The daily newspaper
headlines ring out, "Sharon Gets Questionable Loan." Israeli television news
tells us, "Former Prime Minister Barak Investigated For Phony Organizations."
The radio blasts, "Knesset Members Accused Of Double Voting." Israeli Internet
sites let us know that, "Former Knesset Member investigated for bribery during
primaries." Well, they're politicians, so what do you expect?
Email Ariel Natan Pasko
Then every so often the Central Bureau of Statistics reminds us that the
heads of companies in Israel -- including state owned companies -- are making
gosh awful lots of money. But who cares?
The workers at the Electric and Water companies are the highest paid salaried
workers in Israel -- about twice the national average and three times the
salary of teachers -- and they are public regulated utilities. Don't forget
that the workers at Israel Electric Corp. also get free, unlimited electricity
to boot. Now you know why electricity prices keep rising in Israel.
But hey, they're unionized!
Speaking of unions, Israel's large trade union -- the Histadrut -- has been
threatening a general strike for several months already, due to the Israeli
government's economic reform plan. Recently Finance Minister Netanyahu proposed
introducing legislation that would require any strike action be brought before
the union membership for a vote before being initiated, as is standard in
the US and elsewhere. Well, Histadrut head Amir Peretz in typical demagogic
fashion went on television and screamed how Netanyahu was trying to break
the union. It made a lot of news for a couple days. And then, on Israel TV's
show, "Politika," a Likud Knesset member read the Histadrut by-laws that
clearly said that any strike action needs to be approved by the membership
through a vote. Israel's trade union -- for decades connected to the Labor
Party -- has never been observing its own rules.
Industrial democracy in Israel is a farce. A small clique of oligarchs have
run the union from the start, making the decision to strike or not, to accept
the terms of a new agreement or not, as if it was their private fiefdom,
without the workers', i.e. members' permission. A general strike, by the
way, would cause major damage to Israel's economy. Israel for decades has
had one of the highest number of annual strike days in the world. It's estimated
that the threatened strike could cost the economy 2.5 billion shekels/day
(that's about $550 million/day).
But who's counting?
Certainly not the Bank of Israel, according to a senior bank official's recent
"leak" ahead of a Finance Ministry report on central bank wage practices.
Details of payments and bonuses for central bank staffers are generally difficult
to acquire due to the bank's practice of obfuscation over employment conditions.
For example, it was learned the Governor of the Bank of Israel, David Klein,
received an "efficiency bonus" of some 80,000 shekels in 2000, his first
year heading the central bank, for his work as a senior official the previous
year. The issue of "efficiency" bonuses has recently been a hot topic, and
it has even reached the labor courts due to the annulment of the bonus, which
was paid quarterly to bank workers, by the Finance Ministry's Wages Director
Yuval Rachlevsky. Senior bank employees are among the best paid in the public
sector; they received an average efficiency bonus of 64,000 shekels a year
until mid-2002, when Rachlevsky put an end to the practice. Senior bank staffers
also get a company car, which they are free to use for their personal use.
However, they are also paid a monthly "car maintenance" fee for the vehicle's
upkeep. Such a payment is usually made to civil servants who have to use
their own vehicles for work purposes. It's just another perk at the Bank
of Israel, I guess.
There isn't just scandal at the national political level in Israel, but in
local politics as well. A new 22-page report, issued by the Finance Ministry,
accuses the Jerusalem Municipality of overpaying at least 80 senior employees
millions of shekels/month, in contravention of the law and past agreements
with the Treasury. The newly elected mayor has appointed six deputies at
the enormous monthly salary of 40,000 shekels each. Under public pressure,
because of a growing budget deficit and a planned 3% property tax hike, the
Jerusalem Municipality spokesman recently announced that a planned 5% cut
in the salaries of the deputy mayors would be carried out. But a 5% wage
cut would leave them with a monthly salary of 38,000 shekels, five and a
half times the average wage in Israel. This, at a time when there is near-record
unemployment, a long recession, and serious national government budget cuts.
Don't worry, later it was learned that the deputy mayors turned the proposal
All this is the "norm" in Israel. Distorted wage levels, massive perks, breaking
rules; sounds to me like a third-world country. Israel as I've said many
times before, is NOT an information society. Although politically democratic,
with a mixed economy leaning further and further toward free enterprise,
Israel lacks a culture of transparency and accountability. This inability
to find out information leads to cronyism -- in Israel called "protectzia"
-- protection. For example, someone has a friend, who "knows" someone else
that can get you a job. No public tender for the position in a local government
office, no need to "apply" and take tests for civil service, just go meet
A couple of years ago, I was reading something and came across a description
of the British civil service's bureaucratic culture. The operative phrase
was, "need to know." That is, give out as little information as possible
to the public or other levels of the bureaucracy, or even limit information
to politicians. Share information only on a "need to know" basis. Suddenly,
I realized, many of the "Israeli evils" were in fact probably leftovers from
the British Mandate days, that ubiquitous "Israeli mentality." Where else
would Israel have learned bureaucratic culture, if not from the British Mandate
Oh yes, most immigrants to the mandate or later Israel, until at least the
1960's, were either from Eastern Europe -- Soviet Russia, Poland, Romania,
etc. -- or, the Arab Middle East and North Africa, also not great bastions
of democracy and transparency. The culture of corruption in Israel, is probably
not due to some "genetic" weakness of Israelis, but has a lot to due with
a lack of transparent institutions and accountability.
Now for the reason that I decided to write this article...
Breezing through the news recently, I read an article on "corruption" in
the non-profit sector. What disappoints me is that these are the people who
provide vital non-governmental health, education, and welfare services. These
are the organizations that help the weak, but are getting fat by doing so.
The article, based on a leaked Interior Ministry report, described the exaggerated
salaries of the top officials in the non-profit sector. The Efrati Committee
completed this report almost a year ago. And to make maters worse, it's been
presented to Interior Minister Avraham Poraz -- from the Shinui Party --
whose free market and clean government election campaign, seems a distant
memory. Poraz hasn't done anything to implement the recommendations of the
report yet. Surprised?
There are about 13,000 Non-Profit Organizations (NPOs) or Non Governmental
Organizations (NGOs) in Israel. In some, salaries of the three top officials
make up 50% of total expenditures. In the majority of organizations, the
report said, salaries make up about 80% of expenses. Anyone familiar with
business, the non-profit sector, and economy in modern western democracies
today, should realize that this is flagrant theft. People donate money to
organizations to help the poor, to further social or ideological goals --
like environmental protection or Cancer research -- not to line the pockets
of top management. The Efrati Committee document recommended that organizational
overheads should constitute only between 7 to 20 percent of total expenditures,
thus the vast majority of donations would be to further the purposes of the
organization. Public monies from tax revenue are also being misused, since
some NPOs receive state funds in addition to private donations.
To better understand the next section, assume a shekel-dollar conversion rate of about 4.5 to 1.
While the average salary in Israel -- now about 7,000 shekels/month -- has
been falling for at least a year due to the recession, the government in
its budget-balancing "cut-and-slash" reform plan has been cutting social
welfare transfer payments to the weakest sectors of society -- who live on
1,500-3,500 shekels/month. At the same time, the top employees at hospitals,
think-tanks, women's organizations, organizations to help the handicapped
(soldiers and elderly), Yeshivas -- rabbinical seminaries -- and Kibbutz
educational centers are earning 35,000-130,000 shekels/month - an average
of 50-70,000 shekels/month -- or about 5 to 20 times the average wage in
Israel, and as much as 20 to 90 times as much as the poor for whom they collect
money to help (at least the corruption is universal). Something sounds desperately
Certainly, transparent reporting to the public would have helped prevent
these outrages. Who would donate money to an organization, where you know
that the head earns 63,000 shekels/month -- that's over 750,000 shekels in
a year -- and the three top officials make up 50% of the organization's total
expenses? I know I wouldn't.
In all fairness, this type of over-inflated salary issue occurs in other
places also. Several years ago, the head of the United Way, a huge charitable
organization in the US, had to step down after his excessively high salary
was made public. And just recently, the top official of the New York Stock
Exchange quit after his extortionately high salary was discovered. But in
general, these are exceptions rather than the rule. By the way, none of the
Israeli directors are quitting or apologizing or retuning the money.
Israel, in this regard, is a good 30 years behind America in this element
of non-profit management. High salaries and operating expenses that ate up
most of the donor money were common in America in former days, but with the
explosion of competition in the "social sector" in the last couple of decades,
organizations have had to become more efficient in their delivery of services.
Transparent accounting has contributed to this. Big donors today are more
involved than ever, with the organizations they contribute to, and they don't
want to "waste" their money. Non-profits in America today are run much more
like a business; they "compete" for donor money, trying to prove how small
a percentage is used for salaries, general office and running expenses. They've
learned to uses their resources more efficiently. Top non-profit organizations
today in America claim to put upwards of 90% of their operating budget directly
into providing the aid and services they exist for. Contrast that with Israeli
NPOs, who spend 80% of their budget on salaries. Rather than provide services,
they provide fat-cat jobs to the privileged few.
If Israel wants to enter the 21st century of developed nations, democratic,
freedom-loving with free economies, it has to reform itself.
FM Netanyahu is on track when he talks about legislation guaranteeing the
democratization of the Histadrut. Imagine if Israel hadn't been shackled
with strikes for decades, how much larger the economy would have grown. And
Netanyahu's economic reform plan, that includes trimming social welfare benefits
and the public sector, in general is surely needed.
But when people are receiving less social welfare benefits from the government,
the social sector, NPOs, need to pick up the slack. Israeli NPOs aren't doing
anything wrong, according to Israel's culture of corruption, but to meet
the demands that will be put on them in the years to come, they will need
to reform. Cutting fat-cat salaries and increasing the use of volunteer labor,
to enable them to devote larger percentages to delivery of services, is just
one element toward greater efficiency.
Israeli opinion leaders, whether in politics, business, sports, the arts,
and yes the non-profit sector, must change their behavior. Trustfulness,
not lies and deception; accountability, not flight from responsibility; openness
and transparency, not secretiveness; maybe even modesty rather than extravagance,
must become the norms of Israeli society. In areas like business, where new
wealth is created, there is some room for higher salaries, but in the public
and social sectors, where there is no economic productivity, how can they
It's true that the US and European business worlds have been shaken lately
with financial accounting scandals, such as WorldCom, Enron, Vivendi, and
Parmalat, but again these are exceptions. Look at how serious US President
Bush, American legislators, academia, and the media have criticized the situation.
Attempts to root-out that type of behavior have engulfed America. Political
and financial scandals occur the world over, but why so often in Israel?
A couple sparks of light in the darkness...
As of January 1st, Israeli banks will have to -- by law -- inform customers
of most banking charges they will incur for an action before it is executed.
That is, transparency in their service charges. Imagine, until now banks
didn't legally have to provide customers with a list of charges for different
transactions, or inform them of the reason for the cost, the exact sum, how
it was calculated, and the date of their payment. It's a small victory for
accountability and consumer protection.
And, there is a small but growing trend in corporate Israel toward social
responsibility. Israeli private companies are beginning to get into community
and philanthropic activities. Hopefully this trend will continue and grow.
It might even eventually impact on how NPOs are managed.
Israel must reform itself until scandal and corruption are an exception like
elsewhere, not the way things are done. Lack of transparency and accountability,
and rampant corruption in business and public life must not be ignored, tolerated,
or worse, quietly praised, for someone's ability "to get more for himself
Success in the modern global economy requires reform, stability in Israel's
society necessitates reform, and Jewish ethics and tradition demand reforming
Israel's "Culture of Corruption."
Ariel Natan Pasko is an independent analyst & consultant. His articles can be read at: www.geocities.com/ariel_natan_pasko.
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