Big Firms Create 'Balance of Terror,' Not Competition, Says Former Antitrust Chief

Associates of country's top businessmen have argued that control has been divided among more families over past few years, so economic concentration is decreasing.

The many corporations that operate in several markets actually harm competition because they create a "balance of terror," said Dror Strum, president of the Israel Institute for Economic Planning and former antitrust commissioner. And as always, it's the consumer who pays for such market failures.

Strum was speaking in the run-up to a conference on economic concentration scheduled to start today at Tel Aviv-Jaffa Academic College.

Dror Strum Ofer Vaknin
Ofer Vaknin

The fact that 15 to 20 families control the country's economy does not mean we have competition, contrary to what the families say, he said.

Associates of the country's top businessmen have argued that control has been divided among more families over the past few years, so economic concentration is decreasing.

This argument is false, said Strum. "The large number of corporations is misleading," he said.

Because there are so many holding companies with operations in multiple fields, the entire economy is concentrated. Companies operate based on the principle of "if you don't harm my operations in this industry, I won't harm your operations in that industry."

They essentially carve up markets among themselves, while consumers continue to pay high prices, Strum explained.

"A businessman could say to himself, 'How can I compete against an IDB subsidiary when another IDB subsidiary is an important customer of my other business?'" said Strum. "The question of what belongs to whom constantly comes up. Does a company belong to IDB, to Africa Israel, to Bezeq? That very question means we're forgoing market competition. The game is fixed."

Public believes economy is too concentrated

Meanwhile, the public's opinion on the matter is quite clear. More than half of adults believe that the economy is too concentrated and that this damages Israeli society and politics, according to a survey initiated by Dr. Shlomit Zuta from the college's economics and management school. The survey, conducted by the Geocartography Institute, sampled 500 Jewish Israelis.

The survey found that 64% of respondents believe the economy is concentrated, 67% believe this increases social gaps, and 60% think this influences politicians in undesirable ways.

Furthermore, 74% believe that the more concentrated the economy, the stronger the connection between money and politics. While 58% said they support reducing the country's economic concentration, if one excludes the respondents who responded "I don't know," a full 76% of people are in favor.

An interministerial committee is debating this very matter. The committee, led by Prime Minister's Office Director General Eyal Gabai and Finance Ministry Director General Haim Shani, is discussing breaking up the pyramid structure that characterizes Israel's business groups and keeping groups from owning both financial and non-financial companies.

Under the pyramid structure, many businesses are controlled by one individual or group of individuals.

It is important to force large corporations to sell off their holdings in financial institutions and the media, said Strum.

By holding these kinds of companies, corporations have control over both the terms of their credit and the press coverage their competitors receive, he said.

The current structure creates serious conflicts of interest, he said.

"They say there are Chinese walls between companies' non-financial and financial holdings, but it's best to have no conflicts of interest at all," he said.