In fact, tycoons definitely DO drive up prices.

In his recent opinion piece, business analyst Michael Klahr argues that Sue Surkes’s recent article about economic concentration is inaccurate and misleading. He accuses Surkes of supporting price controls and increased regulations, as opposed to the free market economy he supports. Klahr brings up many good points, regarding the unique challenges of the Israeli market, such Kosher requirements or the language barrier.

In the end, however, Klahr missed the important point. It’s not an issue of more or less government regulation; it’s a question of which regulations support competition – and which stifle it.

Take telecommunications for example. Klahr concedes that competition-inducing government regulations reduced cellphone data package prices to some of the lowest in the world. He argues that this came at a cost – a reduction in infrastructure investments. The data say otherwise: an increase in infrastructure investment across the board in telecom since 2014. And who is enjoying the reduced prices, resulting from effective regulations? The consumers of course.

How about energy? A recent decision by the antitrust authority allowed the gas monopoly to purchase the single natural gas pipeline between Israel and Egypt. The pipeline once created competition and reduced prices, and could have done the same now, as Egypt has recently returned to exporting gas. Now that the monopoly controls the pipeline, competition is dead and gas prices remain the highest in the gas-producing world, even higher than gas-importing Europe.

Regarding imports, current regulations make it nearly impossible for small importers to enter the market, given the exorbitant bureaucracy and endless authorizations. This leaves large importers, with good working relations with the various authorities, as effective monopolies.

As described in Surkes’s article, some of these – such as Schestowitz and Diplomat – control a range of products which give them market power over retailers. They can use this power to stop competition. In the tooth-paste market, for example, Schestowitz controls over 50% of the market, and uses its relationship with the producer and regulators to stop parallel imports. The antitrust regulators were correct in trying to stop these anti-competitive practices. Their mistake was not being tough enough on these competition-killers.

How about the banking sector? “Regulations” had no problem with banks giving out huge loans to tycoons, who happen to own media outlets that could publish favorable articles about bank managers, without proper guaranties. This led to huge “haircuts” – losses to the public of billions of NIS in stocks and pensions, as in the example of Eliezer Fishman. These “regulations” do have a problem, though, with anyone trying to start a new bank: no new bank was authorized in Israel since 1964. The recent Strum Committee to promote competition in the banking industry is changing this, by improving regulations.

The truth is that it’s not a question of how much regulation, it’s a question of which regulation supports competition – and reduces prices.

About the Author
Ariel Paz-Sawicki is head of research in Lobby 99, a crowd-funded lobby dedicated to promoting the public interest focusing on economic issues. American-Israeli, 10 years in the IDF, and a recent graduate from Johns Hopkins School of Advanced International Studies (SAIS).
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