Wednesday, April 28, 2010

Punishing Success

Israel’s Free Market has expanded and developed tremendously from where it was years ago. Netanyahu’s (previous) reforms in privatization and tax reduction have certainly made a difference. Israel has profited as a result and our surviving this global economic crisis is certainly good proof of this.

But the Socialist contingent in the Knesset, Shelli Yachimovich (Labor) and Haim Katz (Likud) are threatening to tear all this progress down in one shot.

Socialist and liberals believe that the market is a limited size pie that gets sliced up accordingly. If one person makes too much, it comes at the expense of someone else, and it isn’t fair that any one person makes so much more than someone else.

Capitalists and Free Marketers understand that the market is not limited in size, and the goal is to create new wealth. And market forces determines salaries and value for labor done and wealth creation.

These Knesset Socialists believe that “excessive” (as they define it) profit taking is bad, and a Jerusalem Post editorial states in an attempt to justify this Socialist view and legislation that will put a relative cap on corporate salaries, that salary X  "is a figure most of us would consider immensely more than sufficient".

Sorry Jerusalem Post, but who are you (or a bunch of socialists) to decide how much I think is enough?

The title of the editorial is “Caps for the fat cats”, but it can just as easily be called “Punishing Success”.

If this legislation goes through, we’re going to see 3 things.

(1) Executives will leave Israel for freer market where they can get salaries and bonuses that reflect the wealth they are generating – and Israel will lose as a result.

(2) Companies will find very creative ways to reward their wealth generating executives appropriately, so nothing will be changed in terms of the distribution of wealth.

(3) Companies will fire all their low salary employees and hire them back through third party agencies on limited contracts – probably at very bad conditions.


What this legislation does not do, and here is the real problem, is place salary caps on the average public-sector company employees in relation to the average Israeli’s salary for a similar job. That is where the real abuse of the Israeli public happens.

There is no reason that public employees, supported by our tax shekel should make so much more (and that’s before the perks and pensions) than the average Israeli in an equivalent job, is there?

In 2007 the average monthly salary was NIS 7,922, while the average salary for a public servant (paid for from our taxes) was NIS 11,786.

With around 100,000 public servants making NIS 3000 a month more than the average Israeli, that works out to 4 billion tax payers shekels a year extra taken from the pockets of the average Israeli!

While in 2008, employees of public-owned monopolies made 2.5 times the average Israeli’s salary.

But let’s take it a step further, did you know that the average MK, Shelli and Haim included, make around 3-4 times more in individual gross salaries than the average Israeli?

So to rephrase the Jerusalem Post, as public servants (with a lot of side-benefits and perks) their making the same salary as the average Israeli "is a figure most of us would consider immensely more than sufficient".

Wouldn’t you agree?

But Shelly and Haim aren't addressing their salaries.

Shelli and Haim are playing with wealth redistribution for everyone else and trying to legislate into law an attempt to stifle Israel’s free market in the name of ideological Socialist fiscal equality for all.

Let’s instead see more privatization, reduced personal income taxes, and cutting VAT in at least half for starters.

Socialism. Feh.



I saw an interesting related post here.


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13 comments:

JoeSettler said...

Following the banana republics, Israel leads the world in the concentration of wealth among the smallest group of people (5 families).

This is an unfortunate (and dangerous) development that occurred because of the way the Israeli market used to be structured.

Only by creating a freer market, more companies, and higher executive salaries, can Israel free itself from this dangerous situation.

New companies, new industries, and new rich (all creations of an independent free market) expand the Israeli pie and reduce the relative influence and position of these 5 families.

Anonymous said...

That's a point mentioned at the conclusion of this article: http://www.jpost.com/Israel/Article.aspx?id=173946

Olah Chadasha said...

It's the same as Al Gore and other celebrities telling us to drive tiny cars and our bicycles to work and eat in the dark and use one square of toilet paper while they spread this message via their private jets and huge gas guzzling tour buses. It's do as I say, not as I do. It's the idea that you need to change so that I don't have to give up anything of mine.

That's how socialism and communism works. What's changed?
-OC

Anonymous said...

Are you aware that Israel has one of the largest gaps between wealth and poverty of the population among most western democracies? Worse yet, its rate of increase in the gap over the last 5 years is the largest of any industrialized nation. (The Israeli poverty rate is presently over 17%)
Perhaps socialism isn't the answer, but something should be done. I don't know that lowering taxes is the answer.
Oh, and nice Obama cartoon.

Henry said...

I think I disagree. I don't think that private businesses should have any regulation of their salaries. However, once there is a public corporation whose value is governed by stock prices and not the product they produce, and they derive protection for the executives (personal liability) then there can be some type of regulation of salaries.

The two times I worked in the "private sector" I was shocked at the disparity in salaries among the various levels of people working in the organization.

Both times I was in the "professional/managerial" class and I could not believe the disparity in benefits and perks between the group I belonged to and the labor class.

Interestingly enough both times I came in after a labor dispute and I saw actual sabotage of productivity on the part of the labor class.

Executive excellence should be rewarded and they should be well compensated, but I don't know that there is a proper metric to measure performance, and the old boy network may be better compensated than the guy who brings in the bread and butter. This not so true for smaller organizations but when you get to the really big ones I think it is the case.

If you've got data to refute me, I'd be glad to look at it.

JoeSettler said...

Anonymous: Hi-tech and free market have pushed salaries higher, so more of that.

A high speed train network from outlying (poorer) areas to the center will increase opportunities for those out in the middle of no where to get jobs and get jobs with better salaries.

Getting the Chareidim into the workplace full force will do much to raise the average salary countrywide and reduce poverty (same for the Arab community).

Education creates opportunities.

Olim from 3rd world countries enter the workforce often without much advanced skills, creating a glut of low level labor (hence greater supply, and lower salaries)

Henry: Salaries should be decided then by the Board of Directors and/or stockholders. They own the company. Not the government.

People at the top of the corporate food chain (everywhere in the food chain actually) always try to protect their perks, salaries and seats, but when there are ample employment opportunities out there, a company that wants to succeed and get the best knows they need to be competitive in terms of salaries.

But when there is a glut of unskilled labor out there, how much is anyone going to reasonably pay for yet another semi-retired security guard or cleaning person? And should the performers of the company be punished because the company is paying someone what the job is worth?

A free market is self-correcting. Special skills with a need will naturally command a higher salary.

Someone bringing in the bread and butter to a company, if he isn't compensated properly will go elsewhere to where he will be.

Anonymous said...

I think this is just a minor push back to the rapid growth of captialism in Israel. As more Americans make Aliyah the pushback will be harder, but the fight will be lost.

Shlomo said...

JoeSettler:

1. Sounds like you came from a first world country. You might approach the issue differently if you were from a 3rd world country.

2. The vast majority of Israelis already live within commuting distance of the center, and building a train line to every moshav would do little to help them.

3. Education has to be paid for... thus, we need taxes.

4. When CEOs set their own salaries and give themselves large bonuses no matter how good or bad their performance, it is hard to argue that they are worth what they're being paid.

5. The Torah requires us to care about situation of poor people, and it is a condition for us living in eretz yisrael.
צדק צדק תרדוף למען תחיה וירשת את הארץ

JoeSettler said...

1) If I came from a third world, I would probably be stuck with the mentality that the government must either take care of me or mistreat me.

We don't need either of those attitudes in Israel.

So I couldn't care less if someone from the third world thinks about that differently from me.

2) Until Intel came along, Kiryat Gat was a backwater. How many people are stuck owning apartments down south and can't leave them because no one will buy there?
Many new immigrants still find themselves sent down to the Negev or to the Galil. Great opportunities there. Without rapid transportation - these people are stuck.

3) Did I say anywhere about getting rid of all taxes? Anywhere?

I said reduce them. That increases the spending and saving ability of everyone, which helps the economy.

Education in Israel is not expensive relatively speaking. Retraining might even be free for immigrants.

But education and retraining is more helpful for 2nd generation and younger immigrants only.

4) CEOs don't give themselves large salaries or bonuses - unless they own the company. In which case, that is their right.

And if you're not happy with your salary at that company go elsewhere. But why are you looking to drag someone else's salary down just because you're not happy with yours?

If the Board of Directors or Shareholders are unhappy with the CEO's salary or performance. they replace him, or change his compensation package. That is how the free market works.

6) As for your last point, creating a welfare state/situation is not considered the highest level of charity - and in fact is usually counter-productive.

When child-support went down a few years ago, more Chareidi women went out and got jobs (that is a good thing by the way).

Giving someone the tools to independently support themselves is the highest level of charity.


Socialism is not the way to help people. It's bad for the economy. It's bad for society. It's bad for the individual. That is certainly not what the Torah meant went it wants us to help the poor.


And consider this.

If minimum wage was raised or linked, and an employer needed to choose between the 2 late night cleaning ladies or keeping his star programmer compensated and happy. Which ones do you think will get the boot?

JoeSettler said...

Imagine if a poor person went to the store and all his purchases cost 10% less, because VAT was dropped from 16% to 6%.

That is easily worth the equivalent of a 10%-20% increase in salary.

The poor directly benefit the most from reduced VAT.

Shlomo said...

1) Obviously, all third world immigrants are lazy and selfish, not virtuous like you.

2) A 50 minute train ride to replace a 1 hour bus ride, at a cost of billions of shekels to build the train line, is not worth it. (That's exactly what's being planned for Karmiel, Beit Shean, Kiryat Shmona, Sderot and so on)

3) Your implied attitude is the more reduction of taxes, the better. You don't bother with the details of how the budget will be balanced.

4) About CEO pay, see http://www.ips-dc.org/getfile.php?id=330

5) The concentration of power among 5 families is a direct consequence of the free market. Some people have suggested that the government break up extremely large companies, or "monopolies", to keep a handful of people from having too much power. But that, of course, is a bad idea because it would be SOCIALISM.

JoeSettler said...

1) And you just proved that even people from the first world can have the worldview of an idiot.

You can't have it both ways. First say if I came from a third world - which means the government has most likely either always taken care of me or abused me - I would look at this differently, presumably as a socialist, and then when I point out this likely worldview of someone who came from the third world, you attack me for it and to top it off, imply I said something I didn't.

You lying hypocrite.

But you know what, you're right about one thing. If I came from the third world to the first world it would perhaps be because I didn't want the government over my head anymore, and I wouldn't want someone restricting my capabilities or opportunities to legally make unlimited money or controlling my life or business anymore.

2) So you're saying that because the government chose to not develop a high speed train, just a medium speed train that you think is a high speed train that that proves your point! Do you even understand any of the points I just made here?

3) Yes. Start by reading this instead of your left-wing crap. It's healthier for you too.

4) You want to send me to an agenda-driven far left-wing site to prove your point!!!!
No response even needed.

But I will respond.

First, you erroneously (and clearly out of ignorance) claimed and based your argument on the mistaken idea that CEOs set their own salaries.

You lost there, so you then pull out claims by an agenda driven left-wing organization which ignores that the free market is self correcting, and if salaries are too high such that they negatively affect profit, that it will eventually correct itself.

You and they instead believe in excessive government intervention - while worldwide (and in Israel too) socialism has been proven a FAILURE.

Salaries and bonuses should be transparent to the shareholders, and it is their choice to decide if it is too much or not.


5) The 5 families building and taking control is a direct result of the formerly communist/socialist-styled government of Israel owning and controlling access to almost all major resources and in many cases doling them out to a limited groups, individuals and insiders, and a bit of corruption in the process (which is what happens when the state owns so many resources and is overly involved in peoples lives).

So Yes, your way would be the BAD way. The right way would be to free the markets. Allow more radio and TV stations. Allow private micro-cellphone companies to operate without them having to buy the frequencies, which effectively locks most everyone out of the market. Allow foreign banks into Israel without the draconian, interventionist regulations that rightfully scare them away or cause them to severely limit and restrict the scope of their operations in Israel.

Yisrael Hayom proved that the free market system works, and that's why Sheldon Adelson scares the left so much.

NeoCon1 said...

Liberals are big talkers with tight pockets. They're happy to tell you about helping the poor, but they mean by taxing YOU and giving YOUR money away to the poor. Conservatives, for all their bad press (because its controlled by Liberals?) give more to private charities than Liberals. Liberals like big government to take care of them, but when it comes to social justice on the personal level, they prefer to fob it off on someone else. Enough studies have been done on this subject. See

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