“We have four groups that control the economy,” said the judge. “What kind of competition can exist in a market like that? When a handful of companies with a hand in every field are in control, how much power do these groups have over the legislator too when he wants to make changes and boost competition? The legislator can’t do it here, because these families control politics to the extent of replacing government. It’s hard for the legislator to cope with these families.”
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Thus, in a ruling, in the most natural way, almost as an aside, an Israeli judge, Khaled Kabub of the Tel Aviv District Court, explained to the public what had been concealed for years by hundreds of politicians, big business and lobbyists, aided and abetted by certain newspapers.
Kabub’s biting observation, the naturalness with which it was received and the paucity of attention it attracted demonstrate how much perception has changed in Israeli economic circles. Kabub thus became the first high-ranking judge in Israel to state the obvious out aloud; to say what millions of Israelis have been shouting about on social media for two years.
To recap, four years ago an “economic concentration committee” was set up. A group of Israel’s top economic and legal minds would meet once a month in Jerusalem to discuss whether there was such a thing as economic concentration, whether Israel had it, and whether it needed handling. Most thought not.
The committee’s members included the director general of the Prime Minister’s Office, directors general of ministries, the supervisor of banks, the antitrust commissioner, the chairman of the Israel Securities Authority, the deputy attorney general, the capital markets and insurance commissioner, and the national economies adviser.
The fear of the tycoons ran so high that some of the committee members even said its topic wasn’t “concentration” but “competition.”
The minutes of their meetings, published a year ago, don’t disclose private discussions behind closed doors, the attempts to shut down the committee, it is delegitimization in parts of the press, and the claims of some of its own members that Israel didn’t have a concentration problem; mainly, the members’ utter reluctance to handle this hot potato handed to them by Prime Minister Benjamin Netanyahu and the Bank of Israel governor at the time, Stanley Fischer.
That changed with the social-justice protests. It took hundreds of thousands of angry Israelis taking to the streets; it took a damning report by the Trajtenberg Committee – formed to investigate the reasons behind the protests – about economic concentration and the failure of regulation, to force some of the economic concentration committee’s own members to look reality in the eye.
Once the genie was out of the bottle, reality was harder to fabricate. The political smokescreens on left and right dispersed and more and more players in the public arena garnered courage and spoke aloud of the oligarchic structure that had developed in Israel over the last decade – how regulators were bent, politicians weakened, bankers recruited and how the press was castrated; how directors on corporate boards were trained, professors were bought, and how a small group gradually corrupted all the watchdogs of democracy and the free market.
In June 2010 I wrote about the Jewish-American Louis Brandeis, adviser to President Woodrow Wilson, who took on the oligarchs that had conquered the American economy 100 years ago. Brandeis was preceded by journalists such as Samuel Sandy McClure, founder and publisher of McClure’s Magazine, who told the public in the 19th century about the oligarchic structure of America and who worked with President Teddy Roosevelt to spur public opinion and the political system to take action.
It takes a minority judge?
There’s a great similarity between the era of the American robber barons in the early 20th century and Israel today. Then I wrote: “Where is Israel’s Brandeis? Where is the lawyer, economist or public figure with thorough economic understanding who, free of hollow slogans about ‘capitalism’ and ‘socialism,’ will rise up and say ‘No more?’ Where is a leader who cares and doesn’t settle for lip service, a person willing to take on the most powerful forces in the economy? How pathetic it is that our most august judicial figures nestle in the embrace of this or that oligarch, choosing comfort and respect and prestige − and cocktail parties − over the public good.”
Following that article, only three of the thousands of fighters for justice arose: founder and chairman of the Movement for Quality Government in Israel Elad Shraga, former antitrust commissioner Dror Strum, and former deputy attorney general Didi Lachman-Messer spoke about the ties between economic concentration and democracy and competition. Nobody in academia or the legal system wanted to become the Israeli Louis Brandeis who would declare war on the oligarchy, a target for the rich and powerful.
It would have been better if Kabub made his trenchant observations four or five years ago, but better late than never. He has become the most senior judge in Israel to boldly say how the system works; why economic concentration can’t coexist with democracy, new dwellings competition and regulation.
The cellular market, where prices fell as much as 90% in three years, is the only place where people can feel the effects themselves. Elsewhere the road remains long, and not always do people understand the immediate effect on their cost of living. But make no mistake: As Kabub said, until economic concentration is tackled, competition, a free market and democracy cannot exist in Israel.
Without concentration’s exposure, the revolution in the perception of the regulators’ job would not have happened, no politicians would have talked about competition in banking, we wouldn’t have seen aggressive regulation of the type Dorit Salingar is trying to bring to the capital market. We wouldn’t be seeing the wave of class action motions against the conglomerates.
Without concentration’s exposure, the pyramids wouldn’t have collapsed, the corrupt bankers wouldn’t have been ousted, and the chance of investigations into corruption in government, the cities, the unions, the rabbis, the police and the generals would have been very remote.
Without concentration’s exposure, Kabub himself, whose daughter works at a law firm that represented one of the big pyramids, couldn’t have spoke with that freedom or clarity.
Is it coincidence that the first judge who seems to be made in Brandeis’ mold is an Arab? Maybe. Possibly one needs to be in the minority in order to understand the minority and fight for it.
Maybe it’s because of his background that Kabub hasn’t been invited to join the club of senior, wealthy lawyers in Israel, who coddle the judges to assure that the interests of their clients are heard.
Until his little bombshell.
Millions of Israelis, taxpayers and investors and consumers, have been increasingly removed from control over their assets and economic futures. Politicians avoid economic issues by invoking the smokescreen of security; regulators saw the giant salaries at the monopolies and thought about jobs at one of the “four groups” Kabub mentioned.
Until his little bombshell, the stars of Israel’s legal world, from the highest court to the classroom, confined themselves to security, religion, state, Judaism, conversion and minorities, and esoteric corners of corporate law.
While economic concentration, corruption and mainly simple breach of trust ate away at democracy, the free market, social capital and the press, Israel Bar Association conventions and advanced courses for judges stayed with the smokescreens, themselves becoming another link in the chains of bankers and tycoons. Top judges kowtow before the lawyers and consiglieres of the banks, the giant companies and the big money.
The justice system stayed silent and detached at the oligarchic takeover in the last decade, as a handful of tycoons and bankers seized control of Israeli democracy and its watchdogs.
The big question is whether Kabub’s observation, which was predated by a series of important rulings on economic affairs, are a harbinger of change in the Israeli justice system, and will remind Israel’s lawyers that they’re not only supposed to serve their clients but the public as a whole.
Divide and rule
Will Kabub remain a lone voice? Or will the powers behind judicial appointment committees find a way to explain to him that he’d better not be too creative, because the road to the Supreme Court and good press and personal comfort doesn’t pass through war with the people who really control this country – the “four groups”?
In his words, Kabub described the Israeli pyramid system beautifully: how the head of a pyramid can control vast swathes of the economy with practically no capital of his own. He explained how that ties to competition, regulation and democracy. He described the “divide and rule” principle in the capital market: The public is divided from its assets and a handful of people rule them.
The recommendations of the economic concentration committees and the very exposure and condemnation of economic concentration have begun to gnaw at the pyramids and weaken their influence over regulation and politicians in the past two years. But it’s just the start of the road.
Banking and insurance cartels are the biggest pyramid in Israel. The way they’re controlled by small groups, the tremendous concentration in the finance system and the feebleness of their directors, credit divisions and investment committees make them – just like the other business pyramids – into instruments that siphon assets from the public to the few. Ten people control 2 trillion shekels.
We need to take advantage of the courage and momentum of people like Kabub, and the willingness of a few politicians to start to touch these issues; take advantage of a new spirit among young economists and lawyers in academia and regulation in order to give the public back control of its assets and future, through profound changes in the entire finance system, capital market and the monopolies.