The Social Economy of Israel - 1995

The Social Economy of Israel - 1995

By Zvi GALOR

www.coopgalor.com

1. Introduction

The social economy (1) existing in Israel in 1995 has changed and is very much different than what has existed in the past. The first Jewish cooperatives have been established during the last decade of the 19th century, when this country was still colonized by the Ottoman Empire. The first Kibbutz Degania has also been established under this rule. The other important cooperative realizations, such as the Moshav, the Histadrut, the public transport cooperatives, the saving and credit cooperatives, the consumers cooperatives, the producers cooperatives, the social and economic enterprises of the Histadrut, have been established during the british colonial mandate on Palestine up to 1948.

The situation today is not the same. The cooperative movement in Israel is crossing a very torment and very difficult period, during which many "sacred cows" have found their way to the slaughtering house of history. It will be interesting to prepare the actual inventory, and trying to find out why the present cooperatives still exist, and how they exist.

I will try to examine in this text some of the existing cooperatives, according to criteria belonging to the cooperative world. It will be good to survey, first of all, the existing cooperatives in Israel in 1995. In the level of primary cooperatives, there exist the public transport cooperatives, as EGGED and DAN. The first is serving the all national territory of Israel, and the second is operating in the region of Tel Aviv. The consumer cooperatives are all over the country. These cooperatives are very successful from business point of view, but they are no more cooperatives, according to the criteria which will be presented later. There are no more saving and credit cooperatives in Israel, except those functioning in the Moshavim, on operational basis completely different than those of WOCCU, and with lot of success. The housing cooperatives do not exist any more. The producers cooperatives have almost disappeared. The Moshav and the Kibbutz, the international well-known symbols of cooperatives in Israel, do exist, but are crossing very difficult years now-a-days.

2. The Social Economy in Israel - general view.

We understand that the situation of the Social Economy in Israel today is different than what it was. It is important to view what it was during decades, since the beginning of the century, in order to be able to analyse it today.

The Histadrut - the General Organization of Labour in Israel represents a different approach to trade unions, than that existing in most countries in the world. In most countries, the wage earners are those who are organized in trade unions. Practically, only minority of them organized. The trade unions, in general, are organized in federations, and sometimes in central trade union congress. The members pay dues to their unions, and the unions at their turn pay to the federation to which they are affiliated.

The Histadrut is different in the sense that members pay their dues directly to the Histadrut. This situation enables wage-earners as well as independent workers to become members of it. The Histadrut is financing the activities of the trade unions.

We understand of course that the particularity of the Histadrut is that not all members of this organizing are wage-earners, and the Histadrut has among its members as well independent workers, members of cooperatives, and also unemployed.

The Histadrut can be described as a table which has four legs. Each leg represents another activity of Histadrut namely: the trade unions activities, the social security and health care, education and culture, and workers' economy. The major distinction between the Histadrut and T.U. in the world, is that trade unions put lot of emphasis on their bargaining activities, when they are trying to enhance the interests of their members. The traditional way - the bargaining activity way is very important, but its efficiency is very limited in many countries across the globe. One of the main problems of trade unions is the low rate of affiliation of potential members. The non-bargaining activity way may give better results to existing membership of trade unions, and may bring more workers to join the union.

We just spoke about the four legs of Histadrut. The trade union departments of Histadrut is doing its activities as any other trade union department else where. So, it will be useful to go over the other three legs.

The education and culture: The Histadrut used to supply education through a network of educational institutions. Prior to the independence of the state of Israel, the Histadrut has established a network of primary and secondary schools all around the country. These schools have been transferred to the state after independence. But other educational institutions remained in the hands of Histadrut, such as the professional schools of AMAL and the MISHLAV schools by correspondence, for those drop-out youth of the formal system who wished to complete their education. The Histadrut runs many centers for workers' education, as well as daily newspaper, publishing house, and many community centers.

The social security: the Histadrut had a system of rendering social services, from which members benefited for nothing. The Kupat-Holim (the Sick-Fund) is the biggest sick-fund in Israel. The members of Histadrut and their families have the right to get complete medical care freely. Kupat-Holim has more than 1200 community clinics all around the country. These clinics have general practitioners as well as specialists, pharmacies, and laboratories. Kupat-Holim has 16 hospitals all around the country, 17 rest houses, 110 dental clinics, 133 regional medical centers, and all medical care including medicines were free of charge, or at very symbolic payments. (2) Today the Israeli parliament has approved the law of medical treatment for every citizen, then the need to be a member of Histadrut has decreased tremendously, since every one pays the state a monthly payment for his medical insurance. From almost two millions members, the Histadrut counted in April 1995 around 540000 members, who regularity pay their dues. This number of membership is not definitive, and the future of Histadrut will be determined by its capacity to maintain and to increase the number of active members.

This part of the Histadrut embraced 7 pension funds, 11 old age centers. The pension funds today are in a state of actuary crisis, a situation which is similar to that of some western european countries. This situation is caused by the changing and prolonged life expectancy of the total population, as well as those who benefit of pension, the inability of the actual generation to cover with their payments these financial needs, and also the inability of efficient management. There exists a solution signed between the government and the Histadrut to overcome this problem, but it is still obvious that the situation is a nightmare to the government. Workers' Economy: The Workers' Economy sector has included cooperative enterprises belonging to their members, and trade unions' enterprises belonging to the Histadrut, as well as to different trade unions and to workers committees. The enterprises belonging to workers committees are a special particularity of labour in Israel, and still have successful existence in 1995.

The Workers' Economy has put together 25% of all industries in Israel. In the beginning of the eighties 86% of the agricultural production came from rural cooperatives such as the Moshav and the Kibbutz and the Moshav Shitufi. More than that, 36% of the banking system of Israel belonged to Histadrut, as well as 20% of the construction industry, 29% of the insurance sector, and 96% of the public transportation were enterprises of the Histadrut. Bank Hapoalim, the Workers' Bank in hebrew, is the biggest bank in Israel, but today it does not belong to the Histadrut anymore. Hassneh was the biggest insurance company in Israel. During 1993 this company has bankrupt and does not exist any more. Shikun Ovdim was an housing company, and Solel Boneh, the biggest construction company, were unified in order to save Solel Boneh from bankruptcy. The Histadrut is trying now to sell this company. Koor was the largest industrial complex in Israel. During the second half of the eighties Koor crossed a very serious economic crisis. Different management saved Koor, but it is no more in the hands of the Histadrut, and today, although Koor belongs to private owners, it became once again the most successful Israeli industrial complex. We shall discuss the cooperatives in next parts of the paper.

3. The cooperatives in Israel - 1995

The majority of cooperatives in Israel are in the framework of the workers' economy of the Histadrut. These cooperatives can be classified according to different criteria. We have the rural cooperative such as the Moshav, the Moshav Shitoufi or the Kibbutz, and the urban cooperatives, such as the consumers' cooperatives, the producers' cooperatives, the transport cooperatives, and the public transport cooperatives. We have the simple function rural cooperatives like the irrigation cooperatives, or the multi-purpose cooperatives such as the Moshav and the Kibbutz. We have primary cooperatives such as the Moshav or the Kibbutz or the public transport cooperatives, and the secondary cooperatives such as Tnouva the marketing cooperative, or Hamashbir Hamercazi the supply of inputs cooperative, both belonging to the Moshavim and the Kibbutzim in Israel. There are also tertiary cooperatives such as the Federation of Moshavim, or the Federation of Kibbutzim, both for rural cooperatives, and the federation of consumers cooperatives, and that of producers cooperatives, both in the urban areas.

Table

no.1:

the situation of the cooperatives in Israel 1995 is degraded considerably. There are almost no new cooperatives established. On the contrary, the number of cooperatives decrease gradually during the last 25 years. Table no. 2 describes this situation.

Table no. 2 (3):

We observe a continuous decline in number of cooperatives, and at same time decline in number of active members, as well as decline in value of cooperatives fixed assets belonging to members, and at the same time to a situation where the total value of cooperatives' fixed assets is permanently increased. Why is the situation deteriorating? We are going to try to respond to these questions in the coming pages. We shall start by tracing a list of variables according to which we shall examine the cooperatives in Israel in 1995.

3.1 The variables to be examined.

3.1.1 The fixed assets of the cooperative.

A. The first question to be asked is to whom does belong the cooperative. Usually. many people in the cooperative world will answer that the cooperatives belong to their members. The point of departure to our discussion is the assumption that an enterprise belongs to its owners. We observe that in most cooperatives in the world the fixed assets do not belong to members, and the value of the fixed assets is not expressed in the value of members shares. This situation results from historical circumstances in the thinking of the fathers of the western cooperative movement.

The share capital in the cooperative is the basis and the foundation of this enterprise. Unfortunately, this notion is understood in different ways in different countries, which leads cooperatives to practice of some mistakes, and as a consequence, to failure. In this text the approach is that the share of each member in the cooperative is of equal value, and the value of all shares capital is exactly the value of the total fixed assets of the cooperative. There is another approach, extended all over the world, which explains that each share capital has a very minimal financial value, and is kept in its nominal value all along the life of the cooperative. The combined value of members shares is very minimal, and represents a very small portion of total value of the fixed assets of the cooperative. To whom, practically, does belong the rest of the value of the fixed assets of the cooperative. The answer to this question, by those who support the approach recommended by ICA, is not very clear.

B. Another factor interferes here. Do we need to remunerate the share capital in the cooperative. The cooperative world's answer is affirmative. It adds that the remuneration should be limited. Those who favor this approach do not consider the fact that practically, by this decision, they discourage self financing of the cooperative by its members, (which is the cheapest way to mobilize necessary funds,) and encourage, by so doing, financing from external sources, most of the time very expensive to the cooperative. Remunerating the share capital of members, generally funded from the surplus money, means taking money from members who participated more in the economic activities of the cooperative, to recompense low participation of other members in the cooperative. The approach which will be expressed here is that share capital should remain in their real value, but should never be remunerated.

C. Another very important point in the cooperative concerns the legal reserve fund, required authoritatively by different cooperative legislation around the globe. We need first to understand what is this reserve fund, and especially for which purpose it is saved. Many of the available explanations for the reserve fund, is that it is destined to support the cooperative in case of economic disaster. Economic difficulties occur, either when the fixed assets of the cooperative have been damaged, for various reasons, and the cooperative will utilize the funds from the reserve for repairing the damages, or when the financial year has ended with deficit, and the cooperative utilizes the reserve fund to cover it. In both cases we face the same problem: where does the money of the reserve funds come from? The legislation in many countries, and the practice in most cooperatives in the world, show us that the money for the reserve fund is subtracted out of the annual surplus of the cooperative.