Israel Loosens Conglomerates' Iron Grip on the Economy

Consumer prices should start falling, two years after social protests shook the land, as Knesset approves landmark bill

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The Knesset passed a landmark law on Monday aimed at minimizing the extent to which the economy is controlled by a few giant corporations.

“Today, we radically changed the economy’s future structure and adapted it to the public’s true needs and interests,” Finance Committee chairman Nissan Slomiansky (Habayit Hayehudi) said Monday. “If until now, the general public’s money was exploited by a small number of tycoons solely to increase their own profits, from now on, this money, and the profits derived from it, will be returned to the public. Savings, and especially pension funds, will be better protected than in the past.”

The law won sweeping bipartisan support, passing by a vote of 73-0, with one abstention (MK Mohammed Barakeh of Hadash). MKs hope it will be published in the government gazette before December 15, when a court is due to discuss a creditor’s arrangement for the IDB conglomerate, since then it would also apply to that case. Laws take effect only after being published in the gazette.

Notably absent from the vote to reduce economic concentration was Prime Minister Benjamin Netanyahu. Economy Minister Naftali Bennett was also absent, but he is currently in Australia.

The law requires holding groups structured as pyramids to be reduced to three tiers of companies within four years and two tiers within six years. It also outlaws the formation of new pyramids with more than two tiers, starting immediately – the relevant provision for the IDB arrangement, which would effectively create a new pyramid.

“From now on, pyramids will be seen only in Egypt,” said Slomiansky.

In addition, the law forbids cross-ownership of both a major financial entity and a major nonfinancial entity. The former is defined as an entity with assets of at least 40 billion shekels ($11.4 billion) and the latter as one with an annual turnover or outstanding loans of at least 6 billion shekels. A person or corporation that currently owns both will have to sell one or the other within four years.

Major financial entities won’t be allowed to own more than 10 percent of a major nonfinancial entity, while someone who owns more than 5 percent of a major nonfinancial entity won’t be able to control a major financial entity.

When government assets are privatized, regulators will henceforth have to consider whether to let major corporations bid.

The law also creates a special committee charged with reducing economic concentration. It will be headed by the antitrust commissioner, and will also include a senior Finance Ministry representative and the chairman or deputy chairman of the National Economic Council.

Most board members of public companies will have to be independent, unless special permission is obtained from the justice minister and the Knesset Finance Committee. At least 50 percent of a public company’s board will usually have to consist of external directors, and external directors will never constitute less than a third of the board.

Among the many corporations likely to be affected by the law, which also includes various other provisions, are the Paz oil company, Bezeq, Israel Chemicals, the Hot cable company, the Yes satellite television company, the Mekorot Water Company and Channel 2 television franchisees Reshet and Keshet.

Efforts to craft the law began three years ago, when the government established a “concentration committee,” headed by the then-directors general of the Finance Ministry and the Prime Minister’s Office, to explore ways of reducing economic concentration. Six months ago, the Knesset Finance Committee began discussing the bill, and despite the efforts of an army of lobbyists, it significantly toughened several provisions. For instance, the government-sponsored bill would have let existing pyramids retain three tiers, but the committee decided that all pyramids would have to be cut to two tiers within six years.

MKs subsequently proposed 52 amendments to the version of the bill forwarded by the committee, but all were rejected in Monday’s vote.

French President Francois Hollande sitting at the podium in the Knesset, November 18, 2013Credit: Knesset Speaker's Office

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