[Marxism] Israel's crony capitalism

Louis Proyect lnp3 at panix.com
Fri Aug 12 07:34:08 MDT 2011

NY Times August 11, 2011
Protests Force Israel to Confront Wealth Gap

TEL AVIV — They are mainstays of the society pages and glossy 
magazines. Some are praised for the hospital wings they have 
built, others are gossiped about for their quirks.

But these days, the handful of wealthy families who dominate the 
Israeli economy are assuming a new role: one of the chief targets 
of the tent-city protesters who have shaken Israel in the past month.

The “tycoons,” as they are known even in Hebrew, are suddenly 
facing enraged scrutiny as middle-class families complain that a 
country once viewed as an example of intimate equality today has 
one of the largest gaps between rich and poor in the 
industrialized world.

The tent-city protesters, who have shifted the public discourse by 
demanding affordable housing and other essential goods, issued a 
document this week calling for a new socioeconomic agenda. Topping 
their goals: “minimizing social inequalities.”

“What is keeping people on the streets is the question that if we 
are all having a hard time and we are all working and paying 
taxes, who is making the profits?” said Daphni Leef, the 
25-year-old filmmaker who began this protest movement with a 
Facebook posting and remains at its center. “We know there are 
certain families that have a lot of money and a lot of influence 
and there is no transparency. People feel deceived.”

Those families — the Ofers, the Dankners, the Tshuvas, the 
Fishmans and others — account for the 10 biggest business groups 
in the country and together control some 30 percent of the 
economy. They will doubtless be among the targets at another set 
of street demonstrations planned for Saturday night.

“It is becoming clearer to more and more people that this issue of 
concentration of wealth has become more important,” said Einat 
Wilf, a legislator who submitted a bill last year aimed at 
tackling the issue. “As a result of the protests, there is much 
more political will to fight it than in the past.”

Others counter that wealth concentration is only one of a number 
of factors contributing to the current middle-class lament and 
that focusing on it exclusively diverts attention from other 
equally important matters. They point to things like a swollen 
defense budget, subsidies for the ultra-Orthodox and the cost of 
settlements in the West Bank and East Jerusalem, where the 
Interior Ministry said Thursday that it would build 1,600 units 
and announced plans for 2,700 more.

But the issue has had strong populist resonance. Although Israel’s 
economy is strong, the data on wealth concentration, published by 
the Bank of Israel, are unsettling. A small group of family-owned 
companies control banks, supermarket chains and media, cellphone 
and insurance companies. They borrow heavily, posing risks for the 
larger economy and, through a web of interconnecting enterprises, 
make it harder for others to get into the markets they dominate.

“These are called pyramid schemes because through shares in one 
company they take control of a second company and, through that, 
of another one on down a chain of holdings,” said Eytan 
Sheshinski, an economist at the Hebrew University of Jerusalem. 
“They are able to move profits through the pyramid, which cannot 
happen in the United States because of the tax system there.”

Still, the Bank of Israel study shows that while the United 
States, Britain and Germany have much less concentration of wealth 
than Israel, it is not so different from several other 
democracies. Based on the holdings of the 10 largest business 
families, Israel is in about the same situation as Switzerland, 
France and Belgium, and its wealth is far less concentrated than 
is the case in Sweden.

Last fall, Prime Minister Benjamin Netanyahu formed a committee to 
examine the concentration of wealth and find ways to reduce the 
power of monopolies.

“A pyramid is a tool to leverage heavily your capital, and retain 
control over large economic entities,” said Prof. Eugene Kandel, 
Mr. Netanyahu’s chief economic adviser, in an interview. “We know 
from looking at other countries that large and leveraged business 
groups can slow growth, cause instability and hinder competition. 
The committee appointed by Prime Minister Netanyahu works to 
prevent this from growing into a large-scale program in Israel.”

Daniel Doron, who directs the Israel Center for Social and 
Economic Progress, a pro-market research organization, said he was 
convinced that the way in which failing state assets were 
privatized in the 1980s and ’90s led to dangerous consolidation, 
just as it did in the former Soviet Union and some Arab countries, 
like Egypt and Syria. Banks, construction and mining companies, 
all owned by agencies of the state and all in varying degrees of 
trouble, were sold to those who could afford to buy them.

“It was basically selling assets to cronies,” Mr. Doron said. Once 
the economy started to pick up in the late 1990s, these companies 
used their powerful market positions to increase fees sharply, he 
said, adding, “Today, the whole Israeli economy is built on 
rapacious elites fleecing consumers.”

At the time of the sell-offs, some say, the right favored them for 
ideological reasons while the left wanted to get the economy out 
of the hands of the government, which the right often controlled.

The result — a limited number of individuals maintaining a hold 
over many national assets — has Israelis, both left and right, 
worried. Perhaps the best example is Nochi Dankner, chairman of 
IDB Holdings. His group controls Super-Sol, the largest 
supermarket chain; Cellcom, the largest mobile phone company; 
Netvision, one of the largest Internet companies; and Clal 
Finance, one of the largest financial institutions. He just bought 
a controlling share of Maariv, one of the largest newspapers. Mr. 
Dankner declined to comment for this article.

Control of media companies, especially as they have become less 
profitable, is one aspect of wealth concentration that has many 
here especially concerned. Commercial television stations are 
partly owned by tycoons, as are several of the newspapers. Sheldon 
Adelson, an American Jewish casino owner and friend of Mr. 
Netanyahu’s, publishes a free Israeli newspaper widely seen as 
promoting the prime minister’s agenda.

Guy Rolnik, editor of The Marker, a financial daily owned by 
Haaretz that has attacked concentration of wealth, said the issue 
had gotten short shrift in the media because of who owned the 
companies and fears of losing advertising. Often newspapers seem 
to be the tools of moguls battling one another as well as certain 
political figures.

A television journalist, who spoke on the condition of anonymity 
because of the delicacy of the matter, said his station would 
probably not do a program on wealth concentration to avoid 
upsetting the station’s owners.

But many of the moguls are somewhat to Mr. Netanyahu’s left on 
foreign policy, and their newspapers can be merciless on him. 
Other newspapers accuse the prime minister of being in bed with 
the rich. Still others say his focus on the tycoons is an attempt 
to draw attention away from the cost of settlements and his failed 
peace policies.

Mr. Netanyahu’s committee is expected to make recommendations in 
the next month or two. They may include a change in the corporate 
tax code as well as antitrust regulations making it harder or 
illegal to own across sectors, resembling steps taken in the 
United States in the first half of the 20th century. But they will 
not recommend the kind of income redistribution many protesters 
are seeking.

“It used to be politically impossible to go after the cartels, but 
now that 300,000 people have gone out in the street, we have a 
mandate,” an aide to Mr. Netanyahu said. “But the prime minister 
is not going to make this a socialist country again.”

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