Unable to decide?

Netanyahu faces an historic opportunity to reform the economy by breaking the concentration of economic – and political – power in the hands of less than 20 families.

August 18, 2010 21:55
4 minute read.
Prime Minister Binyamin Netanyahu

Binyamin Netanyahu. (photo credit: Associated Press)

Israeli governments are notorious for their inability to decide or to execute decisions (over 70 percent of government decisions never get implemented). This may be positive, since in some of those decisions, the government actually does more harm than good but not always.

Remember the brave moves to cut bloated government expenditures, as well as the financial market reforms made by then finance minister Binyamin Netanyahu.

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Those decisions, however imperfectly executed, saved the Israeli economy in 2005 from an Argentina-like collapse.

But famous media pundits argue that these financial reforms, known as the Bachar reforms were actually a catastrophe. The facts speak for themselves. Not only have they saved Israel and its banks from near economic collapse, they put the Israeli economy, after two decades of snail-like growth and frequent recessions, on an amazing path of an average growth of five percent annually.

But even the dramatic increase in the size of assets held by the Israeli public, of 60%, from NIS 1.2 trillion before the reform to NIS 2.2 trillion at present, despite a terrible world financial crisis, does not deter our famous commentators from calling the reforms “a catastrophe.”

ONCE AGAIN, Netanyahu is facing an historic opportunity to reform the economy by breaking the inordinate concentration of economic – and political – power in the hands of less than 20 families.

They control the huge pyramid-style corporations that dominate the Israeli economy, representing about half the value of Israel’s traded assets! Such a great concentration enables these corporations to wield monopolic power, and choke competition and the efficiency generated by it. Low efficiency is a major factor in the low productivity of the Israeli worker – about half that of the American worker – and of his low earning.

Monopolies inflate prices and exact a heavy “monopoly rent” on everything we consume, estimated at about a third of what the average Israeli earns. The low earning strata that devote most of their income to consumption suffer most. It is a major reason why so many working Israelis are poor.

Excessive concentration also endangers the total economy. It is at the heart of the serious problem Israel has: the problematic close relationships between big business, politicians, bureaucrats and the media, which is mostly controlled by our oligarchs. It corrupts both politics and the economy.

The Bank of Israel’s annual 2009 report on the economy (published April 2010) included a pioneering study that established the fact that Israel indeed suffers from excessive concentration and warned about its grave dangers. The study provoked a storm of protests and counter-arguments by the servants of our oligarchy. There were several biased efforts to discredit it.

Netanyahu picked up the issue and publicly expressed his determination to address this severe problem several times. That he did this at a time when he is besieged by existential issues, such as the threat from Iran and by unusual coalition woes is evidence that he understands the great importance of this challenge. He did not flinch even after some economic pundits who habitually serve the interests of the oligarchs attacked him ferociously, charging that he had more important issues to address, like poverty and the miserable economic lot of the Orthodox and of Arabs, as if they do not realize that poverty is in large part as result of the monopolies’s exploitation.

They even tried to deflect attention to the secondary issue of inflated executive pay common in publicly held companies, again hiding the fact that such salaries are also a function of excessive concentration and of the fact that it pays the oligarchs to pay their executives, mostly former government employees huge sums because the are not just executive but mostly machers (operators) who know how to milk billions from the government, so that they earn every shekel of their inflated cost.

THE PRIME Minister’s Office has been preparing to appoint a commission charged with framing the terms of the implementation of this reform. It will include representative of the Treasury and of The Bank of Israel.

But months have elapsed and the commission has not been formed yet. It is said that, as usual, turf and political prestige infighting is holding this historic reform back.

Some even claim that these struggles are fomented by powerful lobbyists and their partners in the bureaucracy who are looking for every way to kill the reform, postpone it or vitiate its powers.

It is hard to believe that a reform launched by the two highest office holders in Israel in the sphere of economics, the prime minister and the governor of The Bank of Israel – a reform explicitly supported by Prof.Yuval Steinitz, who has mastered economic knowledge in an amazingly short time – will be undermined by the oligarchs and their henchmen. But this has happened before, and we’d better be worried.

The reformers must know the immense importance of its success both for Israel and for their careers, and what damage they will incur if it fails.

Reason demands that they do all they can to get it going soon. But reason does not always dictate developments in Israeli politics. Let us hope this time it does.

The writer is director of the Israel Center for Social and Economic Progress.

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