Guy Rolnik / How Israel's Former Top Cop Got Screwed

Rafi Peled made some serious mistakes. But with the perspective of a decade, his role in the dirty business deals that dragged him down looks mainly pathetic.

Poor Rafi Peled.

The former police commissioner was convicted last week of several crimes, most notably fraud and breach of trust in his role managing the Peled-Givony business group. In 2002 that group collapsed with a resounding crash, leaving behind rubble, a crater filled with debt, and no shortage of unanswered questions.

The writing was on the wall – and in my column – a decade ago. Back in 2001 I was keeping track of the Peled-Givony group's malarkey, and of the yardbird behind it, Tal Jaegerman. I warned Peled about his new cronies. I chided him about the dangers in the leveraged pyramid they'd built. If he didn't watch out, I said, he would end up like the notorious Yuval Ran, the mid-1990's trader who built towers of cards just fated to fall, prompting him to flee the country as the aces started to flutter down around him.

Peled made some serious mistakes. He allowed his good name to be used by a bad group of people. At best, he closed his eyes to the truth. At worst, he himself participated in crimes. But with the perspective of a decade, his involvement looks mainly pathetic. Judge Chaled Kabub ruled last week that Peled was the only one of the defendants who didn't steal money from the company. In other words, Peled got tangled up in criminality, and gained nothing from it. The money he received from the companies is peanuts in today's terms.

So why did he get involved with that looney-tunes group? There were many reasons, which certainly had to do with his background, the circumstances under which his police career ended, and his character. But there's one main reason that has nothing to do with him personally.

Peled left the police, went to the Israel Electric Corporation as chairman and left that too, all in the 1990s – a time when the government was getting out of the capital market, the market was starting to open up, new entrepreneurs were springing up and a new era of competition was starting. In other words, Peled left the public sector for the private one some years before the era of the Israeli robber tycoons, before a small band took over Israel's financial institutions and the private monopolies and began to call the shots in the state. Police commissioners, top government officials and their ilk who left the state service by the end of the 1990s didn't have to debase themselves with the type of businessmen with whom Peled hooked up in order to leverage their contacts and public status. They went to work for the tycoons – as directors, chairmen, or at least as lobbyists and machers, forming the bridge between big money and government and charging fees for each transaction they brokered.

Like many high-ranking folks who retire from government, Peled felt it was his right to start making money, big money, the moment he left his government job. In his case he didn’t particularly have a financial impetus, given his pension of NIS 50,000 a month for the rest of his life.

At the start of the 2000s, while Peled was up to his neck with the Jaegerman gang, the era of the Israeli tycoons opened. From 2002 to this very day, every police commissioner, senior official or regulator of economic affairs, every Knesset member who had the horse sense to pursue an economic agenda not only gets a government pension but starts skipping from conglomerate to conglomerate, from monopoly to monopoly, from tycoon to tycoon, anywhere needing a lobbyist to fix things with the police, in Knesset, at the Finance Ministry or with the press.

Poor Rafi Peled got screwed. He left government for business in the mid-1990s, a time when the number of jobs worth millions of shekels a year for retiring government officials was limited. The last handful of police commissioners now work with tycoon Yitzhak Tshuva; former prime minister Ehud Olmert works for the Livnat family, owners of the Nesher cement monopoly; and three people who had sat on the governmental economic concentration committee now work for Nochi Dankner, Zadik Bino and Tshuva.

At business groups like Peled-Givony, where Jaegerman controlled, stealing money from the public is difficult, complicated and criminal. But at today's giant business groups, the public is being robbed by completely legal methods, without the public quite realizing just how it's being screwed: by monopolies, cartels, or the cheap money at the institutional investors and banks, where the profits go only to the members of the elite club of tycoons, high officials and the press.

Today the Rafi Peleds, the Ehud Olmerts and the Nir Gilads (he being a former treasury official, now CEO of The Israel Corporation) don't have to slum among dubious types with piddling companies. They go straight to one of the seven giant business groups and start making millions of shekels per year.

Gilad, who lost hundreds of millions of dollars on The Israel Corporation's investments in Zim Integrated Shipping Services and the Better Place electric-car venture, is already a multi-millionaire. Ehud Olmert, with a criminal conviction under his belt, is still the darling of two of Israel's biggest media groups, legitimizing his return to controlling public money.

About two years ago I met with one of Israel's senior regulators, who had sat on the economic concentration committee. That was before the social-justice protests erupted in mid-2011. Most public figures were afraid to so much as whisper about economic concentration; many claimed it didn't exist, that the economy was competitive and that the pyramidal business groups were a good thing. I kindly asked the regulator where he planned to work after leaving the service. "I won't work for the tycoons," he vowed. "I see those guys from the treasury who went to work for them. I'm not the kind to be a paper-pusher, to carry out orders I'm an independent type."

"I don't know what type you are, but you will go to work for the tycoons," I said politely, "for the simple reason that that's how the Israeli economy is structured. They're the ones who're always willing to pay big money to people like you, and they're the ones who have relevant jobs to offer."

"Say it's so. What do you suggest?" he asked.

"You know the answer," I said. "If the economic concentration committee had ruled that all the big business pyramids and the conglomerates had to be dissolved immediately, if the government had shown itself determined to tear down the business and finance sectors and force competition in every branch, then instead of seven groups hiring all the former officials, dozens of groups would have grown and the entire economic dynamic would be different, and the entire culture of management and relations between owners and salaried managers would be different."

That regulator left the economic concentration committee in the middle of the job. Today he works for one of the big business groups. I don't suppose he has much independence, based on the many conversations I have had with salaried managers over the last 10 years. He will discover soon enough what many before him in the corporate pyramid have learned: that the directors are puppets of the owners. He will also discover that since competition is all but nonexistent for the great business pyramids, profit at most of them is a function of regulatory decisions. And if he manages to fix things, to get the company off the radar of the treasury, the Antitrust Authority, the Israel Securities Authority or the Bank of Israel, he'll have returned the investment in him.

In recent weeks I meet regulators, Knesset members and ministers preparing for the day after elections, for the possibility that they'll have to leave the lap of government and compete in the rat race. They're all madly sending out feelers for jobs, in public bodies or the private sectors. They're all about to discover that their talents are needed mainly by a very small clique of people who require effective lobbyists. That is how the Israeli economy works.

This structure corrupts the economy. It stifles competition, innovation, creativity and talent. This structure repels good people and advances the fixers. This structure is why Israel's business sector, leaving export aside, is stuck at best and rotten at worst.

The head of a large advertising agency told me, "We did nothing for our clients in the last five years, because they didn't need anything. Nothing's happening with the big companies. Their market shares, their statuses are safe. They don't need to advertise because they don't offer any new services and there's no real competition."

The outcome of the upcoming elections won't change a thing in these areas, or in many other economic areas. The parties may have slogans about privatization or nationalization but won't mention the elephant in the room – quality and effectiveness in the public sector in general and in regulation in particular; economic policy that balances the pressures from the big interest groups; and the structure of the economy and capital market.

Total package

Amir Peretz says that after the elections, a "package deal" will be needed. He's right, too. That is exactly what you'll get in six months' time, when the new government has to make one of the biggest budget cuts Israel's seen for a decade.

What will this package look like? A package means that almost everybody gets something – except Average Joe and Joe Junior. They get nothing. They only pay the price. The interest groups know how to protect themselves, thanks to the useful fools who think that there is a genuine ideological difference between left and right, religious and nonobservant; thanks to people who don't understand that during the last two millennium, the biggest battle has been over regulation – over the laws that dictate who gets the biggest piece of the pie. But the cultures and nations that fall are the ones where pressure groups and exploitative elites set the agenda; they are prepared to create structures that are utterly unfair, uncompetitive and un-free for the sake of money, which brings power, which brings even more money.

Ofer Vaknin