How the media helps perpetuate a high cost of living

Reforming politicians earn little positive press to offset the costs of angering powerful interests

Last week’s uproar over the price of Milky puddings died down quickly once the myth that Israelis were flocking to Berlin was debunked, but the high cost of living remains unchanged. Although Israelis across the political spectrum regularly deem this issue one of their top concerns, successive governments have done little to address it. Various players share the blame for this failure, including politicians, big business, public-sector unions and the defense establishment. But one major culprit consistently escapes scrutiny – the media.

To understand how the media thwarts efforts at reform, try asking yourselves one simple question: What’s the most important economic reform carried out by the current government, and which minister made it happen?

The correct answer, in my opinion, is the awarding of contracts for building two private seaports to compete with the existing Haifa and Ashdod ports, a reform tenaciously pushed through by Transportation Minister Yisrael Katz. Economists have been advocating this for decades and successive governments have talked about it for years, but until now, nothing has happened. So the fact that a Chinese firm signed a contract last month to build the new port near Ashdod, while the winner of the tender for the new Haifa port is slated to be announced imminently, ought to be big news. Instead, it’s been relegated to the bottom of the business pages, where most Israelis will never see it.

By giving such scant coverage to major reforms, the media create a massive political disincentive for politicians to make them. For such reforms often entail political costs, and positive media coverage is the only benefit that could compensate for these costs.

Granted, this isn’t an issue for those rare reforms whose benefits to the public are immediately evident. When competition was introduced into the cellphone market, for instance, Israelis’ cellphone bills promptly plummeted, making then-Communications Minister Moshe Kahlon an instant hero. But in many major reforms, the public benefits are neither immediate nor clearly ascribable to the reform.

The ports are a prime example. According to a 2009 study by the Antitrust Authority, Israel’s ports are 30% less efficient than similar-sized ports elsewhere, costing the economy some NIS 5 billion a year. The Trajtenberg Committee on socioeconomic reform echoed this conclusion in 2011, writing that “inferior service and low production in Israel’s ports cost the economy, which depends heavily on the ports, hundreds of millions of shekels a year. This is before taking into consideration the indirect damage, stemming from the business uncertainty imposed on the economy by the disruptions [in the ports’ work] and delays in developing new port infrastructures.”

The main culprit is the all-powerful dockworkers union, which has exploited its ability to shut down the ports to obtain outrageous benefits. That’s why “on-call” port pilots receive full salaries to sit at home and do nothing; why dockworkers earn far more than people doing similar jobs in the private sector; and why strikes are repeatedly called over demands like additional meal vouchers or the union’s “right” to dictate the identity of the CEO’s personal assistant.

The additional costs imposed by our monopolistic, inefficient ports jack up the price of every single imported product in Israel. They also jack up prices of locally made products that depend on imported raw materials, and even of products that have no imported components, since the latter face competition only from imports whose prices have been artificially inflated.

Thus building new ports to compete against the existing union-controlled monopoly is likely to result in lower prices. But any such benefits will arrive long after Katz has left office; the new Haifa port will open only in five or six years, and the Ashdod port in seven or eight. And even then, the benefits won’t be obviously and directly linked to the new ports: If prices begin falling in another eight years, few consumers will think to credit Katz’s reform.

The political costs, in contrast, are direct and immediate: The powerful dockworkers’ union, furious over Katz’s effort to break their monopoly, has declared war on him. And not only does this union command a solid block of votes in Katz’s Likud party, which it intends to wield against him in the next party primary, but so do other public-sector unions with which it is allied.

Many other vital reforms also involve confronting powerful interest groups and thus entail similar political costs. Hence absent compensatory political benefits, politicians face substantial disincentives to reform. And the only body capable of providing such benefits is the media.

If the media relentlessly exposed unproductive politicians while giving prominent and favorable coverage to those who implement significant reforms, this would provide reformers with a significant political benefit to balance the political costs. But instead, the media lavishes most of its attention on politicians who make a lot of noise while accomplishing little. Childish insults in the Knesset consistently win headlines, whereas politicians who quietly work to get things done are ignored.

Consequently, reforms happen only when a politician is either so politically strong that he can afford the political costs, so precariously situated that the alternative to reform is certain political death, or so committed that he doesn’t care about the political consequences. Katz, for instance, appears to combine genuine passion for port reform with a strong enough political base in Likud that he can probably weather the dockworkers’ revenge. But that combination is rare.

Moreover, many reforms can’t be implemented quickly. Work on the port reform, for example, began during the previous government, and could easily have stalled had Katz not made the unusual decision to remain in his ministry for a second term so he could finish what he had started. Greater media attention, however, would increase pressure on incumbent ministers not to abandon half-completed projects in favor of more prestigious ministries, and also on new ministers to complete reforms started by their predecessors.

Absent clear political incentives, reforms of the kind the economy desperately needs will remain a rarity. And only the media has the power to create the necessary incentives. Unfortunately, it prefers to waste its time, and ours, on covering trivialities.

Originally published in The Jerusalem Post