The Caesarea Economic Policy Planning Forum, Special Winter Session (2008)

In advance of the Israel Democracy Institute’s Caesarea Forum, a team headed by Adv. Tali Yaron-Eldar, Israel Makov, Prof. Zvi Eckstein, and other participants,examined the relations between the public sector and the business sector. At the beginning of the report, its authors note that it is vital to develop a proper business culture in order to ensure the continued prosperity of the Israeli economy. They call upon managerial echelons in leading companies and government authorities to work towards the promotion of openness, honesty, and fairness in the relations, as well as meeting commitments and honoring agreements. Both sectors are enjoined to adopt a binding ethical code that will guide them in conducting their daily affairs. “Practical steps should be taken in the companies and authorities to promote cooperation and ensure the institutionalized inculcation of these values for joint activity.”

In recent years, the business sector’s share of economic activity has been rising, along with a drop in the state’s participation in the economy as a manufacturing element. In conjunction with this, the government’s importance has risen as a supervisory and regulatory agency for the economy. These changes require a reexamination of the relations between the public and business sectors. The first part of the report deals with the necessary changes in the governmental supervisory system, which serves as a key interface between the two sectors, and its second part addresses the problematic bureaucratic system in Israel. Western states have carried out widespread reforms in both these realms in the past decade, and Israel must carry out appropriate changes in order to stand on an equal footing with these states.

The Forum’s preparatory team recommends forming a task force for coordinating regulation and removing economic barriers in Israel. The team points at the vital need to develop a proper business culture in the public and private sectors in order to ensure the continued prosperity of the Israeli economy. In addition, supervisory agencies are called upon to publicize their policies in a fuller and clearer manner, to increase coordination between them, and institutionalize their consultation with the public. The report also refers to recently published data by the World Bank on the bureaucratic system, which shows that Israel has dropped in ranking to the 29th place; it notes that in some parameters, Israel is placed far behind Western countries: 102nd place in enforcing contracts, 109th in licensing and 152nd in registering property.

A.  Main recommendations for necessary changes in the governmental supervision system:

• Implementing a coordinated and agreed-upon supervision policy. In light of the large number of supervisory authorities and their different functions, binding operative principles are presented that will guide the work of all supervisors, and will increase the confidence in the system and its stability. These principles include, first and foremost, transparency and accountability. In addition, it is necessary to increase the coordination between the different regulators, to institutionalize consultation between the regulators and all interested parties, and to ensure that regulations are publicized in a clear manner that will assist in their full inculcation.
  
• Increasing professionalism and transparency in the conduct of supervisory agencies. A board should be appointed for every supervisory agency that is not a government ministry, which will engage in outlining the authority’s overall policy and supervise its implementation. In addition, all supervisory agencies should publish their annual supervision policy on a regular and complete basis, as well as their current decisions and execution of the latter in keeping with policy.
  
• Adopting a process for examining regulatory impact (RIA). Many Western countries currently make use of the Regulatory Impact Analysis (RIA) method, which examines governmental regulation from the aspects of cost and benefit to the economy. In Israel, however, no such obligation exists, and the main criterion here is budgetary cost. However, at times a regulatory decision of low budgetary cost bears considerable cost (or benefit) to the economy, which is split up one way or another between manufacturers and consumers, and no such examination is carried out.
  
• Forming a task force on regulation in the Prime Minister’s Office. The task force will be made up of public figures and professionals, and will serve at the very least as an advisory body in the Prime Minister’s Office. The task force will examine broad-based and essential issues that are under governmental supervision, and will propose to its superiors ways of improving regulation and needed reforms in light of the supervisory principles. The activity of the task force and the use of the RIA process must be accompanied by full commitment by the political echelon to a comprehensive reform in this area.
  
• It is also recommended to form additional agencies that will operate according to a self-regulation format.
  

B.  Recommendations on the bureaucratic system, which serves as another important point of interface between the two sectors.

• Increasing the use of electronic systems and setting up unified interfaces for the different government authorities. The government must expand the use of electronic and Internet-based interfaces between it and the business sector and citizens, and promote the computerization of services as a main government objective. The use of electronic services should be promoted, while maintaining a uniform platform for all government authorities, and taking into account the needs of the business community. In addition, steps should be taken to create unified (“one stop shop”) points of interface, physical or computerized, that will consolidate all the requirements for the quick completion of the process of working with various government authorities, such as establishing a new business or construction-related ventures. As of now, the number of procedures required in Israel for establishing a business is similar to the average in OECD states, but the length of time required is very high: 34 days versus 15 days in the most highly-developed countries.
  
• Setting clear time limits on actions of the bureaucratic system. For the purpose of more efficient functioning of the bureaucratic system, clear time limits should be imposed on its activity, and a policy of “silence as acquiescence” should be exercised wherever possible. Along with this, steps should be taken to give incentives to government units and to the private sector to simplify and streamline bureaucratic activity.
  
• Increasing use of arbitration and mediation. The use of arbitration and mediation procedures should be increased among companies and between companies and individuals, and these procedures should be used as much as possible between companies and the state. The state should give incentives for use of mediators, and should consider employing non-professional judges in the judicial system.
  
• The companies and individuals making up the business sector should make a greater effort to increase the trust and cooperation in the system. The disclosure and transparency employed in the relationship with the public sector should be increased, and comprehensive self-enforcement programs should be adopted in coordination with the supervisors.

In the appendix to the report, main data are presented from the World Bank report on the bureaucratic system in countries around the world (“Doing Business 2008”). In an international comparison, Israel is ranked in 29th place, down from 26th place last year (of 178 countries). The report presents a varied picture: In three of ten categories, Israel is ranked (favorably) in the leading ten countries in the world: Getting credit, protecting investors and international trade. In three categories, conversely, Israel is placed in a very low ranking: Registering property – 152nd place in the world; dealing with licenses – 109th place; and enforcing contracts – 102nd place.

• Registering property: In this section, the transfer of land and buildings from seller to buyer is measured. In Israel, seven procedures are required for registering a property, as opposed to five in the OECD states, but the average length of time in Israel per procedure is 144 days as opposed to 28 days in the OECD. A procedure that is of unusual length is obtaining payment authorizations in the area of land taxes. According to the report, this procedure takes 130 days.
  
• Dealing with licenses: This parameter measures all the licenses and authorizations that a developer requires in order to build a warehouse and connect it to infrastructure. In Israel, 20 procedures and 235 days are needed for building a warehouse. This is compared to 14 procedures and 153 days required in OECD states. The cost of registration in Israel constitutes 115% of per-capita income, as opposed to 62.18% in OECD states.
  
• Enforcing contracts: In Israel, it takes twice as much time to settle a standard commercial claim than in OECD states. The number of required legal procedures is similar, 35 in Israel versus about 31 in the OECD, but the average length of time from the moment of filing the claim until payment is received is 890 days in Israel versus 443.29 in the OECD states.