A Year After Mass Protests, the Israeli Spring Is Still in the Bud

But things are starting to move as regulators and institutional investors take tougher stand against monopolies and tycoons.


The impact of the "Israeli spring" was illustrated last week by a report from Supervisor of Banks David Zaken, which discussed economic concentration in the banking system and the urgent need to impose competition on it.

But the extent of the change in Israelis' perceptions was even more visible in the Knesset Economic Affairs Committee's discussion the next day.

There the antitrust commissioner, David Gilo, growled that the Zaken report's recommendations didn't go far enough. He also promised to personally lead a public drive to break up the banking groups, including by forcing the banks to sell their credit-card subsidiaries.

That courageous vow stands in stark contrast to the impression he gave when taking the job two years ago. In recent weeks, Gilo's mantra with regard to various industries has been "Let's see what happens in the cellular market."

There, to recap, there used to be three big companies, each with more or less a third of the market. But suddenly, cut-throat competition arose with the advent of both virtual cellular operators and actual new operators, resulting in substantially lower prices for users.

Cell phone competition

Those with keen memories will recall that Gilo used to say he wasn't convinced there was a problem with competition in the cellular sector. Nor was he alone. Many doubted the need for competition in wireless communications, saying the cellular market functioned perfectly well.

The tremendous power of the mobile operators and the corporate triumvirate, combined with the public's ignorance and cravenness, enabled the companies to rob the weakest members of society without let or hindrance.

But now Gilo is baring his fangs. Not only does he grasp the revolution in the cellular industry, he's morphing into an active regulator. He's taking the lead. He sees that the public views the cellular revolution as a model for other industries, such as banking.

The capital market is also starting to show signs of change. Little signs. Hagai Badash, the brand-new chief executive of one of Israel's biggest investment houses, Psagot, dared to ask aloud why Discount Investment Corporation - a member of Israel's biggest holdings group - is continuing to pour vast sums of money into the bleeding publishing company Maariv at a time when Discount Investments itself is strapped for cash.

Israel's institutional investors, which handle Israelis' pension savings, have long sat around twiddling their thumbs as dubious insider dealings went on throughout the IDB group pyramid.

For instance, there was the deal in which the publicly-traded group bought Israir, a hemorrhaging airline, from the group's owners. Then there was IDB pouring hundreds of millions of shekels into the black hole of Maariv, which has been losing money for years. But the institutional investors cared more about the business pyramids than they did about their own customers.

Now, however, things are starting to move. And it's just the beginning.

Zaken reported that the winners from the absence of competition among the banks are the banks' tenured workers and managers. But the muted reactions to his report show that the change in perceptions is still in its infancy.

Over the last couple of years, and especially the last one, people began to grasp just how badly the monopolies are gouging them and how rotten, nepotistic and backward the Israeli business scene has become.

But the people do not yet see that for all the organized robbery by monopolies and pyramids in the private sector, a far greater robbery is being perpetrated by both private and public organizations constructed like private estates. These organizations employ hundreds of thousands of people, many of them horribly inefficient, but often as not paid through the nose.

Wage outlays double

That state of affairs at the banks has reached an extreme. One might have expected the banks to become dramatically more efficient with the vast advances in technology and the Internet. Yet over the last 10 years, the banks' wage outlays have doubled, to the simply astonishing sum of NIS 17 billion a year. Most of that goes to hordes of tenured employees, alongside which thousands of other employees work for peanuts.

The figures for the defense establishment are even more terrifying. It's not only that the defense budget doubled in the last decade, mostly because of mushrooming wage costs, megalomaniac projects of dubious merit, and of course, the utterly insane pension terms enjoyed by former soldiers (and warriors in the field get mere crumbs compared with the army's paper-pushers ). The real robber barons

It's that the defense establishment's actuarial liabilities have also soared in the last 10 years, from NIS 80 billion to NIS 250 billion - an inconceivable sum that will have to be paid mostly by the middle class. And its children.

Yet the politicians stay mum. The Finance Ministry is silent. Just as the regulators and the government ignored the crying problem of economic concentration until last year, they remain silent about the billions upon billions stolen from the public each year through inefficiency, corruption and bad service at monopolies and big public agencies.

Nor is the theft of building rights discussed, though for years on end, contractors have been bribing planning and city officials.

Forcing competition into the banking industry is critical. If done courageously, the banks will have to lower their prices, improve service and become more efficient.

Competition and exposure to imports could also work wonders in consumer goods and telecommunications.

But competition isn't a panacea. There can't be competition for the army or the police, and privatizing education and healthcare won't do a thing. Note that some of the extra costs land on businesses, which then charge the public more.

The great failure of the protest movement is that it harps on more government spending. Nobody in the movement is discussing the heart-stopping waste, the low efficiency of the public sector or the need to attract and retain quality manpower and create an organizational culture of professional pride and performance.