The Bottom Line / All in the Family

Relatively speaking, our situation today is incomparably better than the old, nostalgic situation in which the government, Histadrut and banks controlled the economy unimpeded.

Shimon Peres has much to his credit in diplomatic affairs, but economics are not his strong suit. He gave an economic interview to Haaretz Wednesday in which he correctly noted that "talk about large investments in the settlements, for instance Ariel, is lunacy... Nothing has cost us more, historically and economically, than the territories." But he then went on to say: "It's inconceivable for a small group of tycoons to control the entire economy... I am opposed to handing the economy over to a small group of wealthy men."

The hidden assumption behind his words is that today, the economy is controlled by a few families that do as they wish with it, in contrast to the halcyon days of 30 or 40 years ago, when the economy was much more democratic, pluralistic and progressive.

But what can you do, Mr. Peres? The historic truth is very different.

Until the early 1980s, the Israeli economy was controlled by four bodies: the government (via a huge budget and a multitude of government companies), the Histadrut labor federation (via Bank Hapoalim and Koor), the Recanati family (via IDB and Israel Discount Bank), and Bank Leumi.

In those "good" old days, no deal could be made in Israel without the consent of either the banks, Histadrut or government. Everything was managed from on high. Deals were closed, or torpedoed, with a single telephone call. Anyone who was out of favor with the government (for instance, someone who failed to have a Mapai party membership card), or with Ya'akov Levinson of Bank Hapoalim or Ernst Japhet of Bank Leumi, could not receive a penny's worth of credit - and his fate was sealed. The economy was several times more concentrated than it is today. The government ruled unimpeded over the capital markets; it set exchange rates and supervised foreign currency and imports. The level of competition was very low, and prices were very high.

But then, in 1983, the bank shares collapse occurred. That was the largest financial scandal ever to hit Israel - and it caused an economic earthquake that measured 10 on the Richter scale.

Following the collapse, the banks were forced to sell the huge companies they owned, and the government and the Histadrut also began privatizing their holdings. That is how new economic powers - "the families" - began to emerge.

Bank Hapoalim was sold to Arison-Dankner; United Mizrahi Bank to Ofer-Wertheim; Union Bank to Eliahu-Landau; The Israel Corporation to the Eisenberg family, which resold it to the Ofers; Industrial Building Corporation to Eliezer Fishman; Paz to Jack Lieberman; Poalim Investments to Dovrat-Shrem; Ampal to Benny Steinmetz; Africa Israel to Lev Leviev; Housing and Construction (Shikun U'Binui) to Ted Arison; Koor to Shamrock, which resold it in 1997 to Bronfman-Kolber; Delek to Teshuva; El Al to the Borovitch family; and Israel Discount Bank to Matthew Bronfman.

All of these companies used to be owned by the government, the banks or the Histadrut. Now they are owned by private businessmen who generally do not like each other (see the affair of the Borovitch family and Clubmarket). The result was a significant rise in the level of competition throughout the economy, a sharp improvement in the level of service to the citizenry, and a general decline in prices. In addition, the government opened up the capital markets and the import market - and the face of the economy changed completely.

Two weeks ago, the business data company BDI published its rankings of Israel's leading companies, and reported that the economy's 16 leading families receive 20 percent of the revenues of the 500 largest companies.

The newspaper headlines swallowed the bait, and declared that the level of economic concentration is excessive and dangerous. And it is true that it would be preferable to have 50 families instead of 16: that would be better for both the economy and competition. But it should not be forgotten that relatively speaking, our situation today is incomparably better than the old, nostalgic situation in which the government, Histadrut and banks controlled the economy unimpeded. Shimon Peres, take note.