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City Research Online City, University of London Institutional Repository Citation: Gottfried, Shelly (2015). The ascent of oligarchy: the case of Israel. (Unpublished Doctoral thesis, City University London) This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link: https://openaccess.city.ac.uk/id/eprint/14708/ Link to published version: Copyright: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. Reuse: Copies of full items can be used for personal research or study, educational, or not-for-profit purposes without prior permission or charge. 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City Research Online: http://openaccess.city.ac.uk/ [email protected] To my beloved parents, Maya and Ran THE ASCENT OF OLIGARCHY: THE CASE OF ISRAEL SHELLY GOTTFRIED A dissertation submitted for the degree of Doctor of Philosophy City University London Department of International Politics December 2015 © 2015 Shelly Gottfried All Rights Reserved 1 TABLE OF CONTENTS LIST OF FIGURES AND TABLES…………………………………………………….…….....…4 ACKNOWLEDGEMENTS………………………………………………………………….…..…6 ABSTRACT………………………………………………………………………...………….……7 INTRODUCTION…………………………………………………………………………………..8 PART I CHAPTER 1 OLIGARCHY IN HISTORICAL AND CONTEMPORARY THOUGHT………….................22 Oligarchy: Insights from Early Historical Scholarship……………………………………..23 Oligarchy: The Contemporary Scholarship…………………………………………………34 Redefining Oligarchy.……………………………………………………………………….47 Conclusion………………………………………………………………………………......52 CHAPTER 2 ANALYSING THE EVOLUTION OF THE STATE-BUSINESS NEXUS IN THE ISRAELI POLITICAL ECONOMY………………………………………………………………………....53 The Developing Economy (1948-1967)…………………………………………………….55 The Rise of the Big Business (1967-1985)………………………………………………….61 The Transformation of the Israeli Economy (1985 – mid-1990s)…………………………..74 Conclusion…………………………………………………………………………………..88 PART II CHAPTER 3 PRIVATISATION AND THE EMERGENCE OF NEW BUSINESS GROUPS………………91 The Privatisation Process………………………………………………………………...…92 The New Finance Capital in Israel: the Role of the Banks………………………………..106 From the Old ‘Big Business’ to the New Business Groups………………………………..114 2 Conclusion…………………………………………………………………………………120 CHAPTER 4 THE CONSOLIDATION OF OLIGRACHY THROUGH FINANCIALISATION…………121 Financialisation in Israel…………………………………………………………………...122 Oligarchisation through Financialisation……………………………………………..…....136 Conclusion…………………………………………………………………………………148 CHAPTER 5 THE ISRAELI OLIGARCHY AND THE OLIGARCHIC 'CLUB'…………………….…….150 The Pyramidal Business Groups Forming the Core of the Oligarchy……………………..151 Market Concentration and the Rule of the Oligarchy……………………………………...168 The Oligarchic ‘Club’……………………………………………………………………...175 The Relationship of the Club with the State…………………………………………….....187 The Implications of the Oligarchic Control……………...………………………………...197 Conclusion…………………………………………………………………………………204 CHAPTER 6 THE AGENTS OF OLIGARCHY: THE RISE AND INSTITUTIONALISATION OF OLIGARCHIES IN LIGHT OF THE ISRAELI CASE…….....................................................205 The Proactive Role of the State……………………………………………………………206 The ‘Clubness’ - Social Ties as a Crucial Dimension of Oligarchisation……………….…211 Pyramidal Ownership Structure……………………………………………………………216 The Interplay between Domestic and International Power………………………………..220 Conclusion…………………………………………………………………………………227 CONCLUSIONS………………………………………………………………………………….228 BIBLIOGRAPHY………………………………………………………………………………...236 3 LIST OF FIGURES AND TABLES Figure Page number Figure 1.1. A control pyramid 35 Figure 2.1. Arms exports (constant 1990 US dollar) in Israel 70 Figure 2.2. Israel exports (in $ billion): 1970-2012 70 Figure 2.3. Israel foreign trade - 1970-2010 (in USD billion) 82 Figure 2.4. Government deficit (ILS millions) 87 Figure 2.5. Change in GNP (in percent) 87 Figure 2.6. Change in GDP (in percent) 90 Figure 2.7. Share of Hi‐Tech in Exports of Goods and Services, 1995 – 90 2009 Figure 4.1. The control over provident fund (as of 2003) 126 Figure 4.2. Assets in mutual funds (as of July 2004) 126 Figure 4.3. The market share of the big insurance groups for long-term 130 public savings (pension and insurance), according to managed assets Figure 4.4. The share of the top three Israeli business groups 131 Figure 4.5. The exposure of the pension savings to the ten big business 131 groups by years Figure 4.6. Israel growth rate (in percent) in comparison to OECD 135 growth rate Figure 4.7. The exposure of institutional investors to the biggest 10 138 business groups, by assets (March, 2011) Figure 5.1. Structure of IDB Group 153 Figure 5.2. Structure of the Ofer Investments Group 155 Figure 5.3. Structure of the Tshuva Group 157 Figure 5.4. Structure of the Arison Group 159 Figure 5.5. Structure of the Fishman Group 160 Figure 5.6. Structure of the Wertheim Group 161 Figure 5.7. Structure of the Bronfman Group 162 4 Figure 5.8. Structure of the Bino Group 163 Figure 5.9. Structure of the Eliyahu Group 164 Figure 5.10. Structure of the Azrieli Group 165 Figure 5.11. Structure of the Weisman Biran Group 167 Figure 5.12. The pyramidal structure prevailing the Israeli market 170 economy Figure 5.13. Business groups activities by sector (percentages represent 172 market shares) Figure 5.14. IDB sectors breakdown (as of 2012) 174 Figure 5.15. Gini index for credit concentration of the banks (2000- 199 2012) Table Page number Table 1.1. The features distinguishing oligarchs from other wealthy 51 actors Table 2.1. Changes in GNP 57 Table 2.2. Annual Average Growth Rate of GDP per capita - 1953–92 61 Table 3.1. The sale of the control shares of the banks 110 Table 3.2. From the old ´big business´ to the new big business groups 118 Table 4.1: The credit weight of the six big business groups in the 139 portfolio of the banks Table 5.1. Pyramidal concentration of power in Israel 171 Table 5.2. Salaries of senior executives in the banking sector in 2011 178 Table 5.3. Salaries of senior executives in the insurance sector in 2013 178 5 ACKNOWLEDGEMENTS Accomplishing my PhD has been a truly life-changing experience that would not have been possible without the support and direction from many people. My words are not sufficient to explain how much I have cherished their efforts. Firstly, I would like to express my deep gratitude to my supervisors, Prof. Anastasia Nesvetailova and Dr. Amnon Aran, for giving me the opportunity to execute this research, thereby discovering an entire empirical and theoretical sphere. Their scientific comprehension, inspiring ideas, innovative insights and intellectual enthusiasm were my guiding light over the past few years. Their critical and knowledgeable review of my thesis has led me towards a more stimulating way of exploring the literature and empirical materials, opened new perspectives, and revealed, time after time throughout this long (and sometimes energy-draining) process, their uncompromising devotion and determination. I feel privileged to have worked with such brilliant, professional and fascinating scholars, who, through their personal and professional virtues, manifest what the academic world should genuinely be about. I have warm words of gratitude for my PhD fellows and friends from the Department of International Politics at City University London, who made the PhD journey memorable, enjoyable and far less lonely than could have been expected. My gratitude also goes to the department academic staff; they gave me the opportunity to teach, research and interact in a real intellectual environment, and have made me feel a part of this great team. The university staff was of great help in allowing me to expand my research and my academic exchange in Hong Kong, Cambridge, Brussels and Trieste, and to take part in key executive processes in the institution. I am indebted to some people within the Israeli political economy who have provided me with knowledge, data and prisms I could not otherwise have obtained. Their experience, acquaintances, skills and broad understanding have led me to a much more comprehensive and informed analysis. I am particularly grateful to Guy Rolnik, one of the most important voices in the Israeli public realm. He was a great inspiration in the writing up of my thesis, not only as a brilliant and pioneering entrepreneur and thinker, but also as an extremely warm and generous person. Most importantly, I would like to thank my beloved family. First and foremost I thank my parents – the wisest, kindest, and most loving and hilarious people I know, who make every challenge a possibility. Their constant support and reassurance have given me the courage, ability and stamina to complete undertaken goals and to overcome any hurdle. They have been teaching me to dream, to be realistic, and to combine the two, and it is their vision, optimism and unconditional love that have formed my life trajectory. I devote a special gratitude to my sisters, Dana and Noga, who are the best and most precious part of me, as well as to my wonderful brother-in-law and my nephews (soon to be more of…), who are my home, no matter how geographically distant I find myself.