Taoist

      Reply to Comment
    4. Anthony

      Carl, I don’t really understand your critique of competition but it seems more rooted in ideology than empirics.
      I certainly can’t compete with Tesco’s but that’s because they bring goods to market at the cheapest possible price – which is good for consumers. They’re not making a loss either – they’re making record profits, as are other supermarkets, despite selling goods at a fraction of the price at AM/PM in Israel. (They also sell a massive variety of goods, and competition from ecommerce has only increased the range of choice for UK consumers in recent years.)
      I wasn’t advocating “unrestrained competition”, whatever that is. Markets need a strong competition authority to prevent cartels emerging and to ensure that markets work well for consumers. We have the Office of Fair Trading to investigate e.g. if companies are loss-leading in order to drive out competition; I was merely advocating a similarly robust system for Israel.

      Reply to Comment
    5. Carl

      It’s not rooted in ideology, but the idea of the magic of markets certainly is.

      To grasp the problem with relying on competition, think the English premiership. It’s not that no one else – yourself possibly included – doesn’t have the potential to discover and nurture top notch players, it’s that if anyone does, those at the top have the resources to buy them up and hence keep you down. So the top teams rarely change, unless some oil oligarch throws their money behind a new team, This is why once you lose plurality in the high street, nothing short of legislation (or possibly the kids of Tottenham) will retrieve it.

      Again, the purpose of PLCs is to maximise profit for the shareholders, not lower prices. Given how much of our state is now in private hands, we should have better pensions, cheaper housing and cheaper utilities. Our pensions our being gutted, rises in housing costs have outstripped wage increases for years, and my gas and electricity rates are going up by a little under 30% this year alone. Also note how competition systematically drives down executive pay and bonuses.

      Israel suffers from all this, and is carrying the burden of its West Bank and Golan misadventures. Fortunately, it seems to be getting over the point of blaming it all on immigrants, and looking at the structural and political reasons why the economy is as it is.

      Sadly in the UK we’re still at the former stage. Cheers Daily Mail.

      Reply to Comment
    6. Ben Israel

      Here is a contrarian view of the protests:

      http://www.jpost.com/Opinion/Columnists/Article.aspx?id=232543

      Regarding the claim that these protests are “spontaneous” and not supported by political interests, I can only ask the question who is paying for all the tents and equipment. They say it is the New Israel Fund, but they are hyperpolitical and support the far Left.

      Reply to Comment
    7. Carl

      Spot on Ben. Have you noticed the fact that these ‘protesters’ are all wearing clothes, and have been seen eating? They (not sure who that is, but still) say that Irving Moskowitz has been funding this deficit of nudity and hunger. Probably from a Caribbean island, with a Persian cat on his lap, and a death ray in the cellar – though they haven’t confirmed that yet, don’t let that sow doubt in your mind.

      Reply to Comment
    8. Anthony

      Carl: I still don’t see why you think all competition ends in cartels ripping off consumers. Look at internet competition: Anyone with a modem can now compete with the big multinationals in selling goods.
      The examples you give of rising prices are telling: Oil and gas rates are driven primarily by international factors (how much cheaper would oil be if there wasn’t a cartel restricting supply?!), but heating and electricity bills did come down following market liberalisation.
      Housing is also a peculiar example. You make fun of the Mail but migrants do have an impact on prices in this market. So does the later age at which people get married and the higher divorce rates. There certainly isn’t a competition problem in this market as there are millions of buyers and sellers.
      In any case, what’s your alternative to competition? Nationalisation and centrally-set price caps? It’s been tried and failed…

      Reply to Comment
    9. Carl

      You got it in the first sentence Anthony: competition ends. Take your example of Internet trade. Ten, fifteen years ago I could have made an impact. But the major competition is over now and the mergers, takeovers, etc. leave the winners dominant. That’s why our connections come froma a handful of companies. Shit connection? Move to Virgin. Still shit? Move back to a BT adsl reseller. Ad inifinitum. Our oh so efficient (privatised) train system remains one of the most expensive in Europe, whilst our presumably inherently inefficient health service clocks in at around a third the cost of the USAs free market version, but with universal coverage.

      I don’t want the entire economy nationalised, but the likes of fuel, communications, transport, food and health are way to important to leave to the whims of the market. After all, if the state’s purpose isn’t to ensure its citizens are adequately fed, housed and cared for, I don’t know what it’s there for.

      You see I like the idea of living in a country, not a supermarket: some shared values and purpose. I think 300,000 people in Israel/Palestine may have a similar feeling too.

      Reply to Comment
    10. Anthony

      Internet connection is cheaper in the UK than in Israel, no doubt mainly because we do have a wide range of companies competing in this field.
      I agree health care as a market doesn’t work well – there’s all sorts of information problems that create market failure. But it seems you have a presumption that competition fails, whereas I think it’s good for consumers unless there’s a specific market failure (in which case you need government to intervene).
      There’s no failure in the market for food though, or ISPs, or fridges, or even property. There may be competition or regulatory problems but there’s no particular reason why the state should provide those things for most people.
      300’000 people may go along to the same protest as you but I doubt they’ll be happy when the state starts rationing food, or when a bureaucratic system of rent-control is set up making it even more difficult for most people to find affordable homes.

      Reply to Comment