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Biggest Borrowers (do not publish again).(Photo by: FLASH90)
An Embarrassment of Riches?
By ZIV HELLMAN
03/29/2011
Excerpt: Three-quarters of Israeli-listed companies are controlled by a few families or individuals, a concentration that some warn is a dangerous direction for the economy.
WHAT WOULD YOU SAY about the economy of a country in which one quarter of all credit extended to businesses in the country is taken by only six business groups? In which 20 business groups control close to half of the total stock market capitalization, and approximately a fifth of all investment instruments are held in companies controlled by only eight people? A growing concern has been spreading in economic, legal and political circles that the Israeli economy is undergoing an accelerated trend of economic concentration, with an emerging small group of families and individuals holding control of so many diverse corporations in different but interacting industries that the trend itself may pose a threat to current and future economic growth. Moreover, the wealth being concentrated may also give a coterie of “tycoons” outsized political clout.

These concerns have reached the highest levels of government and business circles. A study by Bank of Israel economist Konstantin Kosenko revealed that half of the banks and insurance companies in the country are affiliated with only about 20 families, with the same set of families controlling companies that generate about half of the national Gross Domestic Product.

The OECD has several times warned of concerns it has regarding economic concentration in Israel, most recently in a report issued in March, in which it stated that the “Israeli corporate governance landscape is characterized by ownership concentration and family control of a significant number of listed companies,” the report said. “Three-quarters of Israeli-listed companies [of a total of 640] are controlled by family or individual interests.”

In October 2010, Prime Minister Benjamin Netanyahu appointed a task force led by the director general of his office, Eyal Gabai, to study the issue and provide him with a recommended course of action to reduce the concentration of economy-wide control in private hands.

“The economic concentration in this country is an existential threat,” says Daniel Doron, director of the Israel Center for Social and Economic Progress (ICSEP), a pro-market, public-policy think tank. “It warps the issuance of credit in an egregiously inefficient manner. It is holding back our growth,” he tells The Report, referring to the danger that conglomerates with significant shares in financial institutions may sway those institutions to favor their companies when issuing credit.

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