End to Oligarchy

Israel's new oligarchy castrated the government, eviscerated politics and turned heads of state into puppets.

Benjamin Netanyahu made the worst economic mistake of his life on October 26, 1997. That was the day Prime Minister Netanyahu sold a bank to shipping magnate Ted Arison - Bank Hapoalim. The State of Israel received a hefty $1.37 billion; but the price the state paid for this sale turned out to far exceed this sum. Power over the bank that controls the state was turned over to a small group dominated by one family, establishing in Israel a new socioeconomic order. An oligarchic regime.

Netanyahu did not initiate this reckless process of privatization, Israeli style. He was preceded by Shimon Peres, Yitzhak Rabin and Avraham Shochat. But Netanyahu was supposed to be different. He was committed to free market competition and to battling monopolies. And Bank Hapoalim was also different. It was, and remains, Israel's financial giant. Thus, Netanyahu made a historic blunder by not reducing the giant's dimensions before it was privatized.

Transferring the monstrous entity from the state's control to a family institutionalized the circumstance of duopoly that prevails in two-thirds of Israel's banking sector. It made permanent a situation in which there is no genuine competition between banks. It calcified a situation in which the banks erode households through strangling interest rates for wage earners and cheap credit for tycoons.

The Netanyahu-Arison deal took power over the economy out of the hands of the state and delivered it to a cartel of capitalists. This was the pinnacle of oligarchic privatization; the process created a bank oligarchy here and an oligarchic elite who nourish one another. Free market capitalism did not replace the old Israeli socialist state. Instead, a new system of consolidated power, featuring bankers and oligarchs, capitalists and media moguls, took shape.

During the past 14 years, neither Netanyahu nor other prime ministers have had an opportunity to correct this error. The new oligarchy castrated the government, eviscerated politics and turned heads of state into puppets. When Didi Lachman-Messer and Yaron Zelekha delivered warnings, nobody listened. When Shelly Yachimovich and Dov Khenin protested, nobody cared. Israel's democracy remained helpless as it confronted the Frankenstein monster of its own making. It didn't have the power needed to battle the concentration of political power created by the process of economic consolidation.

Now, there is an opportunity. A one-time chance. The social protest movement stretched to the breaking point strings that have been utilized by the oligarch puppet masters. The protest created a political arena comprised of three main forces: the people, Prof. Manuel Trajtenberg and Netanyahu. Thus, Netanyahu and Trajtenberg are empowered to do what nobody has done and what nobody will be able to do in the future. They can break up Israel's oligarchic regime.

A thousand ideas are now being tossed in the air: inheritance tax, capital gains tax, reduction of VAT, slashes in the defense budget. Yet, with all due respect to the improvement augured by this cocktail of tax reforms, it won't bring about real change. With all due respect to the proposal of effecting a certain reduction in the defense budget, this change will not do the job. First and foremost, the revolution the people are demanding can be brought into being in one sphere - competition. That revolution can be stirred by a dramatic, anti-oligarchic act.

Here is the act: Turn the office responsible for monitoring restraint of trade into an agency for competition. Give such a competition protection agency complete independence and authority, akin to that exercised by the Bank of Israel. Appoint Yaron Zelekha to head the agency. Give this competition agency a clear goal: Within three years, Israel must not have a business sphere in which one entity (or two ) has dominance. Break up the cartels, destroy monopolies, guarantee free competition in each sphere.

That way, a genuine revolution will occur by 2015. Netanyahu would correct a historic error, Trajtenberg would make history. The people would get social justice. After 20 years of darkness, Israel will cease being an oligarchy and will return as a democracy.