The Bottom Line / Economic Democracy Triumphant

1. The state raised $560-$640 million within a few hours last week, some NIS 2.5 billion in shekel terms - a sum equivalent to the cost of reforms which could rescue the educational system here.

In practice, NIS 2.5 billion is not the full amount. If nothing goes wrong before tomorrow, the amount the state raises will grow to more than NIS 6 billion - all headed for state coffers following the sale of shares in Oil Refineries in Haifa.

The number 6 billion needs to be counted together with another number: 1,000. That's the historic number the Tel Aviv Stock Exchange reached last week, having risen 8 percent so far in 2007 and 150 percent over the past five years. The robustness of the TASE made launching the massive privatization of Oil Refineries possible. The first stage came off successfully, and the remainder is expected to be sold off this week.

This is the second time the state has turned to the markets to fully privatize a government company. The first time was three years ago, when it privatized El Al. Until then, the stock market had a topsy-turvy reputation, a place one could not count on for floating a substantial amount of shares at one time. Nor could one count on the market to quickly produce a stable group to take a controlling stake. Therefore, the state avoided privatizing on the exchange. Rather, it preferred the method of privatizing through selling a controlling stake directly to tycoons, who it perceived as more serious and more respectable.

So, in the El Al privatization it only took a few days before it emerged that there were businessmen who were not thrown off by the change and utilized the market to ensure themselves a controlling stake, namely the Borovich family. In the Oil Refineries case, the word is that even this won't happen. On the very day of the IPO it will become clear who is the new controlling stakeholder. Thus, the efficiency of the market will prove itself as superior to all the sophisticated tenders for controlling stakeholders the state has run until now.

Paradoxically, the TASE is now perceived as the one who pays more than private controlling stakeholders do. Thus, the Israeli capital market proved again that its mechanisms are more efficient than those of a private sale. Major acquisition deals are almost always done through the stock exchanges abroad, too. One company buys a second company, and funds the acquisition by a round of financing in capital markets.

At least this mistake wasn't repeated with Oil Refineries. First, the state took care to break up the refineries into two entities, greatly improving the odds of generating competition. If hopes are fulfilled, and Oil Refineries develops into a giant producer of electricity, desalination and petrochemicals, competition will gain additional boosts.

And what about concentration in the economy? A sale to the Israel Corporation or Africa Israel, two of the three leading candidates, would again clarify the problem of widespread concentration in the Israeli economy - the control of a few conglomerates of entire economic branches. The antitrust authorities need to deal with this issue.