Blame government and greed for Israel's high prices, economists say

Experts say lack of competition allows companies like Osem - one of Israel’s largest food manufacturers - to increase prices of essential goods in midst of pandemic; Israel needs to urgently educe bureaucratic hurdles to save economy

The Media Line|
Government red tape, high import taxes and plain old greed are just some of the factors that have led to a wave of price hikes in Israel over recent months, according to Israeli economists.
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  • Rising prices for food and other basic goods have generated anger and frustration among Israeli citizens, as well as among legislators who may soon put forward bills aimed at preventing some of the increases.
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    אילוסטרציה עליית מחירים
    אילוסטרציה עליית מחירים
    Price rising illustration
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    The Knesset’s Economic Affairs Committee convened on Wednesday to discuss the issue.
    “Who is responsible for the cost of living? The government and the monopolies,” said committee chair and Knesset lawmaker Michael Biton of the Blue&White party, calling on Prime Minister Naftali Bennett to establish a cabinet to address the cost of living in the country.
    “The government is [responsible] for over-taxing things like fuel, for opening the markets as well as for reducing fees,” Biton said. “But the monopolies are also responsible. We are loyal to Osem, but is Osem also loyal to citizens? Apparently not.”
    Biton was referring to Osem-Nestle, one of Israel’s largest food manufacturers, which recently announced that it would increase the prices of goods including ketchup, pasta, rice and household cleaning products by 5% on average. Amid a barrage of outrage, however, the company backtracked and said it would postpone the price hikes for a period of three months.
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    אסם
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    Osem
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    State-run electricity rates also jumped on Tuesday by nearly 6%, while the price of gasoline rose as well.
    Professor Dan Ben-David, president of the Shoresh Institution for Socioeconomic Research and an economist at Tel Aviv University’s Department of Public Policy, said that there are several factors currently creating a perfect storm in the Israeli market.
    “There is a severe lack of competition in Israel, which allows companies to do it,” Ben-David said. “There’s also simple greed to take advantage of the opportunity; if everybody’s prices are rising, maybe they won’t notice mine.”
    The government is responsible for fostering market conditions that encourage competition, he noted, and there are a number of quick fixes it could implement to address the problem. Namely, the government needs to reduce bureaucratic hurdles, lower customs taxes and remove other barriers to trade.
    But Israel also needs invest in a greater long-term strategy to combat price hikes, Ben-David warned.
    “We have three times the congestion on the roads that small European countries have, although we have 40% fewer vehicles per capita,” he said. “This means that if you want to transport your goods from one place to another then you need double or triple the trucks and triple the drivers, which immediately drives up your prices.”
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    (Tal Shachar)
    Red tape and transportation woes aside, Israel’s education system also is in massive need of reform, especially for students in the ultra-Orthodox and Arab sectors, who are receiving a “third-world education,” Ben-David said.
    The issue of high prices is just the beginning, Ben-David says. After dealing with that issue there are “some major tectonic problems that need to be dealt with,” he added.
    Israel is not alone in facing a rising cost of living. Many companies around the globe have blamed supply chain issues linked to the COVID-19 pandemic and increasingly expensive raw materials for price hikes.
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    Shipping costs, for example, have skyrocketed since the beginning of the pandemic. The spot rate for a 40-foot container to the U.S. from Asia reached a peak of $20,000 last year and currently costs nearly $10,000; by contrast, the same container went for less than $2,000 before 2020, according to data from the Freightos Baltic Index.
    “We know that logistics have become much more expensive, so a container today is almost 10 times more expensive than it was before COVID,” Dr. Alex Coman, a value creation expert and economist at the Academic College of Tel Aviv-Yaffo, said. “There are also shortages because China, which manufactures [products] for the world, stopped manufacturing them.”
    He agrees that the government and corporate greed are largely behind the soaring prices.
    “Sixty percent of the price we pay for gasoline goes to the government, which taxes it,” Coman said. “The government is a big culprit in this context.”
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    הולכים עם רשימת קניות מסודרת לסופר?
    הולכים עם רשימת קניות מסודרת לסופר?
    Smart shopping illustration
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    But Coman also believes that the Israeli consumer needs to shoulder some responsibility and hunt for better deals when shopping, rather than reaching out for whatever is closest and most convenient.
    “If demand is complacent, you pay the price,” he said. “I don’t think it’s the government’s responsibility. I think it’s our responsibility.”

    The story is written by Maya Margit and reprinted with permission from The Media Line
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