Balancing big business and free markets

Let’s hope atmosphere created by summer’s socioeconomic protests will lend a hand to the present government in its push to make the necessary reforms.

By JPOST EDITORIAL
TA protest rally 311 (photo credit: Tamir Kalifa)
TA protest rally 311
(photo credit: Tamir Kalifa)
Perhaps one of the thorniest obstacles to free-market competition in smaller economies around the world is the rise of a relatively small number of big conglomerates with diverse holdings in both industrial and financial firms that enjoy extraordinary economic clout. The Israeli economy is no exception.
In a 2009 annual report, the Bank of Israel said Israel had the highest concentration of corporate power in the developed world. A scathing parliamentary report from June last year found that 10 large business groups control 30 percent of the market value of publicly-traded companies, while 16 control half the money in the entire country. And the Organization for Economic Cooperation and Development, which last year admitted Israel as a member, said Israel’s level of corporate concentration is problematic.
On Monday a committee appointed by Prime Minister Binyamin Netanyahu, and headed by outgoing Finance Ministry director-general Haim Shani, published its interim recommendations for improving free-market competition.
One of the recommendations is that conglomerates will not be permitted to have very large holdings in industries with annual revenues more than NIS 8 billion, while at the same time controlling shares in financial institutions that manage NIS 50b. or more.
Also, it will be forbidden for a person to be appointed to the boards of directors of both financial and industrial firms. Measures will also be taken against what the OECD called “cascading ownerships, pyramidal structures and cross-holdings” through which large conglomerates enjoy inordinate control in firms where they have minority share holdings.
And unlike previous reports which failed to lead to reforms, the Shani committee’s recommendations – which still might be modified over the next three months as big businesses are given a hearing – have a good chance of being implemented as is. The tycoons will undoubtedly enlist lobbyists, PR firms and influential political insiders to fight the recommendations.
But this summer’s socioeconomic protests, which griped specifically about the sorts of high costs of goods and services caused by Israel’s oligopolies, have provided the ideal social climate to encourage politicians to take up the popular fight.
Huge conglomerates such as Yitzhak Tshuva’s Delek Group, Nochi Dankner’s IDB Holdings, Shari Arison’s Arison group and various firms controlled by Muzi Wertheim and the late Ofer brothers, which combine holdings in both financial institutions such as banks, insurance companies and investment companies with controlling shares in industries such as shipping, telecommunications, real estate development and retail, will face the prospect of divestment for the sake of fairer competition.
Presently, conglomerates with holdings in both industry and financial institutions have easy access to credit – often at the expense of smaller, more worthy businesses. And this credit, extended by banks, insurance companies, pension funds or investment firms, is made up overwhelmingly of the savings of the wider public.
With a relatively small number of businessmen enjoying a large percentage of the outstanding loans, a situation is created in which one mistake can be huge and incredibly costly to many people.
Still, as the prime minister pointed out, big business is by no means the enemy of the Israeli economy. Indeed, entrepreneurship is the driving force behind growth and prosperity that provides jobs and opportunities and technological development.
However, in order to realize the full potential of our society’s many talented individuals, protect the economy from undue risks and provide citizens with affordable goods and services, it is absolutely essential to ensure truly free and fair competition.
Over the past two decades Israel has undergone an amazing transition from an economy dominated by the Histadrut Labor Federation, nationalized industry, state-owned banks and a stifling gauntlet of bureaucracy to a modern, efficient, free market economy.
As part of that transition a small number of large conglomerates have accrued enormous power and indirectly created a number of market failures that need to be fixed.
Let’s hope that the atmosphere created by this summer’s socioeconomic protests will lend a hand to the present government in its push to make the necessary reforms.