What Do the People Really Want?

Nathan Lipson
Nathan Lipson
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Nathan Lipson
Nathan Lipson

It happens every year. With the advent of summer, the dire reports and projections of war begin, promptly followed by a torrent of talk, commentary and more projections: with whom, for how long, in what form, and of course whether or not Israel is prepared. Then September rolls around and everything calms down until the next summer.

This summer was different. It was the first time that such a vast range of people, from so many places, have said: our priorities have changed. The same old security issues that dominated the public debate since the state was founded, 63 years ago, are no longer at the forefront. What people care about most now, and for the foreseeable future, is the state of the economy and of society in general.

As the streets fill with protesters, the stock market – and the tycoons’ firms in particular – fall. Credit: David Bachar

No one is saying the security issues have been solved. But the public is in the mood for introspection. In addition, people may also suspect that whipping up hysteria about externalities has been how successive Israeli governments distracted public attention from profound economic and social distortions. Perhaps it's harder to tackle the country's economic and social ills than to address security issues. But in order to guarantee that the Israel of 2021 - and 2031 and 2041 - is a better place, these harder problems must be addressed.

It isn't only the public debate that has changed. People are beginning to realize that they must take action in order to bring about the change they seek; that they must take the initiative and hit the streets to garner support.

Today, more than a month since the protests erupted, the voices demanding action rather than lip service are clear as a bell. The more militant argue that the time isn't ripe because momentum is still building up: The protest needs to take shape. It needs more people on board. The greater the momentum, the greater the change that can be achieved. Others feel the protest has already reached the critical mass for change and worry that it will crumble if action does not begin soon.

But all sense that there is a historic opportunity to achieve influence that will resound for generations.

'All sorts of things'

"The people want all sorts of things," says a sign on a tent on Tel Aviv's Rothschild Boulevard, the place where the "tent protest" movement began. That sentence, rich with self-deprecating irony, well reflects the vast range of demands, the confusion and the lack of focus that marks this grassroots uprising of discontent, and perhaps also the recognition that the protesters can't get everything they want. Certainly not in the near future.

If there is a common denominator to all the sub-protests, all the advocates of discontent, it seems to be dissatisfaction with "the system," "the structure."

The protest is not simply against the unfair distribution of income. The distorted distribution of income is merely a symptom of the underlying distortion, not the disease itself. The disease is the structure that guarantees that economic power remain in the hands of the people who already have it, as if by contract with the government. These people wield not only economic might but also the political influence to affect important laws and regulations.

This ensures their ever-increasing power, enabling them to suck the life out of the dreams of ever-increasing numbers of citizens.

That structure and its system of incentives created the conditions that permitted a handful of Israeli families to rise to heights of influence that are unparalleled in the West.

The four families

One of the most-read publications of the World Economic Forum, whose annual meeting is famously held in Davos, Switzerland, is the annual Global Competitiveness Report.

Among the report's many parts is an index indicating the results of a survey of leading businesspeople, who were asked to characterize corporate activity in their country; that is, who controls each nation's economy, according to a scale where 1 is a few business groups and 7 is a large number of companies.

The WEF Global Competitiveness Report for 2010-2011 gave Israel a weighted mark of 3.1, placing it 117th among 139 nations - in the bottom fifth.

At the top of the heap are Germany, Japan and Switzerland. Right above Israel are Mozambique, Bangladesh and Mauritius (at 114 to 116 ). Immediately below are Burkina Faso, Syria and Honduras (118 to 120 ). Concentrated market domination is highly correlated with backward, corrupt politics.

The highest degree of economic and social influence is when an individual (or family ) controls large manufacturing or service companies, large financial institutions and media companies.

In Israel there are four individuals or families with holdings in all three areas. The Ofer family owns the Israel Corporation, a controlling interest in Bank Mizrahi-Tefahot and Channel 2 television broadcast company Reshet ). Yitzhak Tshuva owns the Delek Group, which in turn controls the Phoenix insurance company and a stake in Channel 2 broadcaster Keshet. Muzi Wertheim owns the Central Bottling Company (Coca-Cola Israel and Tara Dairy ), a controlling interest in Bank Mizrahi-Tefahot and a stake in Keshet ). Nochi Dankner controls the IDB group, through which he controls Clal Insurance and the Maariv publishing group.

Dankner's partners in controlling the IDB group are the Manor family, which also owns the Peugeot and Citroen importer, and the Livnat family, which controls the Taavura haulage group.

That is the uppermost circle of influence. The second circle is of families with major holdings in two of the three types of companies.

These include Shari Arison, who owns Bank Hapoalim and the construction company Shikun & Binui (but no media company ). Zadik Bino controls Paz Oil and the First International Bank of Israel, but has no media holdings. Yossi Maiman owns a controlling interest in Channel 10 television and the Ampal-American Israel Corporation, but no finance companies.

These people control companies with annual turnover of billions of dollars. They employ hundreds of thousands of people, sell to millions of customers and manage hundreds of billions of shekels in investments. These people also influence the public debate.

This is not just a small group of influential people. It is a closed group with tight personal ties. Their companies are yawning vacuums sucking up credit, and they personally take on vast amounts of credit as well to finance their activities of new companies. They lending massive sums to each other and are therefore dependent on each other for sheer survival.

That's why they may be so much more forgiving when one of their own stumbles into trouble than they would be to an outsider with debt repayment issues.

Their interdependence also gives them great incentive to guard each other, including by denying credit to people or companies outside of the clique who are potential competitors to a member of the group.

They didn't break the rules

In light of these circumstances one can understand why it is convenient for them not to be on the protesters' agenda, why it suits them for the protesters to aim their invective at the government instead.

The government should indeed be their target. The wealthy operate in an environment in which the structure, the laws, the regulations and the incentives coddle them, encouraging them to grow even more and suffocate the competition while about it.

They did not achieve their power by breaking the law or the rules, but rather by using the system. And if that's the case then it's the environment, not the players, that must change.

The majority of the business activity of these powerful families is within Israel. Economic concentration allows them to grow to a size that spares them the cost of competition.

The rest of the world is a bigger market. But there, competition is tooth and claw and the probability of profit is smaller. IDB tried its hand abroad for several years, taking on the multinationals, and failed. Eventually it sold its international company, Makhteshim-Agan Industries. It preferred to stay with the locals: Clal Insurance, Super-Sol and Cellcom, where it operates with comfortably scant competition.

None of the local tycoons have significant international operations that have generated consistent, substantial income over time, with one exception: the Ofer family, with Israel Chemicals. Even there, the family is exploiting an Israeli national resource, the minerals at the Dead Sea, and their right to exploit that treasure is arguable.

Israel is small, with just 7.7 million people in 22,000 square kilometers. There's a limit to what it can offer people wanting to operate in the confines of its economic system.

The disease

Israel's main problem isn't regulation, though that does need fixing. The main problem is a structure that not only enables uncompetitive businesses to arise and thrive, but encourages it. There is hardly a local sector where competition runs free. Not banking, insurance, electricity, the ports, telecommunications, food or other retail businesses. There's even a monopoly over land for development, which is held by the government.

One outcome is that Israel is a paradise for monopolies, a museum of uncompetitiveness in an increasingly competitive world. Another is that some of the monopolies and cartels are owned by the rich families and some are cultivated by their workers, under the protective wing of the government and the Histadrut labor federation.

Together, this leads to sky-high prices, to inefficiency, nepotism and cronyism. It stifles innovation. And it quenches hope: People feel it is highly unlikely that economic power will ever be shared more evenly.

That is what the protest is about.

The government must create new laws, regulations, rules and standards that will prevent the growth of anticompetitive economic monsters.

Pundits generally agree that the middle class cannot simply get more and pay less, as the protesters would like: The more the middle class gets, the more it pays, because it's the source of tax income.

Unless more people start paying income taxes, that is. And that means getting more Israelis into the workforce.

There are many people in Israel who do not work. Some are people who have worked in the past, who want jobs but can't find them. But some don't even try. Their absence from the workforce has at least two important economic implications: They are an economic burden on those who do work, and they miss out on the possibility of earning more than welfare pays.

A better place in 2021

Looking ahead 10 years we see that in order to be a better place to live, Israel needs a new public debate, and this is beginning.

Structural reforms must be introduced in order to reduce economic concentration and improve competitiveness.

Concrete ways must be found to get more people working.

These two things are synergetic: Increasing competitiveness will stimulate economic growth, which will in turn create new jobs.

Prime Minister Benjamin Netanyahu sees the protest in terms of left and right, and reacts accordingly. But his economic views, and his actions as finance minister from 2003 to 2005, indicate that he knows well what he faces and what needs to be done.

Netanyahu wants to go down in history as a great political leader, maybe like Menachem Begin, who made peace with Egypt. But fate has handed him the opportunity to make his mark on the economy. The more Netanyahu insists on sticking to a political agenda, the more likely he is to miss his opportunity.