Israel has the opportunity to use its offshore discoveries to help close wealth gaps.
"Own or Be Owned" is the slogan of the Center for Economic and Social Justice in the US, a think-tank devoted to the propagation of projects for the expansion of the ownership of productive capital assets in ever-greater segments of the population. In a recent issue of "The Economist", the lengthy lead article was dedicated to the ever-increasing phenomenon of the concentration of the ownership of such assets in smaller and smaller segments of the population in advanced countries, and the pernicious economic, social and political consequences of that development.
The facts are startling in their effects on the position of the middle class, on unemployment and on dependence on government transfers. In the most advanced of the advanced economies, the United States, almost one-half the population now depends in whole or in part on such "entitlements", while the top one percent of income earners receive 22% of total income. A photo-sharing website with 30 million customers was sold for one billion dollars in 2012 to Facebook. It had thirteen employees. Kodak, which used to mean photography for generations of consumers, recently declared bankruptcy. In its heyday, it employed 145,000 people.
Participation in the labor force is the lowest since 1978 In the 1960's, one in twenty of men between the ages of 25 and 54 was not working. The figure is now one in seven. The typical male worker made less in 2012 than in 1987 in real terms (adjusted for inflation). And so on and on. The contribution of labor to the value of production of goods and now services as well, is constantly shrinking and the contribution of capital, now in the form not just of machinery and equipment of all kinds, but also in such areas as 3-D printing and advanced automation and robotization continues to rise.
Thus income is increasingly concentrated in those who have the training and education to design and operate such capital assets and the owners of those assets. The social and political consequences of this undeniable development are enormous: a large underclass of state serfs is being created which will support those political forces which promise to maintain or increase public income transfers and populist political movements that promise to penalize the professional and financial elites perceived as being greedy and obnoxious exploiters.
Israel is not exempt from this trend. How can it be addressed? By strengthening antitrust legislation and the enforcement of such laws, certainly. But that may result in only shifting productive asset ownership into more units distributed among the same group of people. By employee stock ownership plans? Certainly, and many Israeli hi-tech firms do have such plans. This is good, but it should be pointed out that such plans simply turn the mental elite, which already commands a large portion of economic returns, into a professional and also ownership elite. The expansion of productive capital assets is not spread beyond those two groups.
An additional measure has been outlined in previous columns. Israel has an historic opportunity to financially empower substantially all of its citizens, due to the discovery of vast resources of natural gas and eventually oil offshore. The earnings from this unexpected bonanza, after satisfying domestic energy needs are going to be gathered in a sovereign wealth fund. So far so good. But how is the fund going to be utilized?
In accordance with the legislation now under consideration, after maintaining a reserve for contingencies, the remaining funds will be used for primarily social purposes; education, health, housing, etc. All well and good except that such distributions simply cause greater societal dependence on the state and its largesse. They do not empower individuals, and in fact increase the dominance of the political class with decreasing controls by society at large.
Why not incorporate the fund and issue its shares equally to all citizens of Israel, at least for a period of years on a non-negotiable basis to avoid concentration; but with voting rights and rights to receive dividend payments? Thus would the individual Israeli be empowered. Alternatively the funds could be used to establish an investment trust for all citizens, which would have the advantage of diversifying assets.
There are examples that can be studied of such programs, especially the Alaskan native corporations, established by the Alaska Native Claims Settlement Act of 1971, which has turned the indigenous inhabitants of Alaska into wealthy owners of mineral, energy, forest, fishing, transportation, tourism and other productive assets.
The opportunity is there. Will it be seized? The Center for Economic and Social Justice, mentioned above, has another motto, taken from the Bible: "Justice, justice, thou shalt pursue".
Norman A. Bailey, Ph.D., is Adjunct Professor of Economic Statecraft at The Institute of World Politics, Washington, DC, and a researcher at the Center for National Security Studies, University of Haifa.
Published by Globes [online], Israel business news - www.globes-online.com - on January 28, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013
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