Yes, break them up

We must dismantle the oligarch-owned monopolies that impoverish the Israeli consumer and choke our economy.

Filed under:

fundamentals • public policy

“Yes, break it up!” Ze’ev Jabotinsky, the prophetic liberal Zionist leader demanded in 1922, referring to the Histadrut labor federation monopoly. Under the pretense of securing employment for Jews during the Mandatory era, the Histadrut launched a class struggle meant to destroy the bourgeoisie and establish on its ruins a socialist utopia, as its top leaders openly asserted. It violently denied employment to workers not possessing its red membership card.

Then as now, the defenders of monopolistic practices have been trying to distract attention from the damage caused by their monopolies by character assassination and by incitement to discredit their critics.

Jabotinsky clearly stated that it is the right of every worker to organize and establish unions; that only when such unions become rapacious monopolies, as they are now, and use their excessive power for political control and to destroy competition, they should be broken up. Yet his Labor opponents, including their supporters in academia and the media, knowingly launched the big lie that Jabotinsky, who was a classic liberal, a man who advocated minority and women’s rights very early on (in his Betar anthem he wrote: “There [in the forthcoming Jewish state] shall live in well-being and happiness, the son of Arabia, the son of Nazareth and my son”) simply wanted to destroy any workers’ union.

Jabotinsky was a fascist “following in the footsteps of Hitler,” David Ben-Gurion averred in a Labor Party pamphlet of the mid-1930s. Therefore, Jabotinsky was beyond the pale and should be destroyed together with his party. Ben-Gurion’s followers soon took action and violently attacked Jabotinsky’s followers.

OUR CURRENT oligarchs and their henchmen are restoring to similar tactics to protect their monopolies. The Bank of Israel has just published an astounding document, a courageous analysis of the dangers posed by the concentration of political and economic power in the country. Issued by its Research Department (headed by the savvy Carnit Flug), the report recommends that steps be taken to curb the power of the oligarch-owned conglomerates that dominate much of the economy through their pyramid structure and cross-holdings in real (those that engage in trade or industry of goods and services, not money) and financial firms.

Such cross-holding give the conglomerates preferential access to credit, as well as to a lot of privileged business information that banks routinely receive from their creditors. The pyramid structure of the conglomerates has also allowed the oligarchs to control dozens of other firms. By simply controlling the mother corporation at the head of each pyramid, they control dozens of other companies in which they invested a very small share of their capital.

So with a few hundred million shekels, which they received as loans though their crony connections from the nationalized banks, about 20 families managed to take control of the major business groups, representing more than half the assets traded on the Tel Aviv Stock Exchange.

There is no comparable concentration of political and economic power in any other democratic country.

Such concentrated power led to the very damaging cozy relationship between oligarchs, politicians and large parts of the media – a relationship that has corrupted politics, the economy and public discourse and is damaging democracy.

AFTER THE Bank of Israel report, Prime Minister Binyamin Netanyahu announced that he will take “determined, focused and well-thought-out action” against oligarchic control over these pyramid groups, so as to avoid the danger of a domino-like financial collapse in case one of them gets into trouble, as they have recently.

Immediately, a number of top journalists have attacked the prime minister in an attempt to prevent him from taking action to dismantle the pyramid groups. The assault was led by prominent economic commentators who, for years now, have been trying to protect the bank oligopoly that was eventually partly broken up by the Bachar Commission reform of financial markets.

In their bitter, years-long attacks on the Bachar reforms, these pundits shamelessly spread disinformation, distortion and sometimes even outright lies. During the recent crisis some even tried to incite panic in financial markets in an attempt to destroy the new financial institutions competing with the banks. Now they claim that the prime minister is picking on the oligarchs to distract us from our real problems, the problems of the Negev and Galilee, the problems of poverty and the problems of our deteriorating educational system.

Those who make this spurious claim are aware that the problem of poverty can be greatly reduced within a few years once the conglomerates and their monopolies are broken up. Today, these conglomerates steal about a third of workers’ salaries by inflating the prices of all consumer goods. Breaking them up will lower prices and increase the purchasing power, especially that of low-income Israelis, and lift them out of poverty.

The monopoly defending pundits ought also to know that the Negev and Galilee are failing to develop because the banks have created a decades-long credit crunch, refusing to grant credit to small enterprises concentrated in the periphery. Instead most credit is allocated to their oligarch cronies for speculation in real estate abroad and in foreign currencies.

But they try to distract our attention by falsely attacking the proponents of reform so that we will not support the liberation of the economy. Will we let them get away with it?

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