Taking Stock / What's Wrong With the Shakshuka System

Why not let businessmen meet with ministers? Because out of 1,000 meetings, 999 are devoted to trying to crush the consumer like a bug.

Ram Caspi expostulates: "What's wrong with the shakshuka system?"

Speaking at a forum of CEOs and corporate directors last week, a few hours before Miki Rosenthal's movie "The Shakshuka System" was aired on television, Caspi - one of Israel's most prominent lawyers - raised that question. He answered it, too: Nothing. There's nothing wrong with the shakshuka system. There's nothing wrong with relationships between big businessmen and government.

Caspi's critics accuse him of deliberate obtuseness. They say he knows perfectly well what's wrong with the system.

That may not be true. As Upton Sinclair, a journalist, writer and politician, famously remarked, "It's hard to get a man to understand something when his paycheck depends on him not understanding it."

Sinclair wrote dozens of books but his most famous one is called "The Jungle." No, not the one with Mowgli and the panther: His is the capitalist jungle of the American meat business in the last century, which was characterized by dreadful, exploitative employment conditions.

Caspi will continue to serve his clients even if he doesn't understand the dangers lurking for Israel's economy and society because of the relations between wealth and government. But the rest of us need to understand it to the bone.

? Caspi says: "The buzzword of 'wealth and government' is starting to bore." To which we say: It isn't a buzzword. It's the reality. Many of Israel's leading businessmen accrued much of their wealth and power by influencing decisions in the political echelon, not by outperforming the competition, or being creative or efficient.

The phrase isn't the problem: It's the politicians and regulators, and certain journalists who kowtow to the interests of a few powerful families.

? Caspi says: "There's no reason I said shakshuka. I could have said leben [cultured milk]." To which we say: Maybe, but shakshuka is a striking description of the Israeli economy. Cultured milk sounds more like the place we'd like to be.

In that shakshuka we find a mix of politicians and businessmen, people who manage other people's money, journalists, lobbyists and their lawyers. Most of them are tainted with conflicts of interest. They scratch each other's backs with vigor and deliver the bill to people outside that blood-red, steaming stew: the faceless, nameless taxpayers, unconnected and unrepresented.

Leben is homogenous, white, the opposite of shakshuka, less spicy and tasty than the egg, onion and tomato extravaganza but healthier for the economy.

? Caspi says: "I'm a Mapainik. I'm proud of it. The moshavnikim, Bank Hapoalim, the Histadrut, the kibbutzim, the Jewish National Fund - none of these would have arisen without the founding fathers." Caspi may wax nostalgic about the gay Mapai days, but it's 2009 and there's no connection between the structure of the economy today and the way things were 50 years ago. Massive government involvement in founding companies and attracting investors was necessary in the state's first years.

It's 2009 and it isn't needed any more. There's no lack of money or investors. Israel today has a developed capital market and billions in foreign investment pour in every year. The government's only role is to take care of the infrastructure - education, roads - and crush monopolies that depress competition and innovation. That sort of thing.

? Caspi says: "I don't understand why a businessman who builds a plant in the Negev can't meet with the minister in charge of the region." There are two answers to that: One is that out of 1,000 meetings between politicians and businessmen, 999 are devoted to the businessman trying to block competition or get various exemptions and sweetheart deals, to the detriment of consumers. Almost all the jobs in Israel are created by small and medium businesses, whose founders have no access to the political echelon. The tycoons who do have access hardly create any jobs: What they do is buy and sell companies.

The second answer is that anybody who wants to build a plant in the Negev can meet with the relevant professionals at the relevant ministries and learn the terms that the state offers to entrepreneurs in the region. The minister can come to cut the ribbon.

Zionist considerations

? Caspi says: "A lawyer called me and said he had a fund that had raised $30 billion in the U.S. Since its managers were Zionists, they undertook to put 5% of the investments in Israel. They wanted to arrange a meeting with a minister. But he refused to meet with them, saying, 'They want to invest in Israel? Fine. Why do I have to meet with them?'"

To which we say: Zionist investments?

Since when do the managers of a public investments fund violate the trust of their backers by introducing 'Zionist' considerations? Their test is IRR (internal rate of return - that's how the performance of investment funds is gauged), not Zionism. The last manager who declared that he'd be harnessing investor money to promote Zionism was Alan Hevesi, the state comptroller of the state of New York. He put $200 million into the Markstone private equity fund, which operated in Israel.

You can read what happened to Markstone and Hevesi in the archives.

In the last ten years billions upon billions of shekels were invested in Israel by local and foreign investment funds whose managers never met with any ministers. The investments were based on business considerations, not sentimental ones.

And kudos to that minister, who spoke well.

? Caspi says: "I'm all for competition, but give us a chance when competing against the world. If they want to invest - caress them, pat them on the back, otherwise they'll get their caresses in Bucharest." There's no reason for all this hate, Caspi summed up.

Israel isn't Romania and it doesn't have to adopt the relations between wealth and government in Romania as a model.

Israel's economy is dramatically different from Romania's. Romanian policy isn't relevant here. Competition in Israel must not be based on connecting business interests to ministers or regulators. Quite the contrary.

The ties between wealth and government in Israel are detrimental to competition. They deter foreign investors, and depress entrepreneurship and innovation. In fact, these ties were designed in the first place to depress competition, to weaken the littler players and assure sweetheart terms for the big boys.

? On voting by the people who manage our pension monies at shareholder assemblies convened to discuss insider deals, Caspi says: "Institutional investors say no to everything. It's the easiest thing for them to say no because they don't get into trouble. Nobody says to them, 'Hey, I saw you eating with him at Arcaffe.'"

And we say, the easiest thing to say is - Yes. You say Yes and then the powers that be like you. You get offered sweetheart jobs and promotions. You satisfy your boss, who's connected to the people at the top of these companies. You get marked as a guy with the right attitude, who knows what's what. They can go horse-stealing with you. The easiest thing to say is Yes, because after all, it isn't your money. Its somebody else's.