Yaki's worried. We are too
Yaki Yerushalmi wishes us to run a correction.
Yerushalmi, the chairman of American Israeli Paper Mills (TASE, Amex: AIP), which belongs to the IDB (TASE: IDBH) group, wrote us this week that he was "astounded to read" the promo for the interview he had granted to TheMarker supplement Careers, where we quoted him saying he was concerned about the concentration of power in the economy, and that Nochi Dankner, who controls the IDB group and is his boss, was buying everything that moved.
He says he was asked in the interview for his opinion about "IDB buying everything that moves", to which he answered in two parts. At the general level, he said that IDB was impressively rehabilitating <Clal Industries and Investments (TASE: CII) and advancing it forward. "Also, I expressed my esteem for everything that Nochi Dankner has done with IDB... and at the personal level, my private ideology, I am certainly dissatisfied with the degree to which power is concentrated in the economy".
OK, we won't argue about who said it first. We asked, Yaki answered. He did not initiate an attack on the boss, he just said what he thought.
No, he isn't buying everything
But there is a correction no less important: Nochi isn't buying everything that moves. He's only buying very big things that move.
The state wants to sell the controlling interest in Bezeq (TASE: BZEQ) for a billion dollars? Nochi sets up a consortium. BellSouth and the Safras want to sell Cellcom? Nochi's there with a check.
The state wants to sell Bank Leumi - Nochi tries to pull one out of his hat and files a particularly large bid. Bank Discount is for sale? He checks with the Bank of Israel if he can get into the race. The banks are selling their provident and mutual funds? Nochi cuts an NIS 1.3 billion check.
Clubmarket collapses into bankruptcy and Nochi hands over nearly a billion shekels, outstripping the competition. British investors sell 10% of Koor Industries (NYSE: KOR) for $100 million and there's Nochi, snapping it up and getting a foot into the giant concern, and the possibility of joining the controlling group in the future.
In short, the claim that Nochi's buying everything that moves is wrong. He is buying or trying to buy only giant things that move, preferably if they cost a billion or a multiple thereof, and preferably if they do business locally.
The power of five
Naturally, Yaki Yerushalmi isn't the only one concerned about it. In the last year the public debate has grown strident about how a handful of tycoons are buying up Israel. Nochi Dankner is just a symbol of a trend.
In the past we talked about how concentration of power is dropping over time. today about half the giant and medium-sized companies are owned by 20 or 30 businessmen and families, while ten years ago they were owned by five elements: the Recanati family, the government, the Histadrut labor federation, Bank Hapoalim, and Bank Leumi, which themselves were controlled by the government and the Histadrut.
So why do we still feel that corporate Israel is controlled by a handful of people? First of all because the biggest companies are owned by people we recognize: Nochi, Yitzhak Tshuva, Lev Leviev or the Ofers. Secondly, because today the press is broader and their names appear in the paper every day.
Twenty five years ago, were the names of Yakov Levinson, Ernst Yefet or Raphael Recanati household names, like the tycoons of 2005? Apparently not.
Were they less aggressive? Did they possess less economic clout? Didn't they close half the deals going down behind closed doors, as Tshuva and Dankner do today? Again, apparently not.
Furthermore, 20 or 25 years ago, Israel's capital market was a shallow puddle and the three big banks were the only real source of financing. There were no giant hi-tech and venture capital industries as there are today. The international capital markets were closed to Israeli entrepreneurs and multinationals didn't invest here by the dozen, diversifying the power.
Be happy - not yet
But the fact that our situation has dramatically improved in the last 20 years, even the last ten years, does not mean we should be happy with the way things are now. Yerushalmi is right to be concerned.
The solution to the ability of so few to influence the lives of so many is belligerent regulation, as the International Herald Tribune called it.
Nochi Dankner bought Clubmarket because the antitrust commissioner let him do it. Yitzhak Tshuva bought shares in Menorah Holdings (TASE: MORA) because the insurance commissioner let him. Haim Saban received permission to own shares in Keshet, one of two companies in charge of Channel 2, and in the Yes satellite TV company too. The insurance companies bought most of the banks' provident and mutual funds because the treasury didn't limit their share of the market, and didn't create incentives for foreign investors to enter Israeli asset management.
Each of these tycoons has their explanations for reporters as to why there is no problem of overconcentration of power. Why his acquisition actually increases competition and why it would be wrong to prevent him from developing his business. They are businessmen and they legitimately hunger to acquire, to grow, to control.
For instance, three months ago Haim Saban launched an attack against Israeli regulation. But when he encounters similar regulations in his international business, he is more restrained and respectful. We haven't heard him savaging German regulation which this month announced he couldn't sell his shares in the German TV station ProSieben to the Axel Springer media group for a giant profit, for reasons of concentration of power in journalism and the threat to freedom of information.
The problem isn't the power-hungry tycoons, their influence and profits. It is the people who are supposed to be setting the rules here, to look at the bigger picture and decide what kind of structure our economy should have.
But these people suffer from a series of structural problems. Either they were appointed by cowardly politicians whose strategy lasts as far as the evening news or primaries; or they have no clear vision of economic structure; or they just want to finish their stint in peace and rush off to a job with the people they now oversee.
As long as the public debate fails to focus on the function of the regulators, as long as Israel lacks politicians and public personalities who place competition and reducing the concentration of power high on their agendas, we can only continue to fume, to complain that it's a problem, and to write to the editor urging a correction every time some tycoon doesn't like what he read in the morning papers.
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