Tag: ייבוא

We recently purchased a new refrigerator. When I placed the order, I also requested the removal of the old refrigerator. When the movers arrived, they looked at the old refrigerator and decided it was larger than the new one, and therefore they were entitled to an additional charge. This was completely absurd. Part of the reason for replacing the refrigerator was our desire to get a larger one than the old one. There wasn't even one dimension: height, width, or depth, that the new refrigerator wasn't larger than the old one. I knew this because I had measured countless times to ensure it would fit in the kitchen niche. So, I did not pay the extra charge, and because of the unpleasant incident, I also refrained from tipping. A blessing in disguise. The discussion about the refrigerator dimensions led me to examine the specification stickers of the old and new refrigerators:

On the right is the new 632-liter Samsung refrigerator. On the left is a 500-liter Crystal Industries (Amcor brand) refrigerator. The Samsung refrigerator is about 20% larger (shout-out to the movers), but take note of each refrigerator’s power consumption. The larger Samsung consumes 150W, while the Crystal consumes 300W. It is both smaller and requires more electricity. The ratio of capacity to power consumption is about 0.6 watts per liter for the Crystal and about 0.24 watts per liter for the Samsung. In other words, relative to size, the Samsung refrigerator consumes less than half the electricity of the Crystal refrigerator. In monetary terms, this translates to savings of about 300–400 shekels per year (depending on how long the refrigerator door is open).

How does all this relate to the stock market?

The two refrigerators show us two types of efficiency that have occurred since 2008, when the older refrigerator was purchased:

Technological optimization

As time goes by, technology improves and things work more efficiently. In the field of refrigerators, for example, they have learned to build compressors that can change their speed (inverters) instead of the previous generation that only knew how to turn on or off. Improved materials engineering has enabled better insulation. New refrigerants allow reaching the same temperature with less energy, and more. In the field of refrigerators, we have seen an improvement of about double. In other fields, the improvements are incomparably larger. When I was a child, for my father to correspond with his brother who lived in the U.S., he had to send a letter, and it was both relatively expensive and took about a week to arrive. Long-distance phone calls were limited to people much wealthier than us. Today, an email reaches the U.S. instantly at zero cost, and a phone call, whether on a regular phone or via WhatsApp, costs almost nothing, even if you make a video call. We could continue with these examples and more.

Business Efficiency

The old refrigerator was manufactured in Israel. There may have been an economic justification for this in the past. I doubt it. If the refrigerators manufactured in Israel had better technology and cost-effectiveness than refrigerators from other parts of the world, Israel would be exporting refrigerators. The fact that only Israeli citizens bought refrigerators made in Israel shows that these refrigerators likely didn't have a competitive advantage (a combination of quality and price). Assuming I was rational in 2008 as well, I assume that Amcor refrigerators made in Afula were superior. This likely happened due to tariffs or the prevention of imports in various ways, as was customary in the past. The discussion about preventing imports or giving local manufacturers an advantage through tariffs that make imports more difficult is a long one. Intuitively, people hear about, for example, 300 workers in a refrigerator factory in Afula who would lose their jobs if Samsung refrigerators from Thailand replaced Amcor refrigerators from Afula. In practice, the result of preventing imports is usually that all citizens live at a lower standard of living than they could have (they receive inferior products in terms of quality/price), and the less obvious result is that even the workers we supposedly wanted to protect live at a lower standard of living – when you produce a product that has no right to exist without protection, you usually receive lower wages on the one hand and still pay a higher price for that same product (or other protected products). Of course, there may be certain individuals for whom the shock of layoffs would be difficult to handle, but the goal of economic management is to maximize general welfare. Not the welfare of one individual or another, whether they are a tycoon or a laborer. Historically, we can see that many things we greatly feared, such as widespread unemployment due to the free import of footwear and clothing, and consequently the closure of small factories that provided a lot of low-wage work in the periphery, did not lead to unemployment in Israel. We were left with very low unemployment, but with a much greater welfare for all citizens.

As an interesting anecdote, refrigeration in the Jezreel Valley actually expanded rather than contracted. Instead of the Amcor factory, which likely had no advantage for Israel in producing home refrigerators compared to Thailand, there is the Ricor company in Kibbutz Ein Harod. This company produces refrigerators in which Israel has a significant advantage: miniature refrigerators that don't cool to minus 10 degrees like a home refrigerator, but to tens of degrees below zero. These refrigerators are used in thermal night vision equipment. They represent the pinnacle of Israeli engineering in miniaturization and efficiency (when a soldier carries your "refrigerator" on their back, it's better if the battery is small). If we assume that the Israeli worker switched from producing home refrigerators in Afula to producing high-tech refrigerators in Ein Harod, it's clear that her contribution to the product increased, and accordingly, general welfare significantly increased (more tax revenue), and she can also be paid a much higher salary. This is, as mentioned, alongside the fact that she herself, her extended family, her neighbors, etc., can buy a cheaper refrigerator for their homes.

Efficiency in general makes everyone earn more and naturally leads to a rise in stock prices on the stock exchange. Stock prices do not rise continuously because there are always additional forces, and therefore it is an average rise over time with local volatility.

Footnote

Articles of this type often include comments like "You have no heart" or "Not everything needs to be measured with a fine-tooth comb," etc. These are recurring criticisms of Economists. In practice, an economist is not coincidentally in the same academic department as social work. They both strive for the exact same goal – improving the welfare of all people in society. The means are different, the goal is the same. I admit that when you see an advertisement like this from the sixties (starring the late Arik Einstein):

If you want some more of this good stuff

It triggers a wave of nostalgia and a desire to return to those good old days when life was supposedly simple, people went to the factory, worked, came home in the evening, and lived a reasonable life.

Reminder: In the sixties, and often in the eighties, there were cars without air conditioning. Many apartments also lacked elevators and air conditioning. People also smoked on buses without air conditioning. The idea of a car for every worker (family) sounded like a joke. Nobody really wants to live like they used to. Anyone willing to live like they used to with "only" today's average salary would achieve financial prosperity beyond their imagination. The idea of preserving domestic production of something usually stems from habit. Most of us don't want Israeli-made cars like in the sixties because we are not used to Israeli-made cars. We also don't aspire to Israeli-made televisions like there were in my parents' home (Silora). Again, it's a matter of habit. It's good for countries to produce the things they are most efficient at. As a wealthy country, we will never be the most efficient at things that require a lot of unsophisticated manual labor. On the other hand, as an educated country, if we preserve this, we can always be leaders in things that require high human capital. The advantage is that human capital is rewarded much more than cheap labor.

As always, you are warmly invited to leave comments in the talkbacks or via email/phone rimon@effm.co.il 0545232799

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