Treasury Report Says Business Concentration Poses Risk to Israeli Economy

The report shows that business concentration has been growing for the past decade, particularly in finance and communication.

Ora Coren
Ora Coren
Send in e-mailSend in e-mail
Ora Coren
Ora Coren

Business concentration in Israel poses a systemic risk to the economy due to the size of the big business groups,” according to a groundbreaking study by the Finance Ministry. Prepared two years ago, the study was finally released on Tuesday.

The study was a critical factor in winning Knesset approval for the Business Concentration Law in December. The legislation places limits on holding groups structured as pyramids and bars cross-holding between major financial and non-financial companies.

Partly leaked to TheMarker when it was prepared in 2011, the report was released to the public on Tuesday as part of the State Revenue Administration. It documents the activities of 13 business groups over the years 2003 to 2008, using information from the Tax Authority.

Contrary to what was widely believed, the report found that the degree of business concentration had grown in those years, with the combined profits of the 13 groups growing to 6% in 2008 from 4% in 20002.

It found that the highest degree of concentration was in communications and finance, where the big holding groups accounting for 84% and 53% respectively of all profits. When holding companies are structured as pyramids, companies lower down are weakened financially as they channeled capital to companies further up as dividends.

The treasury report found that the salary gaps between senior managers in the holding groups and their employees had widened over the years, while in the rest of the business sector the differential had remain virtually unchanged. Compensation paid to executives grew 3.4-fold in the six years while that for employees increased just 15%.

“There were cases where it was found that business groups characterized by monopoly power and lack of competition heightened the risk to the economy’s stability,” the report said. “Most of the business transactions were made in the search of political dividends, rather than in creating businesses that would support [economic ] growth.”

The report pointed to the vertical integration that is characteristic of many of the holding groups, which put all elements of a particular industry or market inside the group, undermining competition and enhancing their monopoly power. For that reason, the report said, the groups posed a systemic risk to the economy.

Dankner in court.Credit: Daniel Bar-On

Click the alert icon to follow topics:

Comments

SUBSCRIBERS JOIN THE CONVERSATION FASTER

Automatic approval of subscriber comments.
From $1 for the first month

Already signed up? LOG IN

ICYMI

בנימין נתניהו השקת ספר

Netanyahu’s Israel Is About to Slam the Door on the Diaspora

עדי שטרן

Head of Israel’s Top Art Academy Leads a Quiet Revolution

Charles Lindbergh addressing an America First Committee rally on October 3, 1941.

Ken Burns’ Brilliant ‘The U.S. and the Holocaust’ Has Only One Problem

Skyscrapers in Ramat Gan and Tel Aviv.

Israel May Have Caught the Worst American Disease, New Research Shows

ג'אמיל דקוור

Why the Head of ACLU’s Human Rights Program Has Regrets About Emigrating From Israel

ISRAEL-VOTE

Netanyahu’s Election Win Dealt a Grievous Blow to Judaism