The Israel Democracy Institute’s annual Caesarea Economic Conference celebrated its 15th anniversary in Jerusalem this year. Since its inception, this conference has addressed the major issues facing the economy and has served as a platform and meeting ground for our top economic players.

This year the conference addressed several crucial issues in the labor market dealing with unemployment, the income gap and, above all, with the proposed strategic reform in financial markets.

“Nothing happened out of all the talk and declarations in these conferences,” wrote Guy Rolnik in a scathing July 2000 Haaretz op-ed. “No reform in financial markets, no reform of our pension funds, no dramatic changes in taxation, no change in the negative environment created for hi-tech industry.”

Considering the great expense and energy invested in these well-publicized conferences, it seems indeed like a waste of a unique opportunity to bring desperately needed change to the Israeli economy.

It used to be that the conferences simply repeated the mantras of the business community about the need to lower interest rates and invest in infrastructure—dubious partisan advice at best. This year the Caesarea organizers put together a special banking study group to offer its own “independent” recommendation on what reform is desirable.

It is, of course, good that a prestigious institution enriches public debate. We have learned, to our chagrin, that wisdom does not reside exclusively in official circles. But the banking group exploited the IDI’s prestige as a promoter of democracy to advance a blatantly anti-democratic act. Its banking group was formed by figures representing sectarian bank interests and by the powerful chairman of the Knesset’s Finance Committee, himself under a cloud of suspicion regarding conflict of interest; and it tried to undermine the policy of an elected government.

A member of the initial task force, Prof. Marshal Sarnat, the banking expert on the famous Bejski Commission, quit when he became convinced that most of the other members, and especially the original chairman, Elie Yunes (former CEO of Hapoalim), were doing the banks’ bidding. Yunes eventually quit, and so did several others when they became officially affiliated with the banks.

His replacement was David Brodet, famous for his campaign (when he headed the Treasury) against the enormous concentration of economic powers, especially in the banks. But the group’s conclusions were a surprise to those who remembered Brodet’s record.

His group recommended two solutions, both advocated by bank interests. One called for the separation between the ownership and the management of provident and mutual funds. The banks will have to choose between holding 80% of the ownership and giving up most of the management rights, or giving up ownership and keeping management rights, an approach which the governor of the Bank of Israel termed “illogical and impractical.”

THE SECOND was to transform the provident and mutual funds into publicly owned companies and force the banks and the insurance companies to transfer at least 80% of their holdings to these companies. Banks’ management rights will also be limited to 20% of assets.

These are, of course, tricky solutions with huge loopholes that will enable the banks to continue dominating capital markets.

The Brodet recommendations were greeted with a storm of protest, even from within the IDI. The watchdog Movement for Quality Government demanded that the group be disbanded because it was so blatantly sectorial.

The non-partisan economic advocacy group Citizens for True Social Justice picketed the conference after being denied the right to express a differing opinion in the slanted banking panel (altogether, though it supposedly promotes democracy, the IDI too often excludes from its conferences major economic voices who disagree with its premises).

Former director-general of the Ministry of Finance Avi Ben-Bassat, who is among the conference’s economic organizers, has expressed concern over the manner in which the group was assembled and with its conclusions.

The recommendations of the other study groups were also disappointing. Israel is bedeviled with enormous economic problems causing high unemployment and wages so low that most families can barely make ends meet. Most of the problems were aggravated by two decades of very low growth, a result of a disastrous allocation of resources by the monopolistic banks and the socialist and statist heritage that has left Israel’s labor markets and its local authority system in shambles.

But instead of boldly addressing these problems, the various study groups proposed either band-aid or anti-growth measures, such as keeping taxes high, restoring high transfer payments, and creating yet more committees to further study the problems. These recommendations were “fundamentally mistaken and reflect an anti-growth stance,” charged Uriel Lynn, president of The Israel Chambers of Commerce. This is a pity.

The Israeli Left badly needs a think tank, such as the IDI, to help it overcome its anti-market ethos and to teach it how to overcome Israel’s self-inflicted problems that have made the country economically and socially lame.

The economic elite that gathers at the Caesarea conference is not an evil cabal. But it has been indoctrinated by the Marxists dominating our universities that profit comes from exploitation and that success in economics is a zero sum game.

They therefore mostly manage monopolistic entities that exploit the public. The IDI could fulfill a vital role by teaching these elites how competitive market economies really work.

Neglecting to do so will guarantee that in the years to come, we will witness the same depressing spectacle, while the rich, the wise, and the mighty keep spouting platitudes as the Israeli economy keeps receding farther and farther back.

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