The opening sentence of this article tells it all. ”The worst problems are those that are self-inflicted”. Nearly all are the result of Israel’s hangover from its socialist origins; exacerbated by its unworkable Breaking the grip of Israel’s oligopoly political system. Government has two major functions; it must protect itself from external foes, and must maintain an equitable and functional legal system. Once it strays beyond these limits it becomes counter-productive. Thousands of regulations are promulgated and passed, generally with the best of intentions. Most, if not all of them, have negative side effects. As time passes the positive effects, if there are any, are diminished as monopolies or oligopolies find ways around the regulation, while the negative effects remain and fester. There are so many examples of this that come to mind that it’s impossible to list them all, so a few examples must suffice.
Milk production is a good example. Milk was originally produced exclusively by kibbutzim, much still is. The kibbutzim set up a cooperative to distribute raw milk to dairies that distributed it to the public or used it to make cheese or other milk products. To protect the kibbutzim which were very politically influential at the time, the government passed a regulation awarding the cooperative a monopoly on milk distribution. Eventually the kibbutz cooperative was sold to a private company, but the monopoly remained. To avoid competition in general, milk production is regulated; if you want to sell raw milk you must have a license to sell so many liters of milk, a license which you must buy, or if you have ‘protectia’, you may be awarded a license by the milk marketing board for a specific amount of milk. As the population grows the board increase the volume of milk that can be produced, but normally the expansion is for a specific % increase, so one who holds a license for X liters automatically has his license increased by Y%. Y being the amount the board deems necessary. There is an active market for milk licenses which are very expensive. It is no surprise that milk and milk products are more expensive in Israel than in other countries, even though milk production in Israel is very efficient. The solution is simple, remove all the regulations and let a free competitive market determine the price of milk and its distribution.
Houses are much more expensive than they should be, probably because regulations are so onerous. There are many more efficient building methods than the ones used in Israel. Also it is normal in Israel for a developer to plan a project, and then sell apartments before they are built. Because the developer may fail to complete the project, banks must guarantee the buyer’s deposit and continuing payments. This financial arrangement is not cost-free. Furthermore there is little incentive for the developer to build quickly as he isn’t paying interest. If he had to finance his project with a bank loan he would have an incentive to complete the project as quickly as possible. It’s not surprising that it takes two or three times as long to build in Israel as in the US. Slow building adds to costs. In many places local building regulations require a stone exterior; it may be aesthetically attractive, but it’s much more expensive than other options used in developed countries. There are hundreds of other regulations that add to the cost. Of course some regulations are necessary to ensure the safety of the construction; others are unnecessary and merely add to the cost. Building is a difficult business to automate, but in general it is true that the more that one can move on-site operations back to a factory, the lower the cost. However this can only be done if regulations are changed to permit the type of construction that makes this feasible.The opening sentence of this article tells it all. ”The worst problems are those that are self-inflicted”. Nearly all are the result of Israel’s hangover from its socialist origins; exacerbated by its unworkable Breaking the grip of Israel’s oligopoly political system. Government has two major functions; it must protect itself from external foes, and must maintain an equitable and functional legal system. Once it strays beyond these limits it becomes counter-productive. Thousands of regulations are promulgated and passed, generally with the best of intentions. Most, if not all of them, have negative side effects. As time passes the positive effects, if there are any, are diminished as monopolies or oligopolies find ways around the regulation, while the negative effects remain and fester. There are so many examples of this that come to mind that it’s impossible to list them all, so a few examples must suffice.
Milk production is a good example. Milk was originally produced exclusively by kibbutzim, much still is. The kibbutzim set up a cooperative to distribute raw milk to dairies that distributed it to the public or used it to make cheese or other milk products. To protect the kibbutzim which were very politically influential at the time, the government passed a regulation awarding the cooperative a monopoly on milk distribution. Eventually the kibbutz cooperative was sold to a private company, but the monopoly remained. To avoid competition in general, milk production is regulated; if you want to sell raw milk you must have a license to sell so many liters of milk, a license which you must buy, or if you have ‘protectia’, you may be awarded a license by the milk marketing board for a specific amount of milk. As the population grows the board increase the volume of milk that can be produced, but normally the expansion is for a specific % increase, so one who holds a license for X liters automatically has his license increased by Y%. Y being the amount the board deems necessary. There is an active market for milk licenses which are very expensive. It is no surprise that milk and milk products are more expensive in Israel than in other countries, even though milk production in Israel is very efficient. The solution is simple, remove all the regulations and let a free competitive market determine the price of milk and its distribution.
Houses are much more expensive than they should be, probably because regulations are so onerous. There are many more efficient building methods than the ones used in Israel. Also it is normal in Israel for a developer to plan a project, and then sell apartments before they are built. Because the developer may fail to complete the project, banks must guarantee the buyer’s deposit and continuing payments. This financial arrangement is not cost-free. Furthermore there is little incentive for the developer to build quickly as he isn’t paying interest. If he had to finance his project with a bank loan he would have an incentive to complete the project as quickly as possible. It’s not surprising that it takes two or three times as long to build in Israel as in the US. Slow building adds to costs. In many places local building regulations require a stone exterior; it may be aesthetically attractive, but it’s much more expensive than other options used in developed countries. There are hundreds of other regulations that add to the cost. Of course some regulations are necessary to ensure the safety of the construction; others are unnecessary and merely add to the cost. Building is a difficult business to automate, but in general it is true that the more that one can move on-site operations back to a factory, the lower the cost. However this can only be done if regulations are changed to permit the type of construction that makes this feasible.The opening sentence of this article tells it all. ”The worst problems are those that are self-inflicted”. Nearly all are the result of Israel’s hangover from its socialist origins; exacerbated by its unworkable Breaking the grip of Israel’s oligopoly political system. Government has two major functions; it must protect itself from external foes, and must maintain an equitable and functional legal system. Once it strays beyond these limits it becomes counter-productive. Thousands of regulations are promulgated and passed, generally with the best of intentions. Most, if not all of them, have negative side effects. As time passes the positive effects, if there are any, are diminished as monopolies or oligopolies find ways around the regulation, while the negative effects remain and fester. There are so many examples of this that come to mind that it’s impossible to list them all, so a few examples must suffice.
Milk production is a good example. Milk was originally produced exclusively by kibbutzim, much still is. The kibbutzim set up a cooperative to distribute raw milk to dairies that distributed it to the public or used it to make cheese or other milk products. To protect the kibbutzim which were very politically influential at the time, the government passed a regulation awarding the cooperative a monopoly on milk distribution. Eventually the kibbutz cooperative was sold to a private company, but the monopoly remained. To avoid competition in general, milk production is regulated; if you want to sell raw milk you must have a license to sell so many liters of milk, a license which you must buy, or if you have ‘protectia’, you may be awarded a license by the milk marketing board for a specific amount of milk. As the population grows the board increase the volume of milk that can be produced, but normally the expansion is for a specific % increase, so one who holds a license for X liters automatically has his license increased by Y%. Y being the amount the board deems necessary. There is an active market for milk licenses which are very expensive. It is no surprise that milk and milk products are more expensive in Israel than in other countries, even though milk production in Israel is very efficient. The solution is simple, remove all the regulations and let a free competitive market determine the price of milk and its distribution.
Houses are much more expensive than they should be, probably because regulations are so onerous. There are many more efficient building methods than the ones used in Israel. Also it is normal in Israel for a developer to plan a project, and then sell apartments before they are built. Because the developer may fail to complete the project, banks must guarantee the buyer’s deposit and continuing payments. This financial arrangement is not cost-free. Furthermore there is little incentive for the developer to build quickly as he isn’t paying interest. If he had to finance his project with a bank loan he would have an incentive to complete the project as quickly as possible. It’s not surprising that it takes two or three times as long to build in Israel as in the US. Slow building adds to costs. In many places local building regulations require a stone exterior; it may be aesthetically attractive, but it’s much more expensive than other options used in developed countries. There are hundreds of other regulations that add to the cost. Of course some regulations are necessary to ensure the safety of the construction; others are unnecessary and merely add to the cost. Building is a difficult business to automate, but in general it is true that the more that one can move on-site operations back to a factory, the lower the cost. However this can only be done if regulations are changed to permit the type of construction that makes this feasible.
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