30
Jun
13

the smartest and most honest man in israel

Yaron Zelekha has held a number of high-profile positions since he was first appointed to the post of economic advisor to Netanyahu, in his first term as PM in 1996, at the age of 26.

Since that time, he has never shied away from saying what he believes to be true, no matter who may disagree with him.  Politicians are always reluctant to make unpopular decisions, so it has always been easy to ignore his advice, but nobody has ever really managed to prove that his opinions are incorrect.

So he is still being ignored and the economic situation in Israel continues to its free fall, perhaps it is time to take notice of his words.

He was interviewed by Ayelett Shani from Haartez, on June 29, 2013:

Talking with: Prof. Yaron Zelekha, 43, dean, Faculty of Business Administration, Ono Academic College. Married, with three children Known for: His tenure as accountant general at the Finance Ministry When: Sunday, 2:00 P.M. Where: Lobby of Kfar Maccabiah Hotel, Ramat Gan

Why the bandage? I fell off a Segway.

You have a Segway? No, no. It was an activity at a conference.

What did you present at the conference? My research on ‘The Influence of Slave-Trafficking on Intergenerational Growth in Africa.’

What? There’s a theory that, within 50-60 years, democratic countries operating a reasonable economic policy will close the gaps with the wealthiest countries. Studies have shown that this applies all over the world, except for Sub-Saharan black Africa, and in Israel. In the first 25 years of the state, we closed 50 percent of the gap, and then we got stuck. We failed to complete the process because the economic policy diverts the economy from labor to capital, and its rules suppress consumer spending.

Is consumption in Israel really that low? You always hear how the airport is full of travelers, and how everybody has an iPhone.

The consumer spending rate in Israel stands at around 55-56 percent of gross domestic product. In the West the rate is about 65 percent, and this also indicates a very high poverty rate, because of a shortage of jobs. In Israel, the weighted average of the number of jobs is the lowest in the Western world. The result is that this is a market of employers who can afford to behave in a way that excludes and oppresses the weak. On the level of wages, too: “You used to make NIS 6,000, now you’ll make NIS 5,000,” and that’s it. Entire groups are being excluded. Women? Who needs them? Haredim? We’ll keep them out too, and afterward we’ll blame them for being poor because they don’t work.

Incitement is the best defense mechanism.

There’s a culture of incitement here against the oppressed, even when they are genuinely oppressed. The finance minister comes along, and instead of dealing with the real causes of poverty – the suppression of consumer spending, the lack of competition, the excess taxation of small businesses – he engages in incitement. He asks “Where’s the money?” His friends have it.

Let’s talk for a moment about the growing class known as the working poor. In recent years the number of working people has increased significantly. The number of jobs is still low, but the number of “artificial” workplaces has grown. For example, there are hundreds of thousands of security guards. What country in the Western world needs so many security guards? It’s ridiculous. Only low-level jobs are being created. By the same token, the ratio of part-time positions in Israel is the highest in the West.

What do you think of the data the Central Bureau of Statistics presents to the public?

Benjamin Disraeli said there are three kinds of lies: lies, damned lies, and statistics. The housing price index counts the cost of housing, but it doesn’t take into account the fact that the apartment is small. Six years ago, an average apartment costs NIS 700,000; today, the average cost is NIS 1,200,000. On the face of it, the cost went up by 80 percent. But NIS 700,000 was the price of a 100-meter apartment, and today this average apartment is smaller than 80 meters. It’s like comparing an orange with a tangerine.

The same goes for the unemployment statistics?

The government makes especially malicious and tendentious use of the indexes where the public doesn’t understand what they are measuring – the unemployment index and the growth index. The government and the finance minister, both the previous one and the present one, say that the unemployment rate here is among the lowest in the West. But the “unemployment rate” in Israel only measures the short-term unemployed. Meanwhile, the rate of long-term unemployment is among the highest in the West.

And what about the growth statistics?

Even though, based on our poverty rate, we should be growing at a rate of at least 4 percent per capita, we’re growing at 1 percent per capita. The treasury knows this and is deliberately misleading the public, in order to evade the discussion about the causes of poverty. Studies all over the world show that if a country is democratic, the main poverty-causing factor is the economic policy – which explains 90 percent of the growth and poverty gaps among the different democratic countries. Just over 24 percent of the population in Israel is below the poverty line.

Is any other Western country in a similar situation?

None of them. There is no country in the West like this. In the United States, the rate is about half of what it is here. And again, that half – or 14 percent – is only because of the financial crisis there in the last few years.

Isn’t it demagogic to even speak about unemployment statistics, when working people in Israel are poor and can’t guarantee a roof over their heads or education for their children?

Yes. And in addition to deceiving the public with indexes that it interprets in a misleading way, the government is also engaging in incitement. Instead of talking about oligopolies, and the inequality in taxation, and about the contribution of the low interest rate to the increase in housing prices, it is diverting the fire toward the excluded population groups.

This happens systematically?

Absolutely. It’s systematic and deliberate. They’re engaging in incitement. Incitement makes it possible to avoid the real discussion. They are lighting these fires in order to avoid the public discussion. Definitely. Now, moreover, every step you take in economics has a cost and a benefit. Always. The treasury and the Bank of Israel are only presenting the benefits, in order to avoid the real discussion: We’ll lower the interest rate and it will help exporters. But wait a minute, where’s the cost? If the Bank of Israel were to come and say, “Listen, we’re going to lower the interest rate now. The result will be that house prices will rise by 80 percent,” there would be discussions about the cost and the benefit. But they didn’t discuss it. There was no discussion.

Do you think the government knew?

The prime minister knew, and he knew what the cost would be.

Guessed or knew?

Knew. Because I told him personally. And if there’s one thing for which I’m angry at [Benjamin] Netanyahu, it’s that he let housing prices rise by 80 percent. Let me be more precise: I warned him they would rise by 50 percent. I was wrong, too. With a supply structure like ours, there won’t be a decrease after the bubble bursts. It will manifest in a recession. Therefore, this threat from the [outgoing] governor of the Bank of Israel [Stanley Fischer] that if they raise interest rates, housing prices will collapse, is just a lie. The interest rate must be raised so prices won’t keep going up.

They’ll never come back down?

Never. The maximum we can expect is a decrease of 2, 3 or 4 percent, and that they nominally stop increasing. With inflation, they’ll continue to be eroded. Now, I’m not only lamenting the policy – which clearly was a catastrophe – but also the absence of any discussion. The government doesn’t talk about it. There are 200,000 young couples who bought an apartment in the past five years. If you take the increase of NIS 500,000 in the price of an average apartment and multiply it by 200,000, that’s NIS 100 billion we took from these young couples. It’s an outrage. They’re making decisions here that cost the public hundreds of billions of shekels without any real discussion.

The damage is already visible. How will it look 10 years from now?

Let’s say you earn NIS 9,000 and your husband earns the same. So the two of you have a net income of NIS 14,000; you’re in the ninth decile. Let’s say you buy an apartment for NIS 1,200,000. Your parents gave you NIS 500,000 and you took a mortgage for NIS 500,000, and you take it for 20 years, and you make payments of NIS 4,000 a month. That means you’re left with NIS 10,000 a month. What about food, preschool, clothing? Everything is so expensive. One car, not two. For the years to come, you’ve reduced your consumption to NIS 3,000 a month, because of the extra cost of the mortgage. But you, the young couple, are the economy’s growth engine. You need to consume much more. So 200,000 potential growth engines have been shut down.

Why do you assume that everybody can get NIS 500,000 from his parents? That’s a gross distortion. Working people of all ages and from every decile are having to be supported by their parents.

So what are you saying?

Yes, it’s true that the parents are also cutting back on their private spending in order to finance the children. And all this because of a faulty policy. Not faulty for all, of course. This policy has a benefit for the tycoons, and for the senior staff that works for them – they profit from it. For the past 40 years we’ve been stuck.

Give me some hope here.

There is hope: It’s up to us. If everything derives from an economic policy that has a negative effect on spending, and takes resources from the real growth engines – the middle class, the weaker sectors and the small businesses – and transfers them to the tycoons, this means the growth potential is up to us. If we change the economic policy it will happen.

But who will change the economic policy?

In 2003, when Netanyahu understood that it was economic policy that would ensure him the premiership, he brought me in to prepare it. He knew that I’m extreme and have different views. He did it because he thought he wouldn’t be elected. And what did he learn in 2006 when it came to the election? That it doesn’t matter, that he’ll be elected anyway.

The public can always be drugged with slogans about peace and security.

Exactly. Whoever votes left votes left, and whoever votes right votes right. When Yair Lapid said he would go with Netanyahu in any case, all the rightists voted for him; and when [Labor Chairwoman] Shelly Yacimovich said, “I’m not going for a ticket of left or right because I want to talk about economics and society,” what did the public say? That it wasn’t interested.

I’m not sure that’s entirely accurate. I think the public said, “Yair Lapid’s vague promises are good enough for me. They’re preferable to taking a clear position.”

Correct. And a large part of the public is going to pay a very heavy price for this foolish choice in the last election. Look, I’m not a political person and I’m not out to make political declarations. I’m just saying one thing: As long as the public doesn’t punish those who fail economically, the politicians will continue to fail economically. Why should they get in trouble with the tycoons when they clearly see that the public doesn’t care about that when it goes to vote?

Half a million people took to the streets in the summer of 2011, and nothing happened. Could there be a harsher lesson than that? Clearer proof that there’s no point even trying?

You know, in the beginning Netanyahu was very worried by the demonstrations. But then he saw that the surveys, at the height of the protests, said he wouldn’t lose even a single Knesset seat, and he saw that you don’t pay a price for financial mistakes. And in the election campaign, too, when he saw that Yair Lapid was growing stronger and Likud was faltering, it didn’t budge him. Yair Lapid said he would go with him, no matter what. So you think Netanyahu really cares if Carmel Shama-Hacohen [Likud] gets into the Knesset or if it’s Ofer Shelah [Yesh Atid] instead? They both support him. That’s what he cares about. And he came out the big winner in this election.

Why does he have such a great desire to be prime minister all the time?

I can’t understand why a person would want to be prime minister and not do anything. But we don’t have the same kind of personality.

How do you understand what happened with Yair Lapid? He came along and spouted slogans, and swept up the votes from the protest. He came off as the hero of the middle class.

Yes, “My brothers, the slaves” [the title of a piece Lapid published during the protest]. He’s quite clever.

And then he enters the coalition and, all of a sudden, he’s Bibi Mk. II.

That’s what you call a liar.

You really think so? It looks to me like he has convinced himself he’s not lying.

Are you kidding me? It’s cognitive dissonance – when your behavior contradicts your positions.

Do you think Netanyahu set a trap for him?

I think he fooled everyone. How can someone who was Olmert’s best friend, the very heart of the wealthy elite in this country, the face of Bank Hapoalim’s advertising, the star of Channel 2 and the darling of the millionaires, be asking us where the money is? Who would know better than he? People aren’t naturally inclined to go against their milieu. The price is too high.

I also had a very hard time dealing with the tycoons. I paid a price, too, but I didn’t have that normative conformism to overcome. They’re not my milieu and I don’t owe them anything. But the question is how much someone who grew up in such a privileged environment is really capable of understanding the ordinary person. I know just one thing – he was well aware that the existing economic policy wouldn’t lead us anywhere. He was elected on the basis of a certain platform, and is implementing the opposite.

And what about Ofer Shelah [another leading journalist who joined Lapid’s Yesh Atid party and is now a fellow MK]?

I don’t think Ofer Shelah has any significance. Ofer Shelah is the long arm of Yair Lapid. Yair Lapid is the unofficial chairman of the elites in this country, and when I say elites I’m not referring to rich people or smart people – and certainly not to good people. I’m talking about the oligopolies; about the senior bureaucrats past present and future; the elites whose main wealth derives not from business or competitiveness or entrepreneurial projects, but from exploiting the government’s deliberate helplessness and from all sorts of breaks when it comes to taxes, interest, business restrictions, and so on. In this whole story, there is one positive. I think the public now understands the price of electing Yair Lapid. If they elect him again, at least they’ll do so out of knowledge and not just be chasing after some poster.

Are you basically a whistle-blower?

Not exactly. I only yelled when I couldn’t stop [referring to his time as Finance Ministry accountant general; he resigned in 2007] the Ofer Brothers’ power stations all by myself. As long as it was up to me, I did what I could. When did I turn to outside parties? Only when I couldn’t do it alone. I had 17 different issues with Olmert.

17?!

Yes. I have a neat file for each of them … I felt I couldn’t do it anymore. It was getting hard for me emotionally and within the organization, and I realized I wouldn’t be able to stop issue number 18.

Let’s talk a little about the personal cost. Were you ostracized?

The cost is personal, on two levels. The legal adviser at the treasury, the head of the budget department, the director general of the finance ministry – they’re all very close with Ehud Olmert, and he uses them against you. They put you down in the media, they talk behind your back. At one point they held a press conference like the captive American pilots in the Vietnam War.

What was it like day-to-day, in the office corridors?

I’ll tell you something I’ve never told anyone. Finance Minister Avraham Hirschson and I had a terrible relationship. When the Second Lebanon War broke out [in July 2006], Hirschson fell apart. He called me and said, “I’m begging you on my knees, I’m asking your forgiveness, you have to help me. This is a war. I can’t manage alone.” Just like that – I’m not kidding. On his knees with tears in his eyes.

How did you feel?

Humiliated that this was the finance minister of the State of Israel. I told him I would help him. He said, “I did everything at Olmert’s behest, it wasn’t against you personally. Olmert forced me, and now there’s a war and I don’t know what to do.” I told him to calm down, that the parts of the finance ministry that were responsible for activity in time of war were the accountant general and the chairman of the Tax Authority, which was Jacky Matza [later convicted on corruption charges]. I promised him it would be okay, that we would handle it.

Are you a nonconformist?

Totally, from the time I was a kid.

Why? What were you taught at home?

To be a conformist.

What sort of home was it? Tell me about your parents. You never say anything about your personal life.

It was a home that strongly encouraged a higher education. My older brother is an accountant, the younger one a lawyer. Both of them are very smart and successful. My parents made aliyah from Iraq in 1951. They did well here, with a lot of hard work. My father was a banker his whole life. He knew how to stand his ground, but I still feel like they brought me up to be a conformist. I’m not sure my brothers felt this way. At any rate, there’s nothing I admire less than conformism. A person should hold fast to his views and express them.

Not everyone can bear the cost.

True. But if you can, you should say what you think.

Why are you able to bear the cost?

Because I know how to make money, and that gives me strength. I don’t come from a rich family. If a bureaucrat at the treasury makes decisions the way I made them, he finishes his business career. I finished my business career, too, and that was made very clear to me after just two weeks at the treasury.

What do you mean, “it was made clear”?

Officials from the business sector came to me and one of them, my former boss, told me, “I’m very concerned about your career. If you don’t approve A, B and C, there’s no chance you’ll become CEO of a large company or large bank.” I understood that I was sacrificing my business career. If I thought I wouldn’t know how to make a good living, I don’t know how I would have acted. But I do know how to make a lot of money – maybe not as much as I could have, but a lot more than I need. That gives me strength. I can learn and explore. But I definitely made a drastic change in the career I was aiming for. I wanted to run big companies, but already 10 years ago I saw that it wasn’t going to happen.

You’re not prepared to pay the price.

No.

Do you feel it was worthwhile, this turn you took?

I don’t feel I had a choice. That’s my nature.

You’re not the type who aims to please. Is that deliberate?

No. I listen to the other side, I try to explain my position, I try to be persuaded of his position. I’m really a lot more flexible than people think. But in the end, I make the decision alone. According to what I think is right and wrong.

And you pay the price.

Yes. You become the object of lies, slander. Without fail, whenever I say something, there’s always the online commenter who’ll write that I supported the Bachar Committee [which analyzed how to make the financial sector more competitive]. The fact that I was the only one who was opposed to the Bachar Committee makes no difference. The mercenary commenters will still say that. Why? Because somebody paid them to say it.

Who?

Somebody. By now I’m pretty impervious. I’ve grown a thick skin. I’m not sensitive anymore to what people say about me. I’m not sure I ever really was.

I’m trying to imagine what it must be like to be sitting at home watching television and to watch someone dumping all over you.

I’m not very sensitive to what people I don’t respect say about me. I’d be very hurt if it came from the people I cherish, but that’s a very small group.

That’s what everyone says to this type of question.

I think that I, more than most, could be hurt by those close to me.

It’s also the easiest explanation.

I’m a simple person. I’m really not complicated.

Really?

Yes.

So you only care what your mother says about you?

Actually, my parents are not very fond of my public activity.

They’d rather you be a good boy at the Finance Ministry?

I don’t know. I don’t think they would want me to give up my values. They think there are confrontations that are better left alone, to just let the convoy pass.

And what do you think?

I think that an accountant has to see things.

You were very young when you first came to the Finance Ministry, in 1996.

It was a total fluke, I wasn’t expecting it. Avigdor Lieberman and Moshe Leon were running the Prime Minister’s Office then, and they were looking for an economic adviser for him [Netanyahu].

Looking on the university lawn?

Let’s put it this way, I wouldn’t have appointed me, at age 26, to be the prime minister’s economic adviser. I remember [Netanyahu] said, “I don’t care if you’re young. I just care what you know.” And I showed him that I knew.

Are you ambitious?

In the sense of, Do I want to influence a large group of people? Then yes.

It appears you were very focused from a very young age. Why didn’t you go off to smoke joints in India, like everybody else?

I’m a nerd. And besides, I come from a family of bankers and accountants. I decided to study accounting to make money, and economics in order to have an influence.

Do you identify strongly as Mizrahi (a Jew of Middle Eastern or North African descent)?

I’m proud of my background.

Were you ever discriminated against because of it?

No. I gave people so many other reasons to discriminate against me, they never got to that.

How are you with hierarchies?

If I’m running them, then great.

And within them? How was it for you in the army, for instance?

Bad. I was in a situation in which I could choose a military citation and jail, or give up the citation and not go to jail. What did I choose?

A citation and jail?

No. I’m too nerdy. I gave it up. But I did something that isn’t done in order to get into this situation. I can’t elaborate because I was in the military intelligence research division.

What’s your relationship with Netanyahu like?

The last time I spoke to him was before the election. I turned down his offer and he didn’t like that at all.

Did you get an offer from Yair Lapid too?

No.

Do you like Netanyahu?

This isn’t a person that you like or don’t like. His thought patterns are different than those of ordinary people, so I think that this sort of emotional perspective doesn’t really apply. I admire and respect him.

Is he smart?

Very. In the last few years I have not admired the gap between his capabilities and his desires and intentions. I think that something has gone seriously wrong with his desires and intentions.

Which were what, and became what?

I think originally they were very good, and somewhere along the way they went wrong. Went wrong in a way I don’t believe can be repaired. And, therefore, I thought he should lose the election and retire. That he should go home.

He’ll never retire.

That’s true. He will never retire.

So is there hope?

In the short term there are no expectations, since the policy has already been set and it’s a chronicle of a death foretold.

We’re headed for a recession.

We’re already in a recession. We’ll continue to have weak growth and maintain the gap between us and the West in the standard of living, and poverty. In the long-term, I’m convinced the public will eventually understand that if it doesn’t punish politicians who failed in the economic and social spheres, it will have to bear the consequences. There are many things I admire about Shelly Yacimovich, and many things I disagree with her on.

Like the matter of the workers committees.

Yes. I think we’re running for the long-term, and the battle for the future of the Israeli public has yet to be decided – in fact, it’s not even begun. I only hope the public will learn a lesson. I personally have no intention of ever entering politics – and I’ve turned down very senior positions, including from a serving prime minister, and I’m not saying this in order to brag …

Hang on, hang on … what position?

Governor of the Bank of Israel.

Really?

Yes. Though, to be fair, it was before the election and on condition that I give my support.

Maybe he was going to pull a Kahlon on you [a reference to Netanyahu’s declaration that he would appoint popular Likud minister Moshe Kahlon to an important position after the election, but later reneged].

Maybe. I express my opinions, in any event, without desiring any political gain, and I’m ready to help any minister or prime minister who wants my help in managing economic policy. And that includes Yair Lapid. The fact that I support Shelly Yacimovich won’t prevent me from helping Netanyahu, too, if he comes around one day.

What do you think of Jacob Frenkel’s reappointment as Bank of Israel Governor?

The business sector – especially the big corporations and tycoons – are exerting tremendous pressure to lower the interest rate, because that lowers their credit costs and increases the value of their assets, and then we also see the crazy price increases in the real estate market.

Why hasn’t it happened before?

Because no one was ready to risk such an irresponsible interest policy. In Frenkel’s first term, he surrendered to pressure from the business sector, and the result was crises in the economy. In mid-1996, he learned the lessons and, despite insane pressure from the tycoons, he stood up to them like a fortified wall and protected the public. So I hope he will maintain the spirit of his second term and show some backbone, and then this appointment will turn out to be a good one.

Yair Lapid said of the appointment, “He’s a friend and a neighbor, so the demonstrators can get two for the price of one.”

Oh no. I hope he’s not going to hide behind Frenkel. It’s not the governor’s job to pull the economy from a recession. That’s the job of Yair Lapid, who chose a flawed policy that will bring on recession and depress spending, that continues the organized assault on our main growth engine – the middle class’ spending power. He’s going to fail, and I suggest that instead of looking for people to hide behind, he change the policy before it’s too late.

What would you advise him to do?

To open the “Seinfeld” boxset and watch the episode called “The Opposite.” It’s the one where George realizes he’s done everything wrong and has to do everything the opposite. That’s what Yair Lapid needs to do. He wants to raise taxes? He should lower them. He wants to continue the dance of benefits to the tycoons? He should cancel them. He wants to cut social services? He should be careful. He wants to continue the protection for the lack of competition in the market? He should make reforms. He wants to lower the interest rate? He should press to raise the interest rate. And he should stop asking where the money is, because he knows exactly where it is.

I get the impression that you always know everything. How do you handle your mistakes?

I make plenty of mistakes, in the interpersonal sphere as well, and then I have no problem apologizing. In microeconomics I make mistakes, of course, but I don’t dig myself in. I correct them right away. On the macroeconomic side, I invite you to confront me with everything I said over the past decade.

I searched. There’s just your support for Yacimovich, despite the thing about the workers committees.

I came out sharply against it. And you know what? I’d rather support positions and not people.

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