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Supervision despite of everything / Adv Ehud Peleg

Consumer Council's consistent request, in recent years, to expand the basket of regulated food products, has finally found a sympathetic ear: The Minister of Finance has announced a series of products upon which he intends to apply price controls. This measure is necessary, not because it will improve Israeli economy, but because it will bring relief to the Israeli consumer, who deals with heavy cost of living, and sometimes collapses.


Measure of supervision is indeed an emergency step and its main advantage consists of providing immediate results. This does not bother economists keeping looking for long-term solutions to centralized Israeli economy and to lack of competition. So far, despite all their expertise, they have not succeeded, and we, the consumers, have paid the price for waiting. The Minister of Finance, Yair Lapid, has understood that the public cannot and does not want to wait until a solution is found. Consumers eat today, every day, three times a day, and for them, the test is how much the next meal will cost. A quick calculation shows that since the protests in 2011, economists have failed this test more than 3200 times.


However, Israel being Israel, rather than showing some signs of humility in light of their ongoing lack of success, and perhaps recognizing that short-term solutions are sometimes essential measures, they severely attack the Minister who, unlike them, has realized that the patient must also survive.


Why have the economists approach failed until now despite the fact that their discourse reflects the best of conventional (state of the art) economic theory?

 

 The short answer is: God is in the details. The longer answer is that when dealing with Israeli reality, economic theories about creating real competition meet a centralized and aggressive market, also applying political influence, and on the other hand – authorities promoting decisions and laws with much good intentions, but without showing any diligence or investment in enforcement.


If we are dealing with supervision - let us learn from a very relevant and symbolic example: four years ago, Israeli Consumer Council has found that the basic products that are under price controls are hidden on the shelves by non-regulated similar products while their price is much more expensive. The public that did not know which products are under supervision, did not know they should look for them on the shelves, and paid extra money.

 

Consumer Council suggested the Ministry of Industry and Commerce should require stores to post signs near those shelves, providing consumers with information regarding which products are under supervision and how much they cost. The Ministry of Industry and Commerce rejected this suggestion following pressure from retailers, because it would impose on them "extra regulation," as they said. After the outbreak of protest against the cost of living in 2011, the Ministry acted quickly in order to implement the Consumer Council's proposal, and indeed regulations in this regard entered into force in summer 2012. The story did come to an end: Consumer Council patrols have recently examined the extent of the application of the law imposing upon stores to post signs and found that one-third of the supermarkets and 88% of the minimarkets completely ignore the law. Governmental enforcement agencies were not at all felt on the ground.


In addition, consumer awareness the Council has measured indicated that the goal has not been reached: 73% of consumers do not know what the regulated products are, and 70% did not see any signs in the stores.


Critics might say - here is proof that supervision does not work. Luckily, Israeli people are cleverer and understand that it is not possible to hold the rope at both ends: on one hand not to enforce the law in the field and, on the other hand, to argue that supervision is not a solution.

 

Enforcement is the weakest area in public service. Allocation of resources for supervision is always considered a luxury - and we see the result.


State Comptroller has determined that supervisory authorities have not checked the profits reports of the "Tnuva" monopoly between 2005 and 2012.
It was also reported that those responsible for determining the prices of controlled products, have approved rising prices without checking the degree of increase in production costs of those products. No wonder supervised price is not cheaper!



Supervision works when properly realized, and when necessary resources are allocated. Along with congratulating the Minister of Finance, this requirement should also be asked of him.


Meanwhile, Consumer Council patrol will continue to keep an eye on the degree of implementation of the law and will continue to recommend consumers to buy products under supervision in order to reduce the price of their upcoming meal.

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The Israel Consumer Council is the largest consumer organization in Israel. It is a statutory, non-profit corporation which works to defend consumers and protect their rights, by handling complaints, seeking solutions..