Latest / Logosofia no Dia a Dia / 7 Bills to Fix Israel's Cost of Living
Transcript
- [Prompt] custom: In a previous episode, we discussed the Israeli dairy industry—particularly the economic distortions | Hosts: corn, herman [Response] Corn: Hannah sent us this one — and it's the kind of question that starts with a tub of cottage cheese and ends with rewriting the entire economic playbook. She's asking: if you were handed the finance minister's pen tomorrow morning, what would you actually sign into law? Not a wish list, not abstract principles. A numbered, practical reform program that addresses the cost of food, housing, wages, training, welfare, taxation, competition, and public services. The stuff people feel every single day when they look at their bank balance and wonder where it all went. Herman: It's the right question, because the cottage cheese boycott of twenty eleven wasn't just about dairy. A nine-shekel tub became this perfect symbol — here's a product protected by quotas, processed by a near-monopoly, priced by government regulation, and the result is forty percent above what Europeans pay. A quarter million people joined a Facebook group. The price dropped twenty percent. And then, because nothing structural changed, it crept right back up. Corn: That's the pattern that makes this worth doing properly. Temporary outrage, temporary relief, permanent dysfunction. So let's actually build the reform program — seven bills, each specific enough to be a Knesset document, each one targeting a mechanism, not a symptom. Herman: Start with the paradox, because the numbers are genuinely jarring. Israel's GDP has grown at four point six percent annually over the last decade. That's rapid. But the poverty rate sits at twenty point nine percent — the highest in the OECD. Real wages for the bottom sixty percent have flatlined. So you have this strange thing where the economy is booming and most people feel like they're running in place. Corn: The reason is that Israel built a hybrid that takes the worst of both worlds. You've got the old dirigiste system — quotas, protected industries, price controls, import barriers — layered on top of a deregulated capitalism with weak antitrust enforcement, a minimal welfare state, and labor flexibility that only benefits employers. It's not socialism. It's not free markets. It's a machine for extracting value from consumers and concentrating it upward. Herman: The Scandinavian comparison Hannah mentioned is instructive. Sweden in nineteen ninety had roughly the same GDP per capita as Israel today — about thirty-eight thousand dollars PPP. But Sweden's social contract meant growth translated into broad quality-of-life gains. Universal childcare, strong unemployment support, affordable housing policy. Israel's growth translated into... a three-room apartment in Tel Aviv costing a hundred and fifty median annual salaries. Corn: That comparison isn't just a statistic — it's a lived reality. Think about what a young couple in Stockholm versus Tel Aviv experiences. In Stockholm, two incomes, even modest ones, plus universal childcare means both parents can work, they're not spending forty percent of their take-home pay on rent or a mortgage, and if one of them loses their job, there's an actual safety net. In Tel Aviv, that same couple is spending half their income on housing, childcare costs more than university tuition in some countries, and if either of them loses their job, the floor drops out in weeks, not months. Herman: The single sentence diagnosis is: Israel has the highest market concentration in the OECD, and that concentration functions as a private tax on every household. It's not that Israelis are poor — it's that the structure of every major market extracts more than it delivers. Corn: Here's what I want to unpack — how does that concentration actually work day to day? Because "market concentration" sounds abstract. What it means is: when you walk into a supermarket in Tel Aviv or Be'er Sheva, the prices on the shelf have already been filtered through three layers of gatekeepers who each take a cut that their counterparts in France or Germany simply can't extract. The importer has no real competition, so they mark up. The processor has no real competition, so they mark up. The supermarket chain knows you have nowhere else to go, so they mark up. By the time you pick up that tub of cottage cheese, you've paid three private taxes. Herman: Let's go sector by sector, because the mechanisms are specific and they matter. Start with food and basic goods. Three importers control seventy percent of branded food in Israel. Two supermarket chains control fifty-five percent of retail grocery. The Economy Ministry can block imports of any product already approved by EU or US regulators by designating the importer as having "significant market power" — which is the exact opposite of what that designation should do. It protects the oligopoly, not the consumer. Corn: The Bank of Israel put out a report in twenty twenty-four that calculated removing import barriers on food alone would reduce household food expenditure by eighteen percent. That's not a modeling exercise — that's just what happens when you let people buy things from abroad without a gatekeeper taking a cut. Herman: Dairy is the microcosm. Five thousand dairy farmers protected by production quotas. Three processors controlling ninety percent of the market. Government-set prices forty percent above EU levels. You can't import butter without a license, and the license is controlled by the same people who produce the butter. It's a closed loop designed to keep prices high. Corn: I want to pause on that butter license for a second, because it's almost comical if it weren't so damaging. Imagine you're a small importer who finds a great deal on Irish butter — high quality, half the price of the local stuff. You apply for an import license. The committee that reviews your application includes representatives from... the domestic dairy processors. Your competitors get to vote on whether you're allowed to compete with them. That's not regulation. That's a cartel with government stationery. Herman: It's exactly that. And it's worth noting that this isn't some legacy system nobody's noticed. The OECD has been flagging this since at least twenty eleven. The Bank of Israel has published multiple reports. Every finance minister for the last decade has acknowledged the problem in interviews. The mechanism is understood. The resistance is political, not technical. Corn: Policy One is what I'd call a competition shock. Abolish the "significant market power" designation entirely. Replace it with automatic parallel import licensing — if a product is approved for sale in the EU or the US, it's automatically approved for import into Israel. No discretionary gatekeeping. Target: reduce food and consumer goods prices by fifteen to twenty percent within two years. This directly breaks the three-firm import oligopoly. Herman: This is politically interesting because it doesn't require building anything new. You're not constructing factories or training workers. You're removing a permission slip that shouldn't exist. The twenty twenty-five Knesset bill to break up the food import oligopoly was defeated by three votes after an intense lobbying campaign by the importers' association. That tells you the political obstacle is concentrated, not diffuse — which means it's beatable if the pressure is specific enough. Corn: Think about what three votes means in practical terms. That's one coalition backbencher who got a phone call, one committee chair who was promised something, one minister who was reminded of their post-political career options. The entire food budget of every Israeli household was decided by three people in a room. That's both infuriating and, in a weird way, hopeful — because it means the barrier isn't some immovable structural force. It's a handful of legislators who haven't yet heard from enough angry constituents. Herman: Now housing — this is where the mechanism gets almost diabolically clever. Ninety-three percent of land in Israel is state-owned, managed by the Israel Land Authority. In theory, that should mean the government can release land for housing whenever it wants. In practice, the ILA has a revenue-maximization mandate. It releases land slowly, in small parcels, to drive up auction prices. Corn: Let me give you the visual on how this works. The ILA sits on enormous land reserves — we're talking about thousands of dunams in areas where people actually want to live, within commuting distance of employment centers. But instead of saying "we've got sixty thousand new households forming this year, let's release land for seventy thousand units," they release land for eight thousand units and auction it to the highest bidder. The developers bid against each other, the price per dunam goes through the roof, and that cost gets passed straight into the apartment price. It's artificial scarcity engineered for revenue maximization. Herman: The numbers from the State Comptroller's report are staggering. In twenty twenty-three, the ILA released land for only eight thousand housing units — in a year when sixty thousand new households were formed. That's not a supply-demand gap. That's a cartel. And then municipalities block densification because new housing means new infrastructure costs, and they don't want to pay for it. Construction is dominated by five conglomerates who have no incentive to build faster when scarcity keeps prices rising. Corn: The municipality piece deserves more attention because it creates this perverse dynamic where local government becomes the enemy of housing. Say you're the mayor of a town of thirty thousand people. A developer wants to build a new neighborhood with two thousand units. Great — except those two thousand units mean you need to expand the school, upgrade the sewage system, widen the access road, and add a community center. All of that costs money now. The property tax revenue from those new residents? That trickles in over years. So you, as a rational mayor with a balanced budget requirement, say no. The system literally pays you to block housing. Herman: The result: Israel's price-to-income ratio is ten point five times. The OECD average is five point one. A three-room apartment in Tel Aviv costs roughly a hundred and fifty median annual salaries. That's not a housing market. That's a wealth transfer from young families to landowners and construction conglomerates. Corn: Just to make that concrete — a hundred and fifty median annual salaries. If the median salary is, say, twelve thousand shekels a month, that's about a hundred and forty-four thousand a year. Multiply by a hundred and fifty. You're looking at an apartment that costs over two million shekels. For three rooms. A young couple saving twenty percent of their income — which is aggressive — would need decades just for the down payment. That's not a market failure. That's a market that's been deliberately engineered to exclude them. Herman: Policy Two is land reform. Transfer land release authority from the ILA to a new independent Housing Supply Commission with a statutory mandate to release enough land to meet a hundred and twenty percent of projected household formation. Abolish the ILA's revenue-maximization mandate — its job should be enabling housing, not maximizing state income from land auctions. And let municipalities keep fifty percent of the property tax from new construction. Right now, many municipalities actually lose money on new housing because the costs hit their budget before the tax revenue arrives. Flip that incentive. Corn: The mechanism here is straightforward: flood the supply pipeline and make local government a partner in growth rather than a blocker. It's not elegant, but it works. New Zealand did something similar in the nineteen eighties when they broke up their own land-use cartels, and housing affordability improved within five years. And the fifty percent property tax share is the clever bit — you're not asking mayors to be public-spirited. You're giving them a revenue stream that aligns their interests with building more housing. That's how you make reform stick. Herman: Now the labor market — this is where the "startup nation" branding does real rhetorical damage. Israel's tech sector employs ten percent of workers but generates twenty-five percent of GDP and pays two and a half times the national average wage. The other ninety percent work in a low-productivity, low-wage domestic economy that's protected from competition. The gains from the high tier don't spill over — they're captured internally. Corn: The training gap locks this in. Only eight percent of Israeli eighteen to twenty-five year olds are in any form of vocational training. In Germany, it's forty-five percent. So you've got a tech sector that imports skilled labor rather than training locals, and a domestic sector where workers never develop the skills to move into higher-productivity roles. It's a two-tier system by design, not by accident. Herman: What does that actually look like on the ground? Take a twenty-year-old in Kiryat Shmona or Dimona. They finish school, maybe do army service, and then... There's no clear pathway into a skilled trade. No apprenticeship at a manufacturing firm. No structured nursing program with a guaranteed job at the end. So they end up in retail or food service or gig work — sectors where productivity is flat and wages never rise. Meanwhile, a tech company in Herzliya has five open positions for QA engineers and ends up recruiting in Ukraine or India because there's no local pipeline. The jobs exist. The workers exist. The bridge doesn't. Corn: Policy Three is labor market integration. Create a second-track vocational training system funded by a zero point five percent payroll tax on tech companies. Model it on Germany's dual system: three-year apprenticeships with guaranteed placement, tied to sectors with labor shortages — construction, nursing, software QA, advanced manufacturing. The tech companies currently import labor because there's no pipeline. Give them a pipeline and they'll use it. Herman: You're not asking them to do charity. You're asking them to pay a tiny fraction of payroll into a system that produces workers they need. The German model shows this works — companies train because the apprentices become employees. The current Israeli model of importing workers and leaving the domestic sector untrained is just... Corn: It's worse than lazy — it's actively destructive. Every time a tech company imports a worker rather than training a local one, they're making a rational short-term decision that collectively hollows out the domestic labor market. The zero point five percent payroll tax just prices that externality back in. If you want to benefit from the Israeli ecosystem, you contribute to the Israeli workforce. It's not radical. It's what functional economies do. Herman: This is where the combination Hannah described really bites. Israel spends sixteen percent of GDP on social protection versus the OECD average of twenty percent. But the bigger problem isn't the total spend — it's the structure. There are seventeen different income support programs, each with its own eligibility rules, and the effective marginal tax rates when you move from benefits to work can hit eighty to a hundred percent. You get a job, you lose housing support, childcare support, income support — and you end up poorer. The system actively punishes people for working. Corn: I want to walk through a real-world scenario here because the numbers are Kafkaesque. Imagine a single mother with two kids receiving income support, housing assistance, and subsidized childcare. Her total package is worth, say, five thousand shekels a month in cash and services. She gets offered a job at six thousand shekels a month. She takes it. Her income support phases out. Her housing assistance gets recalculated and drops by sixty percent. Her childcare subsidy vanishes because she's now above the eligibility threshold. Net result: she's working full-time and her disposable income after housing and childcare is lower than when she wasn't working. That's not a safety net. That's a trap. Herman: Policy Four is welfare state modernization. Replace the seventeen programs with a single negative income tax administered through the tax authority. Set the phase-out rate at forty percent — so for every shekel you earn, you lose forty agorot of support, not eighty or a hundred. You always come out ahead by working more. Cost estimate is roughly eight billion shekels a year, which we'll fund through Policy Five. Corn: The administrative savings alone are significant. Seventeen programs means seventeen application processes, seventeen eligibility reviews, seventeen bureaucracies checking each other's work. Consolidating into a single tax-authority-administered payment eliminates that duplication. More money reaches people, less money funds paperwork. Herman: Policy Five is tax reform, and this is where the political resistance gets real. First, introduce a progressive property tax on second and third homes. Right now, in many municipalities, property tax on investment properties is actually lower than on primary residences. That's perverse. Second, close the Milchan Law loophole that lets returning residents avoid taxes on foreign income for ten years — that's costing an estimated two point five billion shekels a year in lost revenue. Corn: Third — and this is the one that'll get the angry phone calls — raise VAT from seventeen percent to nineteen percent, but offset it with a universal basic dividend of two hundred shekels per month per citizen. The VAT hike is regressive on its own, but paired with the dividend, the bottom sixty percent come out ahead. The dividend also creates a constituency for the reform — everyone gets something tangible every month, which makes the whole package harder to repeal. Herman: Let's do the math on that for a typical household. A family of four gets eight hundred shekels a month in dividend — that's nine thousand six hundred a year. The VAT hike from seventeen to nineteen percent means they pay an extra two percent on consumption. To be worse off, they'd need to spend over four hundred eighty thousand shekels a year on VAT-applicable goods. The median household spends nowhere near that. So for the vast majority of Israelis, the dividend more than compensates. For high-income households, they pay more. That's the point. Corn: The political logic here is important. Tax reform that only takes things away from concentrated interests gets defeated by concentrated lobbying. Tax reform that gives everyone a monthly deposit creates a diffuse beneficiary class that can match the concentrated opposition. It's not just economics — it's political design. You're building a coalition of people who have a direct, visible stake in the reform surviving. Herman: Policy Six is public services accountability. Mandate that every government ministry publish a quality-of-service dashboard with wait times, outcomes, and budget-per-user data. Tie ministry budgets to outcome metrics, not input spending. New Zealand did this under their social investment approach — instead of funding hospitals based on how many beds they have, fund them based on how many people they actually treat and with what results. Corn: This sounds technocratic, but it matters enormously for the lived experience of government. When you go to the Interior Ministry and wait four hours for a document that should take ten minutes, that's not just annoying — it's a tax on your time that falls hardest on people who can't afford to take a day off work. Making wait times public and tying budgets to outcomes creates pressure to actually fix the process. Herman: How do you actually enforce that? Because governments love publishing dashboards that nobody reads and nobody acts on. The mechanism here is that the Finance Ministry's budget division gets the authority to withhold five percent of a ministry's discretionary budget if their outcome metrics don't improve year over year. Not fire anyone, not restructure — just a small, automatic financial consequence that gives every ministry a reason to care about whether the wait times are actually going down. Corn: You publish the dashboards in a format that newspapers and NGOs can scrape. When Haaretz or Ynet can run a headline saying "Interior Ministry wait times up twelve percent while budget increased eight percent," that creates public pressure that no minister can ignore. Transparency plus consequences plus public attention equals reform. Herman: Policy Seven is anti-concentration enforcement. Triple the budget of the Antitrust Authority. Mandate that any company with more than twenty-five percent market share in a consumer goods category must justify price increases above inflation to a public price commission. Give that commission the power to order price rollbacks with judicial review. Corn: The twenty twenty-five Antitrust Authority report found that the two supermarket chains controlling fifty-five percent of grocery retail have profit margins significantly above OECD averages for the sector. That's not efficiency — that's market power. And when you combine market power with import barriers, you get exactly what Israel has: prices thirty to fifty percent above OECD averages for basic goods, adjusted for income. Herman: This is where the policies reinforce each other. Policy One opens the import gates. Policy Seven ensures that even after the gates are open, domestic players can't simply absorb the competition through predatory pricing or exclusive distribution agreements. You need both — the supply-side reform and the enforcement mechanism — or the oligopoly finds new ways to protect itself. Corn: That's the seven. Competition shock through automatic import licensing. Land reform through a supply-mandated commission. Labor market integration through a payroll-tax-funded apprenticeship system. Welfare modernization through a negative income tax. Tax reform that closes loopholes, adds progressivity, and creates a universal dividend. Public services accountability through outcome-based budgeting. Anti-concentration enforcement with real teeth. Herman: They're designed as a system, not a list. The import reform lowers prices immediately. The land reform takes five to ten years to fully affect housing costs but starts changing expectations immediately. The training system addresses the structural wage gap over a decade. The welfare and tax reforms make the transition bearable for the people who'd otherwise be crushed by short-term disruption. Corn: The key insight — and this is what I think Hannah was really getting at — is that none of these problems are inevitable consequences of being a small country with security costs and no natural resources. Every single distortion has a name, a Knesset committee, and a lobbyist. The ILA's revenue-maximization mandate is a deliberate policy choice. The import licensing regime is a deliberate policy choice. The Milchan Law is a deliberate policy choice. These aren't acts of God. They're acts of legislation, which means they can be un-legislated. Herman: The political logic of the whole package is that it creates winners — young families, workers outside tech, consumers — and only hurts concentrated interests. The conglomerates, the ILA cartel, the import monopolies. The question is whether the political system can overcome the collective action problem where the benefits are diffuse and the costs are concentrated. The twenty eleven boycott showed that public demand exists. The twenty twenty-five bill defeat showed that lobbying power is formidable. The difference between those two outcomes is specificity. Corn: The Scandinavian lesson is instructive here. Sweden took fifteen years of sustained reform — nineteen ninety to two thousand five — to transform from a stagnant corporatist economy to a dynamic one with strong social protections. They didn't do it with one bill. They did it with a coherent framework pursued consistently across multiple governments. Israel has the institutional capacity to do the same. The Bank of Israel is credible. The State Comptroller produces excellent diagnostics. What's missing isn't knowledge or capacity — it's political will and public demand for specificity. Herman: That's where listeners come in. There's a twenty twenty-six Competition in Food Market Bill pending in the Knesset right now. It's not the full seven-point program, but it's Policy One — automatic import licensing for EU and US approved goods. Support it specifically. There's an NGO called Price Monitor that tracks supermarket pricing and publishes comparisons. Engage with their data. And when candidates ask for your vote, don't accept "we need to lower the cost of living." Ask them: do you support breaking up the ILA? Do you support automatic import licensing? Do you support closing the Milchan Law loophole? Corn: The era of vague promises should be over. The cottage cheese boycott worked temporarily because it was specific — this product, this price, this demand. The lesson of the subsequent fifteen years is that temporary pressure produces temporary results. Structural reform requires structural pressure, sustained over time, targeted at specific mechanisms. Herman: The twenty twenty-six cost-of-living protests have been building since spring. The question is whether they'll produce the same kind of focused policy pressure, or whether they'll dissipate into general anger. The difference between a protest and a reform program is the difference between "this is unacceptable" and "here are the seven bills to pass. Corn: The thing is, the diagnosis isn't mysterious. The Bank of Israel knows what's wrong. The OECD has published detailed reports. The State Comptroller has documented the ILA's land release failures. The Antitrust Authority has mapped the concentration. The data is there. The policy tools exist. Other countries have done versions of this. What's been missing is the political translation — turning "the cost of living is too high" into "abolish the significant market power designation, transfer land release to a supply-mandated commission, and fund apprenticeships with a tech payroll tax. Herman: I think there's a deeper point here about how political discourse works in Israel specifically. The security conversation is incredibly specific — people debate the merits of particular weapons systems, particular deployment strategies, particular intelligence protocols. Nobody gets away with saying "we need to be safer" without explaining how. But the economic conversation is permitted to remain at the level of slogans. "We need to lower the cost of living." "We need to help young families." That asymmetry is itself a political choice — and it benefits the people who profit from the current arrangements. Corn: Specificity is the enemy of protected dysfunction. As long as the conversation stays at "things are too expensive," the import monopolies and the ILA cartel and the construction conglomerates can all nod along and say "yes, we agree, something should be done." The moment you say "automatic import licensing for EU-approved goods," they have to either oppose it publicly or watch it pass. Specificity forces them out of the shadows. Herman: That's the homework Hannah's question assigns. Not "what do you think about the economy" — but "what would you actually sign into law tomorrow morning?" And the answer is: these seven bills, in this order, with this funding mechanism, designed as a system that creates its own political constituency. Corn: Next time you hear a politician say "we need to lower the cost of living," ask them which of the seven they support. If they can't answer, they haven't done the work. And we've had enough of politicians who haven't done the work. Herman: Now: Hilbert's daily fun fact. Hilbert: In nineteen seventy-four, a beekeeper in Tibet's Yarlung Valley discovered that honey produced from the flowers of the native snow lotus plant crystallized into a pale blue color — locals called it "sky sugar" and believed it was frozen fragments of the summer sky. Corn: Frozen fragments of the summer sky. Herman: I don't even know what to do with that. Herman: This has been My Weird Prompts. Thanks to our producer Hilbert Flumingtop. If you want more episodes like this one, email the show at show at my weird prompts dot com — send us your own prompt, your own reform plan, your own argument about which of the seven policies should come first. We read everything. Corn: One coherent system. The question now is whether anyone in the Knesset is listening.