Over-regulation and public criticism
Israeli public maligning the successful explorers while at the same time begging to invest in their securities offerings.
Azrieli Photo: Reuters
I have had a hand in international business affairs involving Israel for some 35
years. During that time, I have witnessed a dramatic change in the reactions of
foreign – primarily US – businessmen to the idea of doing business in or with
Initially, it was not unusual to hear an American businessman
say: “I am prepared to donate money to Israel, but not to do business
As time passed, however, the perception of Israel changed. No
longer was Israel a place to make a “small fortune” – i.e. to convert a large
fortune into a small one. The bureaucracy was deemed manageable and business
practices began to take on internationally accepted standards. These
developments, together with the “Start-Up Nation” quality of Israeli business,
attracted significant foreign investment in many fields.
During the past
few years, the winds have changed.
Three events in particular have once
again thrown Israel back decades in international business
The first event involved the retroactive change in royalties
payable on offshore gas finds. Populist politicians began bemoaning the rape of
national resources by business tycoons. One after another, self-made critics
published self-righteous tirades against the offshore gas prospectors, counting
their riches even before a single liter of gas was extracted from the
When these profits were compared with minimum wage and average
income, the prospectors were made to look like pariahs. What about the
substantial risks taken by the prospectors who literally poured hundreds of
millions of dollars into the ground before they knew if the fields would be
productive? What about all of the companies who tried previously to find gas or
oil and lost their entire investment? Not a word. The ever-hypocritical Israeli
public acted precisely as expected, by maligning the successful explorers while
at the same time begging to invest in their securities offerings!
I happened to
be in New York when the Sheshinsky report was issued. I was shocked to find that
US businessmen had been following the drama in great detail. When the committee
decided that the retroactive revision of gas royalties was appropriate since it
was “really” an amendment of the tax laws, one of my American colleagues said:
“It smacks of the basest political subterfuge one would expect from a third-world
country. When previous exploration activities were unsuccessful, did anyone
suggest that the government reimburse the investors for their losses?”
of the committee members ever put their own capital in such a risky venture?
(When I returned to Israel, I quickly checked the backgrounds of the committee
members – overwhelmingly present and former government officials.)
event involved the world real-estate crisis that crippled companies throughout
the globe. When Israeli companies could not meet their debt obligations,
the same populists and critics derided the restructuring activities which
allowed the companies to survive.
Two new Hebrew expressions were
branded: The major shareholders became “Tykoonim” and the public was deemed to
have taken a “haircut.” The latter was particularly offensive since it raised
the memories of Nazi victims whose hair was shaved against their will upon their
entry to the camps. Once again, not a word about the profits that Israeli
investors had made over the years as they participated – through the investment
companies – in the global real-estate bubble. Not a word about the Israeli
investors who drove prices to the sky.
The third event is essentially
another populist outcome of the “Tykoon” branding: “concentration” or
Like any modern, capitalist economy, success bred success.
Companies that were successful in one field, plowed their profits into other
areas. Using the same skills that brought them previous profits, the growing
companies enjoyed similar successes in new fields. These activities were
carefully watched by the Antitrust Authority.
As soon as competition
could be materially impaired, with resultant potential adverse affects on the
public, the Antitrust Authority stepped in. One of the positive results of this
regulation of investment was that successful investors and managers began to
spread their talents – and once again they succeeded.
To the same
self-righteous critics who proclaimed their naive, populist, but economically
baseless platitudes against the gas profits, the “tykoons” and the “haircuts,”
this was further, fertile ground to spread their calumnies. For unknown reasons,
“concentration” of success became anathema – and the public, of course, picked
up on these proclamations.
Investors and business entrepreneurs finally
became exasperated with these and related developments, and have begun to flee
from over-regulation and unfounded public criticism, to shores which are more
The Bank of Israel has reported on a net outflow of
investments in Israel for many months. Similarly and consequentially, there has
been a constant stampede to purchase dollars, with a concomitant increase in the
exchange rate. Israel is suffering from a “brain drain” of businessmen and a
“monetary drain” of hard currency.
If Israel wants to regain its position
as a modern economy, whose greatest resource is its human talent, then it must
create an environment to provide investors, promoters and entrepreneurs with the
conditions necessary to succeed. Self-righteous criticism by neophyte
politicians may make headlines; but such criticism will not do what only
business success can do – create jobs, attract foreign investment and keep
Israeli businessmen at home.
The writer is an advocate & attorney at
law with Weksler, Bregman & Co.