In the summer of 2011, three months after a Facebook page called “cottage protest” was created, nearly 500,000 people walked the streets of Israel screaming “the people want social justice”. It was the largest protest in the history of Israel, nothing as such has happen since. It was accompanied by three months of social havoc. Nearly 100 00 people built tents in their city’s parks and streets living there for two months, and doctors went on a strike. For three months the entire Israeli population, across cleavages and age groups, asked for more affordable-housing, lower commodities prices, and better wages. Why did it happen? Did it work? I am studying this riddle of the Israeli-economy and will explain one angle of it here.
Liberalizing cottage cheese
Let’s look at the context of the the cottage rebellion. Israel was founded on heavily social-democrat principles (1948), and in 2003 it underwent a critical juncture. In the midst of the second intifada, the government was drowning in debt and a new minister of treasury took the
reins reign: Benjamin Netanyahu. An Ivy-League economics graduate and believer in neo-classical theory, he privatized major government corporations such as Zim, refineries, Bezeq (communication), Discount Bank, and ELAL (national airline).
Furthermore, he cut state subsidies for children, people with disabilities, unemployed, and public employees by at least 4%. Finally, he changed the taxing regime, lowered market regulation, and privatized the employment bureau to placement companies. In two years, unemployment went from 13.3% to 7% and continued to decline until stabilizing at 4%. Government debt fell, real GDP doubled by 2017, and in 2010 Israel officially joined the OECD as one of its youngest members. Significantly, the hi-tech industry grew world famous, with Beer Sheva hosting the largest cyber security centre in the world. Jordan has a similar population but its GDP of $42 billion is far smaller than Israel’s $370 billion. With this kind of success, why fight over cottage cheese?
Cottage cheese and solidarity
Cottage cheese is an Israeli symbol, even when the country was young and poor, people had a coupon for cottage cheese – it’s in every family’s refrigerator, rich or poor. Netanyahu’s free-market reforms left many below the (relative) poverty line. With less government regulation on employment, many people became contractors without rights, and their income didn’t increase nearly as fast as living costs [pdf]. Worse, the number of employed people in poverty line is still growing.
With reforms aimed at minimizing market intervention, monopolies emerged; in 2011 Tnuva (dairy products) controlled over 53% of the dairy market, prices increased accordingly [pdf]. The OECD report for 2011 and 2013 stressed the lack of competition in the economy, and declining education scores. Further, it discussed the fact the housing market demands more supervision and increased supply. Due to political incentives and the specific characteristics of minorities, only 50% of the Israeli population pays taxes, and the orthodox community doesn’t participate in mandatory service. Finally, Israel is in the bottom 10 OECD countries in terms of investment in healthcare.
Bottom Line: Eight years after the reforms of 2003, adults realized that their respected jobs, national service, tax paying, education did not give them enough money left over to buy cottage cheese. One person opened a Facebook page, and so started the cottage spring. The protest ended with a special governmental inquisitor committee, it published recommendations; policies were created, but never really applied. The momentum was lost, but struggle continues.
* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).