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Principles of consumer's economy / Adv Ehud Peleg

The "Milky" (milk cream) protest might be wrongly understood and might miss the point: if something is dirty at home, you clean the house and do not move to a rented one. And our home is costly: in the recent years, the middle class has joined groups of populations who have difficulties making ends meet, buying a house and providing basic living needs. And that is what counts, even before we have moved to international comparisons.


If this is the way to examine the results – some wonderful economists might have to change the way they calculate or need to perform some self-examination in order to see how we got so far – to the prices that hit us.


Perhaps the economic discourse in Israel has been disconnected for too long from the consumer debate, in a syndrome which is similar to the saying "The operation was successful but the patient died". Concepts that were frequently used, such as "free market" and "maximizing profits", that were economically suitable, might have collapsed against the Israeli reality and led to the unbearable current cost of living.


It is time to make acquaintance with the 11 principles of consumer economy, and to establish the Israeli market behavior according to them:


1. True competition: This is the best economic condition, both at corporate and at consumer levels. It usually takes place in free market conditions: market forces guaranty competition.


2. Illusion of free market: Market failures are generated when there are barriers to competition or when a few players in the market have cumulated centralized power: free market does not ensure true competition, but rather leads to a reckless market, to strong forces oppressing competitors and imposing high prices. The law of the jungle – the stronger one prevails - describes this market and presents no good news for consumers.


3. Governmental intervention: In a non-competitive market, some cases require consumer's protection by the government. The slogan against such governmental intervention: "Do not disturb market forces" - is a mantra created by powerful corporations whose purpose is to perpetuate their centralized power and to control market prices.


4. Healthy economy: A healthy economy is not only a free market. It is also a regime of brakes and balances, just as democracy is not only the rule of the majority, but also a regime ensuring human and civil rights as well as mutual supervision of the authorities. If there is no self-restraint by the main players in the market - external restraint is required from the state agencies that are the public extensions and are in charge of defending the public. The purpose of healthy economy should not be a free market, but rather a way, a place where it exists. The goal is fair market for both businesses and consumers.


5. The boomerang effect: The cost of living acts like a returning boomerang to the business sector and even to the State Fund. If the prices are expensive - consumers buy less. If there are no consumers - there are no manufacturers; if there are no buyers – there are no sellers; if there is no revenue – there are not taxes. Closure of branches, layoffs, failure to meet collection targets and many more - are some of the disastrous consequences of the cost of living.


6. The next meal test: Modifications in economic policy will have only long-range consequences. Meanwhile, there is a short run. The population eats already today, every day, three times a day and analyses the situation whenever they stand before the shelf in the food store. Therefore, it is recommended that long-range economic plans (encouraging imports, developing competition, dispersing centers of power) will not be at the expense of short-term measures, such as prices control, even if limited in time, or rather restricted in order to achieve results through long-term measures.


7. The market is irrational: Part A: The wrong paradigms providing bases for economic theories and programs, stating that policy decisions are made for the benefit of all players, have destructive outcomes: political and non-practical considerations play an important role in the Israeli economic reality. We just have to read the State Comptroller's report dealing with the unfortunate decision made in 2006 to remove price controls from some of the dairy products, despite the recommendations of professionals, a decision that, as we remember, resulted into the rise of cottage cheese, as well as other dairy products, by tens of percent,. Can someone explain this by considering the best interests of consumers?


8. The market is irrational – Part B: Economic theories dealing with macro economy tend to forget the small consumer and to ignore his habits, needs and weaknesses. The assumption that the consumer is rational and makes worthwhile choices does not take into account his level of education and spontaneous shopping culture, lack of time to check and compare and his difficulty in understanding data (in bank account statements, for example). Neither have they taken in consideration lack of business enthusiasm to provide the consumer with comparable information, out of fear that he will discover the bitter truth about the business and that their customers will leave and turn to other providers. Current account fees in the banks are a grim illustration showing how they thwart the ability for the consumer to compare. Economic reform that will not consider the consumer and the way to estimate the results is likely to miss the goal when analyzing the results (see Reform of Banking Fees - 2008).


9. Consumers are partners: The prevailing economic approach in business is that consumers are sources of income – from which every single Shekel must be squeezed (a network marketing CEO: We do everything to get more money from customers.) This approach must be changed for another one, according to which consumers are partners in a process of making profits in businesslike society - and partners must be fairly treated.


10. Fairness: Consumer's economy is based on consumer's right to fairness: a. the right to receive reliable, complete and comparable information. b. The right to make informed decisions (not under pressure by "persuaders"). c. The right of free choice rather than exploitation of weaknesses and adversity (such as captive customers). d. The right to consideration and proportionality as compared to business consideration to maximize profit, which is the modern golden calf. Disproportionate profitability (swinish capitalism as in its popular name) is perhaps the most salient feature of unfairness that produces the high cost of living.


11. Cultural Change: Unfortunately, unfairness, reflecting on Israel's commercial life, has become a subculture, drawing directly from what is considered as Israeli national fear: fear of being a "Fryer" ("sucker"). This approach was originally born as a Sabri (Israeli-born) expression against exile, the famous "Davka" ("on purpose") saying: Here in the land of Israel, we will not let anyone longer take advantage of us. Unfortunately, this expression has received among many business owners a distorted interpretation, according to: if I do not exploit everyone I can in order to make profit, whenever I can, any time I can, as much as I can, I might be considered as a sucker by the other members of the sector since I could have earned more – and, as everyone knows, profit is everything.


Even sport has rules and fairness, and victory is considered only if it has been achieved in accordance with those principles and not as opposed to them (ask the legendary cyclist Lance Armstrong, who was deprived from his many prices in the "Tour de France" due to the consumption of illegal amphetamines).


Israel Consumer Council's position:

 

The application of those principles to contemporary Israeli reality in the food industry requires solutions in two parallel tracks: one track that will provide long-term results and another track whose fruits will be felt in short term. In one track – production of a true competition, among others, through dispersion of centers of power, promoting importation, encouragement of small businesses and more. This solution will face a series of obstacles, and overcoming them will take much time: island economy with a small market that is not attractive enough to justify the feasibility of a large number of competitors, powerful corporations that operate large offices to foster relations with the government, import barriers and more.


The second track should undertake a series of solutions that will produce short-term results:


- Expanding the products basket under price supervision and including health products (you do not have to get fat to buy cheap).


- Giving access and highlighting the products under supervision to consumers by enforcing regulations on signage upon products under control (90% of the minimarkets and one third of the supermarkets ignore those regulations) and through an information campaign regarding the cheap message inherent to products under supervision.


- Completing the amendment of the outdated Suari version for determination of upper limit profits.


- Requiring businesses - large suppliers and retailers – to report upon the profitability regarding the main products basket, in order to ensure that their profitability is reasonable; and in case those reports reveal any exaggeration, using regulatory measures such as price controls.


- Leading supervised brokerage fees on marketing chain of fruits and vegetables in order to lower their prices to the consumer and increase farmers' revenues.


The National Mission:

 

It is about time for us to lead in Israel a conceptual shift that will replace the concept which lies at the center of economic life - from "FRYER" (sucker) to FAIR; the extra R will be used to lead an educational, social and economic Reform based on the 11 principles of consumer's economics – fair economy.

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