Haifa port - Baz Ratner - 11102011
The Haifa port. Photo by Baz Ratner
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When the Israeli economy was opened to competition from imports 20 years ago, it seemed as if that would be enough to make it more competitive and sophisticated, and lower prices for the public. The exposure to imports (albeit incomplete ) did have an impact, but not enough of one. The economy still suffers from a low level of competition. It has too many monopolies and cartels, and the level of concentration is too high.

For the past two and a half years, the Shani Committee has been discussing the concentration issue, and on Wednesday it submitted its conclusions. The thrust of its recommendations was to reduce the power of a small number of families who control large swathes of the economy. These families control a large number of companies, even entire industries, via a pyramidal business structure that enables owners to control multiple companies with relatively little capital. In many cases, the same tycoon owns financial companies - like banks, insurance firms, investment houses and other money-managing businesses - as well as nonfinancial ones, which manufacture products or supply services.

This situation gives those at the top of the pyramid enormous market power, preventing smaller companies from competing. Moreover, this economic power is liable to translate into political power - or, in other words, into undue influence over Knesset members and ministers. The large pyramids, which are financed with enormous loans, also create a threat to the economy's stability.

To deal with these ills, the Shani concentration committee recommended restricting the maximum height of the business pyramids and barring the simultaneous ownership of both large financial companies and large nonfinancial ones. If these recommendations are implemented, the economy's biggest companies will have to flatten out their pyramids and sell some of their businesses to other investors. Both these processes, which will take several years, will lead to a more competitive economy that attracts more investors, and therefore to faster growth and lower prices for the public.

But the concentration committee's recommendations are only the first step. They still require approval by the cabinet, and then must undergo a lengthy legislative process in the Knesset. We must therefore hope the MKs will stand fast against the pressure they will undoubtedly come under and work to implement these recommendations, which are good for the general public, for competition, for growth and for lowering prices.