Israel and the problem of inflation

Aha oni, Yai A icle Is ael and he p oblem o in la ion Sou h A ican Jou nal o Business Managemen P o ided in Coope a ion wi h: Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica Sugges ed Ci a ion: Aha oni, Yai (1982) : Is ael and he p oblem o in la ion, Sou h A ican Jou nal o Business Managemen , ISSN 2078-5976, A ican Online Scien i ic In o ma ion Sys ems (AOSIS), Cape Town, Vol. 13, Iss. 2, pp. 98-99, h ps://doi.o g/10.4102/sajbm. 13i2.1180 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/217800 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ 98 In many ways, his app oach o employ~~n ein ? c- ed he essen ially ibal na u e o ~e ~a 1c1pan s, smce he young men li ed in do ~1~ones an~ hos .els, seg ega ed by hei ibe o ongm; and m e - nbal disag eemen s we e no unusual. .. Recen ly, he mines ha e a emp ed o s ab1hze he wo k- o ce by encou aging pe manen employmen and by de eloping acili ies so ha amilies can li e oge he on he mines. Beyond ha , hey ha e in ol ed hemsel ~s in educa ional upg ading schemes o s a and hei amilies and hey ha e also made a emp s a in eg a ing he wo k- o ce, i espec i e o ibal a ilia ions. I is a slow, expensi e p ocess bu in he long e m i ~s seen by many execu i es as making economic and social sense. Oppo uni ies o ad ancemen a e being de eloped, ~u s ong esis ance is equen ly p esen ed by he whi e unions which in his indus y a e pa icula ly ecalci an o social change. When one conside s ha in 1980 o e 700 000 people we e employed in mining, o whom 900Jo we e black, i will be seen ha his indus y aces an eno - mous ask, i espec i e o he deg ee o sympa hy held by managemen o he concep o social and economic change amongs i s wo k o ce. Success in his a ea o Sou h A ica's economy ce ainly bodes well o he coun y a la ge; ailu e could poin o p oblems o ca aclysmic p opo ions. I ha e ied o summa ize o you he challenges which ace managemen in Sou h A ica as pionee s o social in- no a ion. I is e iden om my alk ha my hesis is ha he ype o socie y which businessmen and business academics in Sou h A ica wan , is one which is a leas simila o a capi alis socie y wi h i s concomi an ee en e p ise e hic. So managemen is bound o s ee change in he di ec ion o ee en e p ise. Gi en he p e ailing ci cums ances, pa icula ly black a i udes and go e nmen in ol emen in he economy, i is ques ionable whe he ee en e p ise is a ma ke able commodi y o he majo i y o he coun y's inhabi an s. In o de o ensu e ha he sys em can o e bene i s o he pa icipan s, i mus be jus , ai , colou blind and p o ide scope o equal oppo uni ies. Managemen 's majo ask hen is o ensu e change in he cons ain s ha exis a p esen -a bo h a mac o le el, and a mic o le el. I is e iden ha go e nmen - indeed mos whi es o ha ma e - esis he change which is so necessa y, and managemen 's ask is he e o e bo h as and complex. I has been said ha business alone canno make a socie y lou ish; I belie e hough, ha in Sou h A ica, wi hou business's in ol emen in socie y in he b oades sense, i will p og ess e y li le. Tha managemen has a ole o play in his ega d mus be unques ioned, and I do belie e ha managemen has al eady iden i ied and ackled some o he a eas whe e social and economic change is so necessa y. Bu o he good o Sou h A ican socie y, he e is s ill so much o be done. I is a once a bewilde ing, complex and ime- consuming ask, and a c i ical challenge. I would like o close by quo ing a p aye which Ma in Lu he King was won o use. I belie e ha i is a he ap . 'Lo d, we ain' wha we ough o be, we ain' wha we'd like o be, we ain' wha we gonna be, bu hank God we ain' wha we was.' S.-M . lyd,k . Hed y sl. 1982, 13(2) Is ael and he p oblem o in la- ion Vai Aha oni P o esso , Leon Recana i G adua e School o Business Adminis a ion, Tel-A i Uni e si y, Rama -A i , Tel-A i 69978, Is ael Talk deli e ed o s a and s uden s, G adua e School o Business Adminis a ion, Uni e si y o he Wi wa e s and, Johannesbu g, Sep embe 3, 1981 Is ael, al hough a small coun y, has big p oblems o which, aside om secu i y p oblems, in la ion is one o he mos pungen . Be o e elling you some hing abou how he business communi y in Is ael li es wi h he p o- blem o in la ion - a ew backg ound de ails on ends in h ee majo a eas: de ence expendi u e, he expansion o social se ices and economic g ow h. De ence expendi u e has been g owing exponen ially since 1973 a e a sho emission in he ea ly yea s o he se en ies. The Peace T ea y wi h Egyp has b ough no elie ; in ac expendi u e has inc eased o accommoda e he deploymen o he a my and ai po bases o new si es ou side he Sinai. Thi y- wo yea s ago, when he S a e o Is ael was es ablished, he amoun o money spen on social se ices was low. Since hen i has been inc easing in line wi h wo ld ends. Also, he e lux o ime coupled wi h good heal h se ices has changed he small p opo ion o popula ion a he uppe peak o he age py amid in o. a sizeable and inc easing segmen o ou socie y. Is aelis, like hei coun e pa s anywhe e else in he wo ld, make equen calls on he na ional heal h se ice, ~hich is apidly g owing mo e sophis ica ed, mo e eqmpmen - o ien ed and he e o e mo e cos ly. These ends a e he e o s ay. . . The high g ow h a e o IOOJo - 120Jo du ing ~he s1x ~es made possible he high le el o de ence and social se ice expendi u e. The wa cos Is ael he equi alen o he G oss Na ional P oduc o one yea , -plus an amou~ which s ill has o be paid. A he same ime, he e_con~mic condi ions we e d as ically a ec ed by ising 011 pnces. These p ices can be compa ed o a o eign ax on he economy, and like axes, canno be a oided. By he end o he se en ies, Is ael had changed o~ a 'wel a e' o an 'insu ance' s a e: e e ybody became in- su ed agains e e y calami y -loss o job, loss o p o i , mo emen o new jobs in new a eas -e e y hing. The s a e had aken on o i s own shoulde s he ask o p o ec- ing he whole popula ion agains he e ec s o change. As a esul Is ael is now le wi h e y li le oom o ' m manoeu e. E e ybody ag ees ha he go e nme should cu expendi u e, bu i is impossible o name any speci ic cu wi hou an ou c y om somebody. Democ a ic socie ies b eed a sense o en i lemen : he 'why-should-I-lose-ou ' synd ome. De ence cos s a 4007o o he o al budge a e high bu nobody belie es ~ey can be educed· o e ec e en small cu s in he social p o· ' · I s g amme demands a change in he law; and he soc1a c~ o la ge-scale unemploymen is conside ed o be oo high a p ice o pay o educing in la ion. The esul is ha he s. A . J. Bus. Mgm 1982, 13(2) go e nmen is hams ung when i comes o using he ools adi ionally applied o es ain in la ion wi h su icien o ce. In 1980, money supply inc eased by 9711/o and in la ion, which was abou 2511/o - 3011/o in he ea ly se en ies, each- ed l300Jo. This igu e e lec s an accele a ion in he a e o in la ion -an accele a ion pa ially caused by g ow- ing expec a ions. G ow h has declined, e en s opped, bu in la ion con inues o ise. Since some 500Jo o he p o- duc o he economy is excluded om ma ke o ces, i is mo e di icul o exe cise Keynesian- ype con ol. Unde condi ions o in la ion as ampan as hese, peo- ple end o bo ow like mad and spend wildly because hey expec p ices o con inue o ise. The go e nmen has eso ed o a ious de ices in an e o o change such expec a ions; o example, o he i s ime in 32 yea s he p ice o a commodi y, in his ins ance ele ision se s, was educed o e a ce ain pe iod, so ha people we e le wonde ing wha p ice would go down nex ; his made he public become mo e hesi an abou buying. P oblems acing he business manage High in la ion causes manage s h ee p oblems: Unce ain y. No one knows, o example, wha he p ice o goods will be in i e o eigh mon hs' ime, o he s a e o he o eign exchange ma ke , o in ac he s a e o any con ac which is conce ned wi h money alues. In o ma ion. The inancial accoun s o companies cease o make any sense a all wi h in la ion a 13011/o. People lose he eel o he meaning o cos . They a e on he c es o he Money Illusion -which makes i impossible o ap- p ecia e ei he he a e a which he cu ency is losing i s alue, o he p ac ical implica ions o he loss. A ha s age in Is ael, e en he axmen did no ecognize in la- ion, wi h he esul ha axpaye s paid ax on incomes ha did no exis . P oduc i i y. E icien managemen , p inciples o sound ma ke ing, and he impo ance o p oduc i i y a e s ill being augh , bu he business manage hinks only o one hing -money: collec oday, pay omo ow and bewa e he axman. Tha sums up his app oach o business. Time is a manage 's sca ces and mos impo an esou ce: i i is spen on collec ing money, o wo ying abou he axman, he e is jus no ime le o imp o ing p oduc i i y. The s a agems employed in money manipula ion a e a legion: bo ow a high in e es , show his as an expense, in es ax ee - he e is no end o i . The examples I ha e gi en you a e no anywhe e nea a ull accoun o he pe nicious e ec s o ampan p ice in- c ease. Lea ning o li e wi h in la ion In Is ael mo e and mo e companies mus no only wo k o educe in la ion, bu also o build sys ems ha will 99 enable hem o li e wi h i . This is achie ed h ough in- dexa ion. Fo example, conside lending R JOO o be epaid la e : he in e es mus be eal, no nominal, and e u n mus ake in o accoun he all in alue o he p in- cipal as well. In consequence he unce ain y caused by in la ion is aken ou o he ansac ion: he le el o in la- ion in x mon hs' ime is imma e ial - he lende will be compensa ed. Labou con ac s we e he i s o use indexa ion, and wages a e au oma ically indexed o he limi o 7011/o o he Cos o Li ing (COL) inc ease, a i s adjus ed e e y six mon hs. One good e ec has been an imp o emen in indus ial ela ions and he i ual elimina ion o s ike ac ion. Conside li e insu ance and bea in mind ha a mon hly sala y o IP 6 in 1939 could ha e become IP 100 in 1952, and IP 100,000 oday, o he same p o essional job. Li e insu ance should be dead in imes o high in la- ion. In ac i s opped ope a ing in he i ies; bu i has been e i ed wi h he in oduc ion o indexa ion. Li e insu ance companies could no o e indexed in- su ance wi hou he indexa ion o he asse side. Conse- quen ly, go e nmen was asked o issue long- e m bonds linked o he COL index. These bonds we e issued by he Elec ici y Company which could inc ease i s egula ed p ices wi h he in la ion. O he indexed bonds linked o speci ic p ices ( o example cemen ) we e issued. La e mos long- e m mo gages and bonds we e linked o COL. This may ha e complica ed accoun ing, bu on he c edi side, unce ain y has been eased: sa ings, which wi hou indexing would be ze o, s and a 20% o GNP - an imposing igu e compa ed wi h abou 70Jo in he Uni ed S a es o Ame ica. The numbe o linkages o his ype ha e inc eased and wi h he high in la ion o he se en ies, adjus men s ha e become mo e equen . Wages a e au oma ically adjus ed e e y h ee mon hs, no six, and hey migh be adjus ed e e y mon h i he p esen in la ion a e pe sis s. Bonds and mo gages a e adjus ed mon hly, social pensions, e e y h ee mon hs. O cou se he solu ion is no pe ec : he way hings a e going, one can lose money e en on a mon hly adjus men ; i is some imes a ques ion o days! La ge companies a e g adually being o ced by ci cum- s ances o p esen s a emen s adjus ed o he COL index. Pe sonal income ax is now indexed, and he p oblem o companies is being ackled h ough egula ions p o iding ha company ax be paid on one gene ally adjus ed s a e- men . Today, he majo dis o ion emains in he ields o e ailing and wholesaling: e aile s wi h high in en- o ies pay high e ec i e ax unde highly in la iona y condi ions. The Go e nmen , howe e , p oposed an in- la ion adjus ed ax law designed o elimina e his dis o - ion. To sum up, indexa ion allows a leas a pa ial solu ion o he h ee majo p oblems discussed abo e.