Arch-tycoon Dankner and Labor Boss Hassan - the Two Faces of Israel's Crony Capitalism

Who’s the bigger rip-off artist − arch-tycoon Nochi Dankner or labor boss Alon Hassan? Your choice says more about your politics than about reality.

Who is the biggest thief, Nochi Dankner or Alon Hassan?

Before we set out to answer that question, let’s define our terms. Neither Dankner, the controlling shareholder of the IDB group, who is sitting on NIS 8 billion of debt, much of which he can’t repay, nor Hassan, now on leave after being accused of running port-related businesses at the same time he was effective head of the port union, is a thief in the legal sense of the word. True, the port’s management is asking the police to investigate Hassan, but he’s innocent until proven guilty and in any case his dubious dealings were approved by the port’s own board of directors.

Their thievery is that they took money that would otherwise rightly belong to others by failing to repay debt ‏(Dankner‏), by exploiting the absence of competition to overcharge and underperform ‏(Dankner and Hassan‏), and engaging in excessive self-dealing through nepotism and conflicts of interest ‏(Dankner and Hassan‏).

Dankner and Hassan are not alone in this. They are part of a larger phenomenon of crony capitalism and overly powerful unions. Dankner has a dozen or more fellow tycoons and Hassan peers at workers committees at Israel Electric Corporation, Mekorot and the civil service to name a few. Neither of the two benefits from all the theft ‏(Dankner has fellow shareholders and Hassan his union rank and file‏), and neither created the systems they benefited from. They simply took advantage of the exploitation that was there. Moreover, there are others who practice the same sort of theft.

Indeed, there are whole segments of Israeli society that engage in a similar sort of thievery. The first to come to mind are the Haredim, who refuse to join the labor market and enjoy a larger slice of government aid than other groups.

Poster bad boys

But Dankner and Hassan make useful poster bad boys because they symbolize the opposite poles of big-time rip-offs − one by the capitalist class and the other by labor. Who you think is the real problem says a lot about your politics.

Dankner’s IDB group traditionally derives much of its business from sectors that are light on competition and heavy on friendly regulations. Nevertheless, Dankner falls in the category of businessman-investor-entrepreneur, creator of jobs and innovation, that is so beloved of the center-right. Hassan rules over a workforce whose average salary plus benefits came to NIS 37,000 a month last year. That’s NIS 10,000 more than the average for senior executives at companies traded on the Tel Aviv Stock Exchange. Nevertheless, the left can’t lay aside the idea, long past its sell-by date, that Hassan and his like are fighting for the oppressed working class rather than stealing from other workers.

Hassan has another chip on his shoulder. Dankner, through the thick and thin of his debt problems, has at least not acted like a thug. He has had some tough words for his bondholders, accusing them of trying to grab the jewels of IDB, but in doing so he portrays himself as a victim, not a villain. You wouldn’t mind taking Dankner for a long coffee, knowing full well that you’ll probably pick up the check and “next time on me” won’t happen.

Hassan talks like the boss of an inner city gang. He doesn’t just protest his innocence but threatens his accusers. Look what he said to Shelly Yacimovich when she dared to suggest it was time for him to step down: He would make sure she is toppled from the Labor party leadership. Can you imagine Dankner suggesting to Jeremy Blank, the local representative of York Capital and his arch-nemesis in the fight for control of IDB, that it might be safer for him to be back in New York? Hassan displays all the contradictions of a mafia don, who at once commands love and fear from his followers.

But let’s put all these class prejudices aside and get down to the real matter at hand. Just who is the biggest thief?

The charge sheet against Hassan is relatively easy to assemble, thanks to an antitrust commission report from 2009 that finally saw the light of day last month in TheMarker. It estimates that Israel’s three ports impose costs on the economy amounting to NIS 5 billion annually by forcing shippers to stock excess inventory for fear of strikes and slowdowns, risk premiums they have to pay on loans and insurance, suffer low productivity and a host of other factors.

Ashdod accounts for about 40% of the traffic going through Israel’s ports, and Hassan has been at his job for eight years, so these very rough calculations put the theft at NIS 16.8 billion. That is probably on the low side, since the inefficiencies at the ports have grown worse since 2009, as has the value of trade going through them.

Dankner’s charge sheet

Dankner’s charge sheet is a little more complicated. He hasn’t yet defaulted on any debt and the cost to the economy of the oligopolies he participates in is complicated to measure. But let’s take the bailout program he has offered IDB Development and IDB Holding bondholders, where he is asking for haircuts totaling about NIS 2.4 billion. Add in several hundred millions more of debt the banks have justifiably written off. Then, as an example of the cost of business concentration, throw in the NIS 3.2 billion that cellphone users saved after the three-way oligopoly, in which his Cellcom Israel was a part, was broken a year ago. Let’s say Cellcom itself was responsible for a quarter of that, or NIS 800 million, and Dankner had nine years to profit from overpriced service as the controlling shareholder of Cellcom, although the amounts were probably lower in earlier years. Let’s say the total is NIS 5.5 billion.

All told, you get NIS 8 billion. But, of course, the exploitation of oligopolies extends far beyond Cellcom. It is easy to see how Dankner over the years could run up a rip-off total equal to or exceeding Hassan’s.

Political and social prejudices aside, the fact is we have an economy where the grand larceny is pretty widespread. It’s the nature of politics and the media to home in on one target at a time − one week it’s the Haredim, another the tycoons and this week Alon Hassan. The funny thing about his business dealings is that they have been known for some time but only now, when the dockworkers are under pressure from the government and the press, have they forced him to take a leave of absence.

The important thing about this kind of thievery − or let’s use the less-loaded term “economic inefficiencies” − is that it is normally conducted quietly and within the framework of the law. The law, of course, has to be changed, as is happening now, but the noise from the media and the government has to be continuous, or the theft will go on. 

Ofer Vaknin, Ilya Melnikov
Ilya Melnikov
Ofer Vaknin