Taking Stock / Q&A With Lord Kalms

When Finance Minister Benjamin Netanyahu's opponents want to sneer at him and his economic policies, they call him a Thatcherite.

That means something very specific. The reference is based on Margaret Thatcher, prime minister of Britain from 1979 to 1990, who broke the unions and privatized the great state-owned companies. Thatcherism has become synonymous with callous economic policy that sanctifies market economics.

Last week, a true Thatcherite granted an interview to TheMarker. Lord Stanley Kalms, one of the most successful entrepreneurs and managers Britain has boasted in the last 50 years, founded the Dixons retail electronics chain - and is a firm supporter of Thatcher and the Conservative Party she led, the Tories.

The interview with Kalms provided a rare opportunity to see what a true Thatcherite thinks of Benjamin Netanyahu and his economic tenets, which over here are considered practically axiomatic.

l A famous Israeli axiom states that Margaret Thatcher's economic policy was pitiless, and that it sanctified market economics. The opposite is true, says Kalms: Breaking the unions and privatization made Britain more prosperous. Thatcher never undermined social security networks.

l "Netanyahu is a Thatcherite", cry his opponents. Here Kalms springs two surprises: Thatcherism is not what people think it is, and Netanyahu is not what people think he is either. One thing he isn't is a Thatcherite.

Kalms elucidates: Netanyahu has not yet shown sufficient drive in his economic reforms, privatization and efforts to break the big unions. But he went too far in breaking down social security networks - something Thatcher never did.

Moreover, the structural reforms Thatcher instituted generated Britain's longest period of economic growth, strengthening its economy, whereas the European economy is mired in trouble.

l "Destroying the unions would exacerbate poverty and widen social gaps," goes another popular axiom. Britain's experience has been the opposite, says Kalms: The unions care only about their members and are destructive to the rest of society. Breaking the unions reduces prices and improves the services they controlled. The road to Britain's prosperity began with the breaking of the unions.

l "Israel's economy is excellent. It is progressing toward market economics. It's biggest problem is the security situation," Labor has been saying for years.

Not in Kalms' eyes: Israel had tremendous economic potential that its governments destroyed. Israel's biggest problem is that at heart, its economy remains socialist, controlled by the government and the monopolies. The biggest problem is absence of competition and a culture of competition.

l "Israel is striding toward heartless market economics," drone the politicians and a fair number of pundits. Sadly, that's far from true, says Kalms, once and for all explaining that "slashing entitlement budgets" is not "capitalism," but economic cruelty.

"Market economics" does not mean abandoning the poor. In fact there is no association between the two. Leave the economics to the market, but the poor are the province of government.

Wallowing in the trough

l "After its mountainous outlay on security, Israel's biggest problem is regulation, which is preventing business from growing." Every big businessman in town has been humming that mantra for years.

This British businessman doesn't think so: To the contrary, Israel's biggest problem is under-regulation, or weak regulation. Regulation is an integral part of market economics, says Kalms. Without regulation, all that develops is a monopolistic market structure, not competition.

l "The real problem with the economy is politicians," we like to complain. Kalms begs to differ: In Israel, the government, the banks and the business establishment willingly collaborate to maintain the status quo and prevent competition and change that would lead to economic prosperity. The following could explain why one has to leave the country to hear other views: "In Israel people are afraid to speak out against the economic establishment." They'd rather be in the trough than spitting at it, he explains.

l "Separating the provident and mutual funds from the banks, as the Bachar reform proposes, is an insane idea birthed by bureaucrats with no idea how the world really works," sputter the bankers. Kalms rebuts that separation is crucial for the development of Israel's capital market. In Britain, most asset management is completely independent.

l "Israel's banks are managed excellently. Just look how high their profits were in 2004," argue the bankers. Kalms doesn't buy that: The record of Israel's banks in asset management and lending is pitiful. Their high profits are the result of having an "easy market" - the duopoly of Hapoalim and Leumi control the market.

l "Israel's economy is small so most of its monopolies are `natural' and most government services can't be privatized," say the unions, and the people controlling the monopolies.

That's what they said in Britain 20 years ago, Kalms relates. But Thatcher proved that there's nothing natural about a monopoly; most bear privatization and competition. They become more efficient, service improves and prices fall.

l "Tax on the rich must be lowered to stimulate economic growth," Netanyahu explains. Yes, says Kalms: Taxes the world wide are declining, but if anything the super-rich, the millionaires and billionaires, should be hit the hardest, as Britain used to do. Special tax should be imposed on them.

First of all, tax is not the only consideration when making investments, he says. And more importantly, he says, though the rich don't like to think about it, the wealthy shouldn't be allowed to hold that much of the pie, when there's so much poverty in the marketplace making them rich.