The resolve with which Prime Minister Benjamin Netanyahu has been pushing for the establishment of the biggest monopoly ever to arise in Israel, the natural gas monopoly, which would be exempt from antitrust machinations for a decade, has moved us to wonder about his motives. And about his previous reforms.
- Welcome to the country known as Israeli Securityland
- Gas deal proves Netanyahu is a captive of crony capitalism
- Competition cures crony capitalism and drives a meritocratic economy
Netanyahu has attracted plenty of arrows in the past, but also much applause for his readiness to attack the demon of economic concentration. As finance minister, he forced the banks to withdraw from the financial markets; then, albeit under the pressure of the cost of living protests, he promoted the law against economic concentration.
But last year Netanyahu went and pushed for the establishment of a vast private monopoly, owned by the Israeli company Delek Group and the American company Noble Energy. (In parallel, without anybody much noticing, the prime minister has muddied the advent of competition in landline communications, where the phone company Bezeq still has a monopoly.)
Netanyahu is still using the rhetoric of the Republican Party in the United States – attacking regulation for ostensibly hampering economic growth, weighing on businesses and stifling initiative. But he is misleading the public.
He knows perfectly well that regulation comes in two types. The first is regulation that promotes structural changes in order to enhance competition in the economy, to prevent power from becoming concentrated in a small number of hands. The second type is regulation designed to prevent competition, increase bureaucracy and create costs, and raise obstacles to doing business.
Breaking monopolies and introducing competition is the first type of regulation. Lowering import barriers is, too.
The gas plan that Netanyahu has been pushing mightily through cabinet is regulation of the second type. It is legislation designed to shore up the economic power of a single player while thwarting competition or supervision.
If you were still unsure what sort of regulation Netanyahu wants to promote in Israel, note the new initiative touted by the Prime Minister’s Office last month. Putting aside the gas monopoly and the casino in Eilat, Netanyahu has another pet industry, which he mentions in pretty much every speech he ever made – cyber, of course; software to protect our computer systems.
Sing to me of cyber
Netanyahu adores cyber, home of concepts he most loves to be identified with – army and Startup Nation together. Mr. Security and Mr. High-tech all in one! Tehran and Tel Aviv!
Last month the National Cyber Bureau, which operates under the direct auspices of the Prime Minister’s Office, published a draft order (in collaboration with the Defense Ministry’s department for supervising exports). It states that it would be too dangerous if certain cyber software falls into enemy hands. Therefore, the order classifies certain cyber activity as weaponry.
That subjugates export of certain things to regulation of defense companies.
Regulation literature describes a highly dubious model called the “toll booth.” When the government places a toll booth at the entrance to a certain industry, it’s to protect the public, the government explains. In practice, what it really wants is for everybody wanting to enter that space to crawl to the government for permission, in exchange for a fee.
The National Cyber Bureau and Defense Ministry have terrific explanations for the draft order. But this is the time to ask whether their concept doesn’t just boil down to a toll booth whose real purpose is to create a new industry of machers and bureaucrats, whose job is to give permits to high-tech companies and entrepreneurs who want to work in the red-hot cyber industry.
Hundreds of generals and other senior officers move along the axis connecting the Defense Ministry, the Israel Defense Forces and Israel’s defense industries. Elbit Systems, the Israel Aerospace Industries, Rafael and the Israel Military Industries are stuffed with former top brass as “consultants.” Their real value lies in their connections within the defense establishment, which is the most important strategic customer of the Israeli defense industry. (They also get paid through the nose, on top of their pensions paid for by the Israeli taxpayer.)
The cyber market is an international one, and until now, cyber companies didn’t need machers and ex-generals to get them notes from the government and advance their interests. But the new “regulation,” direct from the PMO’s cyber bureau, would – overnight – make the government involved in the industry up to its neck. The government would decide which companies can work there, and which can export. Who would decide? Bureaucrats?
Who is behind this new regulation, anyway? The same prime minister who keeps attacking regulation every time a regulator shows an iota of independence and fails to toe the line drawn by the prime minister.
How to shackle a good industry
The irony couldn’t be keener. Netanyahu and his people used to brandish a World Bank report on the difficulty of doing business in Israel and of establishing new companies. Israel does not get good marks on either. Suddenly they suggest taking an industry that had been a jewel of the free market in Israel, and subjecting it to onerous, slow processes of permissions for occupation and exports. They want to attach government weights to the ankles of the cyber companies, most of which are startups.
The high-tech companies are staying mum. So are the high-tech people. They are horrified at the thought of requiring machers to get them permits and open doors. They remain silent because nobody wants to mess with the government. These aren’t huge tycoons with former government officials on the payroll and lawyers up the wazoo and packs of machers, like the case in most industries; these are people who went into high tech rather than a traditional industry because they didn’t want to deal with things like that.
Now they will have to stand in the toll booth Netanyahu is setting up, strip off, explain, hire machers, equip themselves with ex-generals, lawyers etc., who know how to prove they are not a danger to the state, and get them the paperwork they need
We’re about to see ex-politicians and government officials join a bunch of startups and venture capital funds as “consultants,” though their real job is to open doors in government. Netanyahu’s toll booth for high-tech is going to become as much part of the landscape as the toll booth at city hall, the planning and building committees, the National Insurance Institute and income tax authorities, too.
February is going to go down in history as a lousy month for the Israeli economy. Not only did the High Court of Justice refuse to block the road to forming the biggest monopoly in Israeli history. Not only did Netanyahu start building a toll booth for cyber. It seems that having solved all of Israel’s other problems, evidently, the prime minister revived the topic of allowing a casino in Eilat. (Gambling is illegal in Israel, with two specific exceptions: the Mifal Hapayis national lottery and the Toto sports betting organization.) Economic analyses show that the tax revenues casinos would generate are ludicrous, their social impact is entirely negative and terrible, and the jobs they provide are at minimum wage. Casinos, like the Payis and the Toto, are a tax on the poor.
How symbolic that in February, the Finance Ministry published an official report confirming that the high-tech industry hasn’t been driving the economy forward for five years now, and its share in total jobs has diminished. Where will our talented young people go work? At counting cards in casinos in Eilat?