Is the party over for tycoons?


Hezi Sternlicht and Zeev Klein, ISRAEL HAYOM

Some of Israel’s most powerful businessmen will now be required to forfeit significant chunks of their holdings, an economic concentration committee determined on Wednesday. The move, which the committee hopes will add competition to Israel’s markets and lower its notoriously inflated prices, followed dozens of deliberations and hearings.

In Israel, a handful of power-wielding businessmen and women, referred to as tycoons, are known to have a disproportionate grip on the nation’s businesses and banks. Following last summer’s social justice protests, which swept up the country and saw hundreds of thousands take to the streets in a call for lower prices and greater competition, they have been the focus of intense scrutiny.

“Economic concentration is greater in Israel than in most other developed countries, making competition difficult,” Prime Minister Benjamin Netanyahu said at the press conference where the conclusions were presented. “Competition lowers prices, improves service and ensures growth,” he said. “We established the committee to prevent horizontal control: where someone who owns a bank as well as a real business enterprise could prevent competitors from getting a loan.”

One of the recommendations that will prove most painful to the tycoons is that those whose real company’s turnover is higher than NIS 7.5 billion per year will be required to choose between holding financial assets like banks or insurance companies, and real assets, like real-estate companies or supermarket chains. For “new” tycoons who emerge in the future, the threshold will be stricter: NIS 6 billion per year. Tycoons will have a four-year window to sell off their assets.

In addition, the committee decided that board members of real companies will not be able to simultaneously serve on the boards of financial companies. The goal is to prevent circumstances in which board members are deeply familiar with “both sides of the coin,” thus potentially undermining competition.

Whereas tycoons are currently able to control companies through a pyramid structure, whereby they control a holding company that then controls a chunk of another company, which in turn controls a separate company and so on, the committee has determined that such pyramids will be limited to just three layers of control. The recommendations are stricter for future tycoons, who will be limited to two pyramids of just two layers.

The tycoons who will be impacted by this new rule are Ilan Ben Dov, chairman of Partner Communications, Shaul Elovitch chairman of Bezeq, and Jacob Maimon who controls Isramco, which discovered the Tamar gas field. As a means of coping with the market failures generated by the tycoon’s complex network of holdings, the committee also recommended strengthening the authority of the Israel Antitrust Authority.

The committee has also recommended new and dramatic restrictions on the way that institutional bodies, i.e. institutions that manage the public’s pension money, give loans to businesses. Up until now, these loans were subject to very few restrictions, which led to a series of debtor’s haircuts of the public’s pension money in recent months. The committee recommended that the institutions be restricted in terms of the amount of money they can lend to a body or group of borrowers. “I hope that the economic concentration committee’s recommendations will reduce the phenomenon of haircuts. But to say that it will totally disappear is too presumptuous,” Netanyahu said on Wednesday.

Finance Minister Yuval Steinitz said that these recommendations are a benchmark for the Israeli economy. “We have a problem with the concentration of power in a few hands and within a few groups and this is a bad phenomenon,” he said. “It is bad for democracy because great concentration of economic power can negatively impact democracy, but first and foremost it is bad for the economy.”

Sources close to the tycoons chose not to comment on the committee’s recommendations.

Surprisingly, the Israel Securities Authority voiced a minority opinion regarding the committee’s report. The Authority’s Chairman, Professor Shmuel Hauser, a leading expert on Israel’s capital markets, headed the committee’s team on pyramid structures. Hauser said he believes that the pyramids should be flattened via a different strategy. “We thought it was possible to keep, over the long term, the pyramids that contain three layers, but the committee ultimately decided it would only accept two layers,” the Securities Authority said in a statement on Wednesday.

February 23, 2012 | 4 Comments »

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4 Comments / 4 Comments

  1. I was censored. All I said in my post, was that I do not advocate S o c i a l i s m. I didn’t get a “moderated” notice, so I assume these posts are being pre-censored from outside of Israpundit.

  2. PS, if anyone comes on board bringing up the issue of “Socialism”, let me pre-empt him: Socialism is evil. It will destroy itself. In fact, it doesn’t really exist: What is called “Socialism” is actually centralized control by a government that is controlled by the Fed. I call that “Capitalism”. To answer the detractors before they speak, I don’t advocate Socialism. That said, I still agree with Ted that the Israelis are doing a good thing in trying to rein in the Tycoons. As I said, all the best to them in their efforts.

  3. “Economic concentration is greater in Israel than in most other developed countries, making competition difficult,”

    It might be bad in Israel, but it’s horrendous in the US; the main culprit is the Fed, but there are certainly others. True entrepreneural “capitalism” is virtually nonexistent in the US; the cards are stacked up too much against really talented people. They must borrow money from the banks (Read, “from the Fed”), and are assaulted from every side by corporate interests who are attempting (through “anti-piracy” laws, etc.) to buy up and control every good idea that ever dawned upon the human intellect. Hardly any inventive, talented people see any profit, moreover, from their ideas: They are owned by the companies they worked for. Where is the fellow today, who wrote the “DOS” program that made Bill Gates one of the richest men in the world? I think he got some $50,000 and Gates got tens of billions. Ron Paul is the only candidate who has seriously addressed these issues, and he is regularly ridiculed on this blog. With that kind of ignorance here, I hold little hope that these issues will be seriously dealt with in America. All the best to the Israelis; I hope they succeed. Capitalism is simply evil. It will destroy itself, and much of the world with it.

  4. America had this problem at the turn of the last century. Then Teddy “trustbuster” Roosevelt broke up the monopolies. It’s been done more recently with companies like Microsoft. Nice to see Israel’s finally catching up in that way.