Winners and losers from economic concentration

The prime minister has promised to do something about it, though nothing concrete has actually been done. Meanwhile, the public may feel the issue to be a general one, not a problem that impacts them personally. But it does. Just look at how we spend money.

What are the main items on which Israeli households spend money? Here is a short list of products that are very much impacted by economic concentration, and a short description of how things could change if competition is encouraged (take note, ye long-term investors ).

	Competition is low in certain areas of retail. A cartel was exposed in the bread market.

 

1The home. The house or apartment in which we dwell is our biggest outlay, whether through rent or mortgage. Israel ranks very high in terms of how many monthly salaries it takes to buy a dwelling, and the reason is economic concentration - by the state. The main thing jacking up home prices is the price of land (note the difference in housing prices between Tel Aviv and Kiryat Shmona ). The state owns the land. To lower home prices, reform is needed in land, tax, bureaucracy and transportation infrastructure. If the supply of land were to increase, prices would drop.

The losers of reform would be anybody owning land or property, including publicly traded companies sitting on large inventories of land for development.

The winners would be anybody who doesn't own a home, anybody else who wants to buy property and efficient builders.

2The car. Car imports also suffer from economic concentration. Each manufacturer is imported by a single company, which has a monopoly over that brand. The families owning the import companies are among the richest in Israel, a fact that in itself attests to the concentration. Moreover, most keep their companies private, instead of floating them on the stock exchange, again attesting to their profits. The profit on a single luxury car can reach 30%. If the state opens the market for car and spare-parts imports to competition, without reforming tax, car prices would drop by tens of percent.

The losers: Exclusive importers.

The winners: Anybody new who gets into importing cars and parts.

 

3Food and consumer items. Competition is low in certain areas of retail. Super-Sol, following its merger with Clubmarket, has the clout to keep prices high. It has even been the subject of an inquiry about anticompetitive conduct. Recently a cartel was exposed in the bread market: The big bakeries were fixing prices.

On the one hand, the consumer products market is competitive - importers do compete. On the other hand, everybody knows that brand products are more expensive in Israel than in American outlets or on sale in Europe.

Losers: Inefficient marketers and manufacturers whose power is based on family contacts in the business pyramids.

Winners: Small, efficient and nifty companies/importers.

 

4Banks and finance companies. The fee you pay for a single banking service may seem picayune, but it accrues. The average household spends nearly NIS 10,000 a year on bank services. Israel's banks are notorious for the absence of competition, mainly in their services to households. They have been caught colluding on interest rates and fees. Any act that would reduce the concentration in the banking sector would benefit consumers.

Losers: The big banks and insurance companies.

Winners: Everybody else in the finance sector.

 

5Telecommunications. Households pay thousands of shekels a month for phone, TV and Internet services. All are monopolies or concentration groups. When the state opened long-distance calls to competition, prices plunged. Your bills are about to drop after Communications Minister Moshe Kahlon lowers the price of cellular interconnection fees, too.

Losers: The cellular companies, Bezeq and HOT cable TV company.

Winners: Newcomers to the market, mainly ones with new technology.

The big picture

High prices of products and services are just one way in which economic concentration hurts you. Worse is how it affects the character and business culture of Israel. A concentrated economy, in which key economic activities are determined by a handful of tycoons, has the potential of degenerating the Israeli economy into a place where innovation is stifled and talent is unappreciated: All that matters is who you know. An economy where the key qualification is how to handle a given tycoon will be a weak, inefficient one. Reducing economic crisis, a job the prime minister says he is beginning, should prevent that scenario from materializing.

Losers: The tycoons and their cronies.

Winners: Everyone else.