The facts are clear: An April Bank of Israel study affirmed that a few families control more than half the assets traded in the country, including banks and insurance companies.
Equally clear is the damage: Concentration of assets harms competition. Lack of competition enables a few tycoons to inflate prices, causing every family to pay a monopoly tax of between 20% and 30% on everything it consumes, according to Treasury calculations. This is particularly hard on lower-income families, who spend a higher percentage of their income on consumption.
Little competition results in inefficiency. Workers here produce only two-thirds of what Americans do per capita. The result is low salaries.
Low salaries and high prices make it hard for most families to make ends meet. It makes many of them poor.
Concentration also enables industrial and trade groups to own financial institutions. This means credit is offered mostly to big business groups and their cronies. Misallocation has made credit utilization inefficient (for decades, banks had more doubtful debts than capital), and has caused decades of non-growth.
Misallocation also causes a permanent credit crunch for small and medium
firms – the engines of growth in every economy. This has had a national
impact: the Negev and the Galilee, where mostly smaller firms operate,
are credit starved and remain underdeveloped, losing their population.
THE Bank of Israel study indicates, economic concentration also poses a
systemic risk to the economy. In the recent crisis, the near bankruptcy
of some of the large business groups could have caused a general
economic collapse, including of our pension system.
great economic concentration aggravates the already problematic
relationship between capital, politics and the media. Our tycoons own
most media outlets. This results in a perversion of public discourse
that poses a serious challenge to democracy.
It is natural, of
course, that our greatest tycoon, Nochi Dankner, who, with an investment
of a mere $300 million, controls a pyramidal business conglomerate with
combined assets of $35 billion (namely with an investment of less than
1%, he controls 60 firms and all the decisions taken by them) will deny
that concentration exists in the economy, or that it is a problem. This
very talented businessman is convinced that it is okay for one person to
control dozens of managers and huge advertising budgets.
affable man, he does not seem to realize the vast shadow such
conglomerates cast, the chilling effects they have on competitors even
when they try to restrain their power (and they do not). Who could dare
compete with such a behemoth or cross it?
It is also not
surprising that our tycoons, and especially Dankner’s IDB holdings, are
spending huge sums on PR campaigns designed to deny and obfuscate the
concentration problem. What is most worrisome is that a great part of
the media is using its news and commentary pages to hide critical
LAST WEEK, the prime minister’s courageous decision
to tackle the concentration problem – which he has often defined clearly
– by appointing a commission was misrepresented by several of the
tycoons’ publications. They simply refrained from mentioning the crux of
his announced decision to especially address the pyramidal structure of
A popular economic commentator in Yediot Aharonot
went as far as to gloat that “the concentration [issue] is dead. The unbelievable has happened.
a vociferous pressure campaign, despite publications that imitated
leaflets distributed during the Chinese cultural revolution, despite the
blackmail of members of Knesset, spokesmen and pundits [a serious
charge totally unsupported by fact, D.D.] Prime Minister Netanyahu did
not capitulate. On Wednesday he announced that he will not form a
commission to examine ways to limit concentration in the Israeli
economy. Pure and simple, Bibi buried this commission.”
This is of course the exact opposite of what happened.
still, some economists and academics have been paid by the tycoons to
concoct papers “proving” that no concentration existed. One paper used
the statistics of the World Economic Forum to claim that Israel occupies
a high place (20th) among 140 states in the “general concentration
index” that measured averages.
The authors of the study “forgot”
to mention another graph depicting the extent of market dominance –
which deals specifically with conglomerate concentration. Here Israel
placed 118 among the 140 nations, a bad place indeed.
The elimination of relevant data was not the sole example of how the authors attempted to muddy the water.
employed many irrelevant and even misleading comparisons, drew
questionable conclusions from their data and made ridiculous claims,
such as that large pyramidal structured conglomerates have the advantage
of efficiency ofscale. As if there was a market for pyramidal-
structured conglomerates in which they could prove their “efficiency.”
these faults were exposed and roundly criticized. This did not deter
the media from giving these “experts” wide, uncritical coverage. In fact
most media items dealing with concentration featured on both the pro-
and con-side spokesmen with distinct leftist agendas, as is generally
the case here.
If one needed additional proof on how concentration perverts public debate, last week’s debate provided it.The writer is director of the Israel Center for Social and Economic Progress.