Nationalism, capitalism and free markets: The Israel case

A few weeks ago I was driving near Hebron and wanted to buy some goods.  We stopped at a small shop on the side of the road in a Palestinian village.  Everything was remarkably cheaper than in any Jewish community in Israel or the West Bank. Not only were products cheaper, but many of the vegetables were lush and plumb; far better looking than what is on offer at most Israeli supermarkets.  Last night the show Masterchef was on Israel’s channel 2.  Between breaks in the show was a long advertisement encouraging people to “buy Israeli.”  It went on and on, telling the consumer about why they should buy “blue and white” products.  Support the farmers in the Galilee.  Buy cheese from “our country.”

It is a reminder of the market inefficiency caused by nationalism and patriotism.  Israelis live in an economy that has much in common with a siege economy or a prison economy.  When people are in prison there is a basic lack of supply of normal products, so everyday products such as cigarettes become highly valued.  Mark-ups on basic products can be high because of various middlemen involved.  For instance the canteen will mark-up the price of the product because “it can”, because the prisoners need the product.  In a siege economy the same thing happens.  Not just because of hoarding, but because there is a basic lack of supply.

Israel is not actually a prison or under siege.  It isn’t living under sanctions.  The era of the Arab trade embargo and other economic factors that may have led to supply issues, are long gone.  But Israel’s economy is heavily concentrated and centralized.  It is often said to be in the hands of just a few dozen “tycoons.”  The centralization is also related to the Soviet-style legacy of “labor Zionism”, which was a form of ethnocentric socialism that concentrated almost all the land (93%) in the hands of the state.  The state then provided that agricultural land to a few hundred kibbutzim.  Primarily only Ashkenazi Jews from Europe, and those connected to the correct “party” (like in the Soviet Union), were permitted to live on these kibbutzim. They were the beating heart of nationalism.  The concept was to create rapid self-sufficiency on the model of the five-year plans in China or Russia.  Millions of dunams were confiscated from Arab citizens (many hundreds of thousands of whom had left the country due to the 1948 war).

This is the origin of the Israeli land system.  The rest of the economy behaves the same way.  There are “national champions” in Israel, which means that local heavyweight companies actively try to keep foreign products out.  No more infamous an example is needed than Osem trying to get Heinz ketchup removed from the shelves.  Many Israelis remember the days when there was little to choose from on the supermarket shelves.  Now of course the total prison system has been relaxed; foreign products can come into Israel, but with huge tariffs to keep them from competing with Israeli products.  From dish soap to lotion, or olive oil and honey.

When they do surveys of prices in Israel they find them to be sometimes among the highest in the OECD. For instance milk prices were found to be only higher in Japan and Norway in 2011.  The picture is not always bad, a “Western European price comparison study found that a kilo of cucumbers costs 270% more in France than in Israel and 260% more in Germany. A kilo of avocados costs 316% more in the UK than in Israel. However, onions in Germany cost less than in Israel, and bananas in the US cost 34% less than in Israel,” in February 2015.  But generally the picture is dismal. “Israel’s fruit and vegetable price index rose 35% between 2005 and 2011 while at the same time, prices in the European Union fell 0.7%,” noted a report.

So when consumers are told to buy locally or to shop “blue and white,” what is actually being done.  It is part of the small minority who make money off the outrageous prices encouraging the vast majority to imagine that their prison does not exist.  “Buy the local cigarettes at the canteen, support locals,” would be the prison propaganda.  But who is being supported when you overpay?  It isn’t “the nation,” you are helping, but a few wealthy people.  Millions are supposed to overpay so that one kibbutz that makes honey can give more BMWs to its members, so they can live in lush single-family house, while you live without air conditioning in a dingy apartment.

Where does it all go

Where does it all go

Nationalism and capitalism have nothing in common.  Nationalism and socialism do have much in common.  In many cases the concept of the “national champion” and the “national product” is part of the socialistic nepotism of providing welfare for the rich friends of the national leaders.  There is nothing positive that comes out of nationalist purchasing choices.  In the opposite, nationalist consumers allow mediocre products to pass themselves off as good because by purchasing them you “help the nation.”  How do you help the nation by allowing it to be substandard.  Did the fact that soviet citizens had to buy sub-standard Soviet-era automobiles really help Russia?  No.

The consumer with choice will choose the cheaper product that is better.  That encourages local producers to make a good product, not pass off inferiority.  Why would you buy a half rotten tomato just because it has an Israeli flag, and not a wonderful tasty Palestinian tomato?  Did you really “help Israel” because you overpaid for your rotten tomato so that “Moshe” can have a few more shekels to relax on vacation in Santorini while you remain poorer because you paid more and your diet is worse.  By demanding that “Moshe” provide real tomatoes or putting him out of business for his inferior product you can encourage competition and efficiency.  Has it been good for the Israeli olive oil sector that it markets its product at far more than foreign olive oil, and its oil remains not as good?  Has it been good for Israeli cheese to remain inferior to its foreign competitors and equally expensive?  Israel can’t export some of these things to compete abroad precisely because of the low standards they kept the local consumers in prison with.

True nationalism would involve purchasing foreign products in order to punish local inferiority and thus making the national products stronger.  But a more free market approach would erase the boundaries of entry and lesson the need for nationalism because the real mass of consumers should have access to the best products possible.  When those products are local they should buy them, when they are not they should not reward local garbage and pretend it is shiny and good.

The same goes for any choice one has to make.  When Israeli hotels claim people should stay locally they are constantly shown that flying abroad is actually cheaper.  Why enrich some local hotel or vacation owner and allow them to charge huge amounts as if one is in prison.  Travel abroad until Israeli hotel chains can be competitive.  The mentality of nationalism encourages a prison-like concept of purchasing goods and is not good either for the nation in the long term or the consumer.

Where does it all go

Where does it all go

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