All That Wealth, and Power

All that wealth. Is it good for the Jews, or bad for the Jews?

Look at the ten superstars heading TheMarker-500 list of the richest people in Israel, published last week. The combined wealth of the ten is $26 billion, or 21 percent of Israel's GDP.

In the last year alone, their wealth grew by 50 percent. Since TheMarker began analyzing the map of riches in the land, the net asset value of the ten richest has increased by 200 percent, or $17.5 billion.

Many know what they think about the question we presented above. Such extreme accrual of riches by a mere handful of people is dangerous, sick, and warped. It sublimely represents the worst developments in the Israeli economy scene and society over the last decade.

Many feel that each dollar added to the wealth of that gang, sometimes called "the Families" or "the Israeli oligarchs", is at the expense of the poor or middle class.

Sadly, there is much truth in that description. No small part of the people in the 500 list accrued their wealth by exploiting the structure of the marketplace: they ran monopolies or oligopolies and grew rich at the expense of consumers buying their services or goods. Or, they won tenders, franchises, perks and various protections from the state, again at the expense of consumers and taxpayers.

But that is only part of the story. Most of the wealth accrued by the list superstars in recent years originates in international business. Eitan and Stef Wertheimer did receive grants and tax benefits worth hundreds of millions of shareholders from the state over the last 20 years. But they built up their tremendous wealth by developing a unique business model that turned Iscar into one of the most profitable companies in the world, a company employing thousands of people and generating great value for the Israeli economy.

Shari Arison is one of the controlling shareholders of Bank Hapoalim. Its high profits are enabled among other things by the low level of competition in many financial markets. But the bank is only a tiny part of her wealth: most of it derives from foreign tourism operations that her father established and her brother runs.

The rapid rise of riches among hundreds of entrepreneurs and investors in the last decade is not a symptom of economic or social disease. It is the result of a growing global economy, of their ventures to do business abroad, and mainly, of the Israeli talent in Internet and technology.

The promise, and the threat

So is all hunky-dory? Shall we congratulate the tremendous fortunes built up by the Wertheimers, Yitzhak Tshuva, Lev Leviev, the Dankners and the others? That is far from sure. The tremendous wealth accrued in the last decade by ten or twenty entrepreneurs and families could contribute to future economic growth, but it is also a threat to society and to Israel's economy as well.

To remind you, ten years ago the Israeli government decided to force Bank Hapoalim to sell its non-banking assets. The commission, called the Brodet Committee, on which the former antitrust commissioner - Yoram Turbowicz - also sat, ordered by to sell its controlling interests in major concerns. Explaining the importance of the divestiture, Turbowicz said the main danger inherent in the bank's might lay in its influence over policy-makers, politicians - in fact, it could ultimately harm democracy.

Turbowicz was not theorizing. As a former antitrust commissioner, he knew how hard it was for him and other government servants to confront the three or four richest families in the land. Today you take them on, tomorrow you have to throw yourself on their mercies.

Ten years later, Turbowicz is managing the bureau of Prime Minister Ehud Olmert, the first prime minister in Israel known for his affection for the rich in general, and Israeli rich in particular.

During his seven years in business before returning to government, Turbowicz was a salaried employee, or adviser, or confidant of some of the richest, most influential people in Israel. He moved in the circles of Nochi Dankner, Yitzhak Tshuva and Zadik Bino. Now Turbowicz is supposed to eschew his friends and devote himself unstintingly to public service. That is not an easy thing to do.

Big business shaping policy

Twenty or 30 of the biggest business squids in Israel are stronger now than ever before. You have to be a very small fish indeed to escape their embrace. They have more clout than ever before on influencing government decisions on economic, social and even political matters, if they want to. This is one of the biggest dangers to Israeli democracy and society.

One of the five biggest business sharks told us a few years back, that he was thinking of hiring a renowned lawyer, who was considered very close to the prime minister at the time, and played a role in building the coalition. "What do you think?" he chuckled. "If I transfer to the prime minister's lawyer a few big deals I have on my desk at the moment, would I be able to affect the decision on Israel's next foreign or finance minister?"

One top official in Jerusalem confessed a few months back, "I'm afraid to touch all these gas deals. Some of the richest people in Israel are involved and so are the biggest lawyers, who are usually associated with the prime minister. Any decision could bring them billions and it all stinks of corruption."

From time to time, when the wealthy fight over a franchise or other opportunity, reporters get a chance to watch them vie for influence over government clerks. It can be a frightening display, not to mention revolting: they move the clerks, the ministers, the politicians and sometimes the reporters too like pawns on their giant chess board. We have often seen politicians and other policy makers gross profit dumb when confronting one of the really big businessmen.

Why they pay top shekel

Not long ago a top manager at one of the big companies shared his interpretation of the high wages at some public companies. Theoretically, the fat cats controlling the companies have an interest in reining back wages: it's at their expense. But sky-high pay, the kind that gets reported in the papers, has another effect too.

That is how the ultra-rich train the government officials, he explained. The officials see the tremendous earning potential in the business sector and do the math for themselves, deciding in their regulatory moves whether they're for the public good or for a cushy job at the right knee of a billionaire.

A bunch of "socially aware" politicians is now plugging a special tax on the rich, or ways to buttress the unions. But the truth is that the rich couldn't care less: in any case most of the tax gets paid by Israel's salaried workers.

The economic policy that these caring officials propose actually serves the rich: it deflects the debate from what really matters, which is their ability to pull strings in government in order to shape economic policy.

The solution lies in the people who are supposed  to be safeguarding our interests; it lies in their professionalism, their integrity, and their ability to formulate macro and micro economic policies for the long-term.

Israel needs an aggressive, decisive policy to diversify economic might, and mechanisms to deal effectively with white-collar crime.

We must not remain apathetic. The policy should be broadly supported by the political echelon and public alike. They too must understand that they have a personal interest: they don't actually want to be the marionette playthings of the super-rich.

Globalization will also help. As international entities enter Israel, they will help diversify the power. The rise of new economic foci such as the hi-tech millionaires will have the same effect.

Yet based on experience, one must not develop overly high expectations. Our 500 list is split into two parts: One is hundreds of entrepreneurs who grew wealthy in hi-tech and in international business, and who have no interest in investing a sou in Israel and of influencing the local economy and society. The other is a handful of tycoons who grew with on leveraged local businesses, takeovers and acquisitions, and whose appetite for power and more power knows no end.