"The great monopoly in this country is the money monopoly. So long as that exists, our old variety and freedom and individual energy of development are out of the question. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men, who, even if their actions be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who, necessarily, by every reason of their own limitations, chill and check and destroy genuine economic freedom. This is the greatest question of all; and to this, statesmen must address themselves with an earnest determination to serve the long future and the true liberties of men."
"The dominant element in our financial oligarchy is the investment banker [that is, America's early-20th-century robber barons - G.R.]. Associated banks, trust companies and life insurance companies are his tools. Controlled railroads, public service and industrial corporations are his subjects. Though properly but middlemen, these bankers bestride as masters America's business world, so that practically no large enterprise can be undertaken successfully without their participation or approval."
From "Other People's Money: And How the Bankers Use It," by Louis Brandeis, 1914. (Brandeis credits the first quote to Woodrow Wilson in 1911. )
Ladies and gentlemen, it's been perhaps five, perhaps seven years since economic concentration began its rapid rise, affecting all our lives. In recent months the public has increasingly recognized the threat it poses to business, to the economy as a whole, to consumers and to democracy.
When TheMarker devoted special coverage to the dangers of the phenomenon, examining the lessons to be learned from the era of economic concentration in the United States and the battle waged against it by U.S. Supreme Court Associate Justice Louis Brandeis ("Where is the Israeli Brandeis who will save our democracy," Haaretz, July 1, 2010 ), the debate was still confined mainly to decision makers, lawyers, economists and businesspeople who understood the dangers from up close.
When TheMarker devoted coverage three months ago to the high prices in Israel, consumers began to recognize the cost of the concentration of control. The success of Communications Minister Moshe Kahlon in taking on the cellular tycoons acted as a catalyst and, for the first time, gave the public hope that things could be different.
The real change, however, came this month. Panicked by the grassroots protest over the price of cottage cheese, by the shift in the public mood, by the hundreds of thousands of Israelis joining in via the Internet in general and Facebook in particular, the defenders of economic concentration beat a quick retreat and began expressing support for the views of the protesters.
Last year commentators, Knesset members and corporate executives were still earnestly explaining that the Israeli economy was competitive, that industry concentration did not pose a problem, that monopolies are only natural in a small economy and that concentration of power in the hands of a few was common worldwide. Now these same boosters for monopoly are shouting to the heavens about the terrible problem of economic concentration in a plethora of sectors, decrying high consumer prices and demanding action from the state. Some of these newly hatched experts on economic competition and concentration were among the most bitter foes of the prime minister's successful plan to appoint a committee to examine these issues, on the grounds it was a mere whim of Benjamin Netanyahu's.
Deep down, some of these figures are hoping the committee will focus on narrow issues such as the price of cottage cheese or gasoline rather than the broader question of Israel's economic structure. They know it's unlikely. The sunlight that Brandeis called "the best of disinfectants" in "Other People's Money" has begun to shine on this structure and on its backward leap since the golden age of the 1990s. Academics, businesspeople, politicians and journalists who had previously been afraid to speak up are finding the courage to do so.Superlative timing
The timing could not have been better. If the trend toward increased concentration had continued for another few years, the public would have lost its self-defense capabilities. The influence exercised by big business over the country's newspapers, regulatory agencies and politicians would have ballooned, daily diminishing the possibility for practical debate of the issue.
Last week Netanyahu called on his cabinet to be "Kahlons," to emulate the communications minister and find ways to increase competition and reduce prices in all sectors of the economy. It's a shame the prime minister didn't explain to his ministers, the public and the Knesset Finance Committee what being a Kahlon means:
• Risking negative coverage in newspapers controlled by or at the mercy of powerful business groups
• Smiling understandingly when their battalions of economists, lawyers and lobbyists explain to you directly or via their newspapers that the reform program you are promoting is "unnecessary/crazy/anti-investor/Communist/unprofessional," as you continue to serve the public.
• Constantly remembering where your loyalties lie, that you are in charge, not the 500 people who spend every evening moving from one cocktail party to another and who call themselves the economy's leaders even though many of them have never built a factory, founded a business or planted a single tree, and have not added a single job to a competitive sector.
• Forever closing the door on a possible job at a cartel, monopoly or pyramid-structured business owned by one of the groups, and the attendant fat salary.
The one person who could out-Kahlon Kahlon himself is Finance Minister Yuval Steinitz. It is the director general of his ministry, Haim Shani, who heads the economic concentration panel. Over the past few months the committee has lost one member after another - each for excellent reasons, but the fear of going up against the centers of power cannot be discounted.
The Sheshinski committee, which reviewed state energy royalties, was chump change by comparison, just a signal that the government must once again take up the mantle of reform and set the public agenda, returning to the days when a senior position in government was not just a stepping stone to a job with one of the "big seven" business groups.
The Sheshinski committee was a reminder that the government must rule once more, but its scope did not go beyond taxes and the division of resources to address the structure of the Israeli economy. It didn't examine how the government could create a new structure that would allow the full potential of merit, initiative and market forces to come to the fore in order to increase productivity, encourage innovation and ultimately to lower prices.Bring it on, turbo-Kahlon
Steinitz could be a turbo-Kahlon. Kahlon has so far brought about one big reform, in mobile communications. Steinitz must give his officials the back they need to produce the mother of all reforms within two months.
The plan must inject competition into all sectors and rebuild the capital market. It must break up the pyramids of control in the financial and non-financial sectors that are an obstacle to competition. It must create a dynamic of competition, innovation and talent.
Steinitz realizes that unless fundamental measures are taking to end economic concentration all of the reform plans, whether for cell phone carriers or for natural gas, will be meaningless. The power wielded by big business over the Knesset, the cabinet and the media will enable them to skillfully, methodically and quietly erase all the much-vaunted "achievements."
The fight for a free market, for competition, for a strong and decentralized business sector, for equal opportunity, for meritocracy and a dynamic economy is never-ending. The environment is always changing, as are the weapons available to battle the ever-stronger, more sophisticated enemy.
If Netanyahu and Steinitz do not leverage the wave of public support being expressed for them on the Internet in order to make the project of the economic concentration and competition committee into a defining moment for the economy, they could find themselves drowning in it.
Want to enjoy 'Zen' reading - with no ads and just the article? Subscribe todaySubscribe now