OECD Chief: Lack of Competition Is the Economic Equivalent to Lack of Democracy

Angel Gurria tells TheMarker: We will form task forces that will deal with the centralization of power and property, the rise in real estate prices and the taxation of gas discoveries.

There are three subjects commanding headlines in Israel today that are in the crosshairs of the OECD: centralization of power and property, the increase in real estate prices, and the taxation of discoveries of gas fields, according to Angel Gurria, Secretary-General of the organization.

OECD Chief Angel Gurria, Olivier Fitoussi
Olivier Fitoussi

Gurria, who was the Mexican Finance Minister during the years 1998 – 2000, said that when he is asked about Israel, he "sometimes feels right at home.'

The Mexican economy is very different from the Israeli economy but the two have a common feature: a small number of families controlling a large part of the country's economy. Mexico is known primarily for one man who owns huge swaths of the economy: Carlos Slim, most of whose money is derived from control over Mexican monopolies.

 "There are three subjects that we conduct a serious investigation of in the Israeli economy: centralization – the control by families and groups of businesses of a large part of the economy – and the need to break up real holdings and financial holdings; the real estate housing bubble, and the tax rate for gas discoveries," Gurria said.

 "The analyses of the real estate market and the gas market will be regulated by the Israeli desk," Gurria added. "Concerning the issue of centralization, we will assemble a team made up of members of both desks.

 Q: Why did you decide that the issue of centralization is so important for the Israeli economy? Representatives of the families contend that there is no proof that that it contributes serious damages to the state.

 A: There are three reasons for this: competition, competition, and competition.

 Q: How does centralization impact upon competition?

 A: "Centralization impacts upon competition. It is competition that determines the renewal, the rate of change in the market. If there is no competition, there is no suspicion, and there is suspicion, there is no investment. When there is no competition, all the major players hunker down in their sectors of the economy and they have no economic incentive to go out, renew, and invest.

 "It is competition that determines the ability of the state to renew and to move forward, at the end of the day. I know this well from Mexico. Today it is well-known fact, from studies that we conducted in Mexico, that centralization and low levels of competition will cause a country to lose its competitive advantages internationally.

"A country that is not competitive will not be at the forefront of global development. The lack of competition is the economic equivalent of the lack of democracy."

Q: For the last twenty years, Israel has made significant achievements in the field of high-tech. We are thought to be a country with incredible human resources. But the decline in the performance of the Israeli education system, compared to OECD international standards, could threaten continued development in the next twenty years.

Is it possible that today we are witnessing the fruits of the Israeli education system of twenty, thirty years ago, of a huge wave of immigration from the former Soviet Union and other phenomenon that no longer exist today?

A: "I do not think that Israel can slip lower in this regard. You've done it. You have developed an advanced information economy. It's true that in international benchmarks, when high school students are tested, Israeli students score low – but we need to investigate not only the education levels in the schools, but also the education levels in the universities and in the working population.

"In the U.S., for example, students achieve mediocre grades, but they have the best universities and research institutes in the world – which makes the American economy the most dynamic and complex in the world.

"I don't know where Israel stands in relation to these statistics – we'll investigate it in the years to come. We will include Israel in additional surveys that examine the education levels in the whole economy, and not only in the school system.

"My sense is that Israel has advanced a level in the last twenty years and has become an information economy. When you reach that level, there is a mechanism that preserves your position. There is already infrastructure here, there is already heavy industry, there are already many models of success.

"I see other countries where the model of success is to be a banker. For you, the model of success is to be a high-tech worker and a scientist, and that in itself draws even more people to that world."

Gurria didn't only hand out praise. The dark side of the Israeli economy, he said, is the large part of the population that does not participate in Israel's economic advancements in general, and its information economy specifically: Arabs, Haredim, Bedouin, Ethiopians, and many others that lag behind.

Gurria arrived in Israel last weekend. He toured in the north of the country with Finance Minister Yuval Steinitz, and participated in a celebratory dinner at the King David Hotel in Jerusalem with the minister.

Bank of Israel Governor Stanley Fischer and former finance ministers that played roles in the process of Israel joining the OECD also took part in the dinner, including Avraham Shochat, Yaakov Neeman, Dan Meridor, Meir Sheetrit and Roni Bar-On.

While in Israel, Gurria participated in a weekly cabinet meeting and also met with the education minister and the president, among others. He also participated in an industrialists seminar that dealt with taking advantage of business opportunities that result from Israel's joining the OECD.