The lead story in one of our weekend papers bellowed − straight from the throat of a leading businessman, who talks a lot with journalists but not on record − that it’s nonsense: The country’s economy isn’t dominated by handful of tycoons. “That’s a misguided agenda. Populist.” The latter word was emphasized in huge letters, 50% larger than the rest of the text.
Is this declaration true? The Bank of Israel report for 2009, a turgid 350-page document, can hardly be called “populist.” It is written in the driest language, studded with tables, graphs and academic citations. I doubt there’s a businessman or journalist alive who read it from start to finish.
On page 156, the report expands on recent research in Israel and abroad on the concentration of power in the country’s economy. The report states (translation from the Hebrew by TheMarker):
• “The concentration of economic power in Israel is among the highest in the West, nearing that of developing nations.”
• “About 20 business groups, most if not all family-controlled, with clearly pyramidal structures, continue to control a considerable proportion of publicly traded companies (about 25% of all listed companies) and half the market share.”
• “There is a complex network of connections between the business groups, reflected in co-ownership of companies or in positions on multiple boards. That situation puts the Israeli economy before complex economic issues − for instance, the quality of information accessible to investors, and the groups’ transparency regarding their activity.”
• “Alongside the high concentration of power in ownership of the firms, the manner of control was found to be familial. That could have ramifications for the stability of the financial system and for economic activity, because both the control and ownership of the firms, and their performance and effect on the public’s well-being, depend on the nature of relationships within the families, and the strategies and tastes (and whims) of a few people − and, mainly, on the quality of management talent among the heirs.”
• “The last, important finding is that on average, the companies affiliated to the groups are not only less profitable than non-affiliated companies: The market likes them less, which is reflected in negative premiums.”
• “Ignoring the issue of the business groups could cause various policy steps to fail, or the skewing of certain results, consequently impairing the functioning of financial and nonbank systems in general. The last crisis created a unique platform to strike a balance between the function of market forces and regulation (Morck and Yeung, 2009). The system of ownership links could be reshaped, reducing the systemic risk and improving resource allocation in the economy, alongside strengthening the supervisory mechanisms and rendering them more efficient.”
Strangled economy
The Bank of Israel isn’t alone in feeling that the concentration of power is strangling the economy. The Finance Ministry realizes this, too, and has been pushing reforms for years, with very partial success. Recently it has been joined by the prime minister, Benjamin Netanyahu, who has described the fight against the concentration of power as fundamental to his future economic plans.
In fact, today all the arms of government explicitly acknowledge the heavy price that the concentration of power in a few hands is exacting from the citizenry: both a direct economic price and an indirect one, such as too-cozy relations between businessmen and politicians and other top officials.
One can understand why Big Business argues with the conclusions reached by the Bank of Israel, Finance Ministry and prime minister. The last thing rational tycoons want is for the state to reshape the structure of corporate ownership. Naturally, they make every effort to influence decisions in government and the Knesset − for instance, by hiring truckloads of lobbyists − or to influence public opinion through the media.
Hence, we find a businessman, who heads a vast enterprise, accusing the prime minister of populism. Or another declaring at every opportunity that the changing royalties payable to the state for exploitation of natural resources is “nationalization of private assets.”
Why do some local papers offer a platform to the tycoons? Two of Israel’s three business papers openly, actively support these people’s claims about the concentration of power, in headlines, commentaries, critiques and spin that present the decision-makers, including the prime minister and Bank of Israel governor, in an unflattering light.
Why are they doing that? One might expect that the newspapers and their shareholders would choose another path, one that would make them more independent of the 20 families controlling the economy. Yet their actions prove they find it more convenient to perpetuate the status quo. It seems that the owners and also certain editors find close relations with powerful families to be pleasant and reassuring.
In other words, why take risks if one can cozy up to power and wealth, and live with them in convenient symbiosis?
The issue of concentration of power isn’t the only one that has prompted the press to attacked the establishment rather unexpectedly. Last year the same two papers savaged the Bank of Israel over its decision to let Bank Hapoalim chairman Danny Dankner go. Theirs was a two-pronged attack − simultaneously defending Dankner, while delegitimizing Supervisor of Banks Rony Hizkiyahu and central bank Governor Stanley Fischer, personally smearing those in charge of bank regulation.
At the height of the uproar, when Fischer was still trying unsuccessfully to oust Dankner, one of the papers even gave the Hapoalim chairman a platform at a conference it was organizing, to attack the one paper that did not share his views.
A specific paper, which often says about itself that it’s meant for people who think, continued to think instead of the reader, as is its wont,” Dankner stated at that event.
The two papers’ fealty to Dankner didn’t last long: They were mum when his conflicts of interest were revealed. But when he was finally deposed from the chairmanship of Bank Hapoalim, after his power began to wane and he’d been arrested a few times − his blood was spilled: The papers that had defended him report ed in detail on his arrests, and some journalists even tried to rewrite history, as though they’d criticized him throughout.
Their defense of Dankner and conduct regarding the concentration of power is similar. Really, it’s the same thing: Their whole campaign is just another expression of the same problem. The two papers belong, directly and indirectly, to the same big business groups; their writers and editors are thus connected to the most powerful groups in the economy.
The strong defense of the concentration of power in few hands might seem inexplicable to the naive reader, but it’s anything but. The fact is that the press is part and parcel of the phenomenon and of the problem, as reported by the Bank of Israel.
How will the papers’ campaigns end? They will try to use their journalistic power to torpedo moves designed to reduce the concentration of power. Later, after decisions are made, whatever they are, both will jump onto the bandwagon and try to rewrite history again. But it won’t matter any more.
If the problem of the concentration of power and the influence wielded by the 20 or so families is resolved − the Gordian knot between these journalists and editors and the powerful business groups will be greatly weakened. Then one of two things will happen. Either the papers will lose their way, or they will discover they have a backbone and will finally become independent.
