Oligarchy in the Holy Land - Tiny Number of Families Dominates Israel's Economy
But most Americans probably don't know that the 2nd most unequal "rich" country is the close ally and client state of Israel, whose own oligarchs own a significant slice of the Israeli economy.
And the Israeli people’s anger is increasingly being directed at the Israeli tycoons that hold an immense amount of wealth. Ordinary Israelis see the oligarchs as a testament to the vast gulf between the very rich and the rest of Israel. For many, inequality is the main economic issue in the country. But the Israeli economy didn’t always have such striking inequality. The country was a lot more equal when it was operating on a more social democratic model—at least for Jews—in the decades after 1948.
Today, about 20 Israeli families control a disproportionate amount of the Israeli economy. The families, whose holdings span the gamut of the Israeli economy, lay claim to about half the Israeli stock market and own one in four Israeli firms, according to the Financial Times. In 2010, a parliamentary report found that 10 business groups, most of them owned by wealthy families, control 30 percent of the market value of public companies. The families have holdings in real estate, financial services, supermarkets, the airline industry, telecommunications and more.
Tycoons like Yitzhak Tshuva and Shari Arison are cases in point. Tshuva owns Delek Group, one of Israel’s biggest companies. It has investments in energy, infrastructure, insurance and financial companies. Tshuva is also a chairman at the El-Ad Group, a major real estate company. Arison is the owner of Bank Hapoalim, but also is involved in real estate and water.
The tycoons’ fingerprints can be found on much of what makes Israel tick. What it all adds up to is an oligarchy, a system where a tiny slice of Israelis maintain a stranglehold over much of the Israeli economy.
These facts are no shock to Israelis. They live it everyday, made all the more apparent by the high cost of housing. The government has taken a keen interest in the problem, particularly since massive protests sparked by the high cost of living and inequality. They’ve convened committees, like the Knesset committee on economic concentration, established in 2010.
A report from that committee singled out business groups that control both financial and non-financial companies. In November 2013, Israeli Prime Minister Benjamin Netanyahu criticized the high level of concentration in the economy. “The primary factor in the lack of competition in Israel is economic concentration fostered by cartels or the monopolistic behavior of wealthy individuals,” Netanyahu told the Israel Democracy Institute. The OECD has also singled out Israel’s concentration of wealth as a problem to be addressed.
Despite the high-level handwringing, the Israeli economy has yet to undergo the radical changes some activists and analysts say are needed to break the hold the small number of business groups and families have on the economy.
The Dankners--and especially the scion, Nochi Dankner--is one such powerful family.
The family made its money in the salt industry. Most of the family couldn’t keep up their financial success, though, bedeviled by internal squabbles and failed investments. The exception was Nochi Dankner, whose net worth is $1 billion, according to Forbes. For many years, he was the chairman of the IDB Group, which has stakes in the insurance, biotech and finance industries.
In 2012, Israeli journalist Asher Schechter explained how Dankner came to own IDB. “He managed to purchase IDB despute lacking the actual finances to do so,” wrote Schechter. “The incredible deal secured him $250 million in funding, part of which was lent to him by the former owners of IDB. At the time, Dankner was called a genius for orchestrating a series of complex loan agreements.” Other sources of cash for the deal came from the wealthy Livnat family and Mivtachim, a pension fund run by Histadrut, Israel’s organization of trade unions.
IDB controls a number of different companies: Super-Sol, the country’s largest supermarket chain; Golf and Co., a big fashion and homeware chain; Cellcom, Israel’s largest mobile phone company; Netvision, an Internet provider; the travel agency Diesenhaus; and Nesher, Israel’s only cement producer.
Now, Nochi Dankner has run into some trouble. He’s under investigation for securities fraud. IDB Group is in debt to the tune of $514 million. Still, Dankner is trying to hold on to the company by proposing partnerships with others in order to retain some control over IDB Group.
“If anyone is a symbol of everything that went wrong in Israel’s economy in the past 20 years, it’s Nochi Dankner,” Schechter said in an interview.
The oligarchs' immense power, and the inequality that accompanies their economic might, stands in sharp contrast to what some Americans believe about the Israeli economy. In the American imagination, Israel’s economy is a high-tech paradise. Books like Start-Up Nation: The Story of Israel’s Economic Miracle have cemented that image.
The tech sector in Israel only employs 10% of Israelis, though. “We have two economies in Israel,” Schechter, who writes for Haaretz, told AlterNet. “One is the start-up nation, the dream being sold abroad. And the other is the real economy, which is quite different.”
The 2011 Social Protests
The control people like Dankner exercise over the Israeli economy, along with the wider issue of inequality and the high cost of living, became a hot issue in the summer of 2011.
On July 14, film editor Daphni Leef was told she had to vacate her apartment in Tel Aviv. She was forced to look for apartments in the city, but they had become prohibitively expensive, in line with prices in Manhattan and London. So she pitched a tent on Rothschild Boulevard, a main street in the heart of Tel Aviv. Her action was the spark that lead to tent cities throughout the country. The massive and unprecedented protests during the summer shifted the national conversation decidedly toward economic issues.
Hundreds of thousands of Israelis from all walks of life took to the streets to demand social justice. The protesters called for government action to decrease housing prices, enact rent control, end privatization, raise the minimum wage and reduce the value-added tax. They also wanted an end to economic concentration and a return to the social democratic model Israel was under when the country was created. While the movement petered out without enacting significant change on the Israeli economy, it has brought more attention to economic issues.
Like many of the other social justice movements of 2011--in Egypt, Tunisia, Europe and the U.S.--the movement was started by the people whom the economic system was supposed to serve. Leef and the others who sparked the protests were mostly middle-class Ashkenazi (European) Jews. When the system broke down for them, they revolted. But they struck a nerve that reverberated throughout the country, and lit a fire underneath other social groups in Israel. Soon enough, the Mizrahi Jews, or Jews with roots in the Arab world, joined in, along with Palestinian citizens and other marginalized sectors. There was a simple reason the movement spread: the message of economic justice was one that the people most shut out of the center of Israeli life could get behind.
While the Ashkenazi middle class is now being hit hard by an economy that doesn’t serve them, the Israeli system never served many non-Ashkenazi groups. The Israeli economic and social system operates on a totem pole. At the bottom lie African migrants, fleeing persecution only to arrive in Israel where many can't legally work. Instead, African migrants are rounded up and put in detention.
The Bedouin Arab citizens of Israel, who lived in unrecognized villages unconnected to water and electricity systems, come next. Palestinian citizens of Israel who do live in villages and cities connected to the grid don’t fare much better. They are beset by poverty and unemployment in a country whose very definition as a Jewish state excludes them. And even though the Mizrahim are also Jewish, they too are not fully integrated into Israel’s power structure.
Statistics compiled by the Adva Center for their 2012 social report tell the story of how Israel operates on an ethnic totem pole. In 2011, the average monthly salary of Ashkenazi Jews was 33% above the average, whereas the monthly salary for urban Palestinian citizens was the exact opposite: 33% below the average. Mizrahi Jews had a monthly salary 7% above the average. Palestinian citizens' poverty rate is also strikingly high: nearly 54%. Ultra-Orthodox Jews—who don't work and are fully subsidized by the state as they study Torah—have a similar poverty rate.
Israel's gaping inequality is also manifested in housing policy. When the state was founded on the ruins of Palestinian villages, new towns were created in the periphery of Israel, and they came to be populated mostly by Mizrahi Jews. While the Mizrahi Jews served an important purpose for the state in building a demographic buffer between the Palestinians and Israeli Jews, they were also condemned to poverty by being far away from the center of Israel, where most of the jobs were.
Inequality was fueled by structural changes in the Israeli economy following economic crises in the mid-1980s, which included very high inflation. The government took advantage of the crisis by pushing measures that liberalized the economy and privatized state businesses—which boosted the people who came to be the tycoons of the country.
Yet another factor contributing to Israeli inequality is the occupation of the West Bank and Gaza, which began in 1967. A small slice of Israelis profit from the occupation industry by building the components that the fourth largest military in the world uses. The settlement project in the West Bank also functions as a social welfare program for some Jews. They can get a better deal on housing if they move to the state-subsidized settlements in the West Bank. But Israel's expenditures to maintain the occupation also drain funds away from projects that could be used for social spending.
“No country spends more on security and the military as a proportion of their budget,” said Shir Hever, the author of The Political Economy of Israel's Occupation: Repression Beyond Exploitation. “And whatever remains to try to address the social problems in Israel is really a paltry sum.”