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Arguing with success [Herzliyah Conference]

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    Jan. 1, 2004 Arguing with success By DANIEL DORON http://www.jpost.com/servlet/Satellite?pagename=JPost/JPArticle/ShowFull&cid=1072844157993 You can try and
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      Jan. 1, 2004
      Arguing with success
      By DANIEL DORON

      http://www.jpost.com/servlet/Satellite?pagename=JPost/JPArticle/ShowFull&cid=1072844157993
      You can try and argue with success, but chances are you will not be too successful. Yet arguing with
      success is vital. All formulas, however successful, merit periodic reconsideration and revision,
      given the dynamics of events.

      So the examination of the longer-term viability of success is essential, not only for nations and
      corporations, but also for such commendable efforts as the recent fourth Herzliya Conference, where
      top players in the Israeli establishment gathered to examine questions relating to "The Balance of
      Israel's National Security."

      As a member of the steering committee of the first three Herzliya conferences, this writer witnessed
      the skill and dedication with which Dr. Uzi Arad, the indefatigable founder and moving spirit of
      this enterprise, catapulted it to such heights of public recognition. Arad, who was chief of
      research for the Mossad and policy adviser to prime minister Binyamin Netanyahu, identified the need
      to take annual stock of Israel's security position. He was also wise enough to define it broadly,
      not only in its narrow military sense but also as it relates to social and economic factors that
      affect the cohesion and strength of a society and its ability to support its military forces.

      To give such a conference proper exposure, so that it may influence the thinking of decision makers,
      Arad relied on his excellent contacts in the security establishment. Starting with the first
      conference he succeeded in having top policy makers, from the prime minister and chief of General
      Staff on down, participate and draw the conferences into the limelight.

      The decisions to both broaden the concept of national security and to establish the conference as a
      focus of attention were essentially correct. But they have created a dynamic that threatens to get
      out of control.

      The conference must have faced immense pressures from publicity-hungry pols, and to represent their
      particular concerns. Other high office holders, for their part, usually have to be very guarded
      about what they can say, and what little they can say is heard very often, so that their speeches
      tend to be banal. Beyond a certain point, therefore, the appearance of high public figures becomes
      really counterproductive, leaving less and less time and attention for substantial presentations
      (and there were quite a number of those too) and no time at all for a real discussion.

      The fact that most respondents to the presentations seem to have also been chosen by the same
      celebrity yardstick, and were often partisans representing vested interests and defending sectarian
      positions also limited a real exchange of novel ideas.

      As the conference became a focus of media attention, pressure must have also grown to include more
      and more subjects all relating, it could be claimed, to national security. Here too, more was not
      necessarily better.

      Thus the fourth conference devoted excessive attention to issues that may be important - such as
      social disparities - but that are really not its core concern. Moreover, since such issues are a
      current fashion the people chosen to present them were those who are the "flag bearers" of the
      so-called social lobby, populists like Social Affairs Minister Zevulun Orlev and special pleaders
      and "experts" pushing one agenda alone - more welfare is good. Contrary voices were not heard. The
      welfare lobby does not really lack exposure so one wonders why it was necessary to allocate to it
      precious conference time.

      Dr. Arad was among the few in the security establishment who needed little convincing that economic
      strength is crucial to Israel's survival. So it is not surprising that in the last conference
      substantial time was devoted, as in the former conferences, to economic issues.

      It is amazing, however, that when Israel is facing probably its most serious economic crisis -
      certainly a most prolonged and damaging recession and perhaps a pernicious Japanese-like deflation -
      the conference dealt only very marginally with the crisis, its causes and what must be done to
      resolve it.

      Finance Minister Binyamin Netanyahu did appear at the conference but he chose to address mostly
      political issues. The conference even touched on a central systemic problem, the impact of our banks
      on the economy. But rather than deal head on with the devastating effects that the bank duopoly of
      Hapoalim and Leumi, that monopolizes financial markets, on the allocation of resources (and the lack
      of growth it causes) the conference devoted its attention exclusively to an issue that bothers the
      banks.

      In a session on "Regulating the Banking System," the local speakers were all either academicians
      with strong ties to the banks or functionaries of the banks and of its regulators, past and present.

      The session's moderator, Prof. Amir Barnea, acknowledged that bank regulation was necessary but
      wondered whether it is not excessive in Israel, a "question of great import," he averred. But this
      is really an irrelevant question, since it is well known that the big banks simply ignore with
      impunity any regulation, sometimes even the law, when they please. They even welcome excessive
      regulation since it is imposed only on politically weaker banks or on new entrants, thus helping
      them to undercut competition.

      Bank regulator Yoav Lehman, who has recently made his office somewhat meaningful by finally taking
      on the big banks, opened the panel with a paean to regulation and to the high international
      standards it has achieved in Israel. He could not really respond, however, to the question why in a
      country that has such high regulatory standards there developed the most highly concentrated banking
      system, with two banks totally dominating financial markets, fleecing their customers and freely
      indulging in conflicts of interest and a misallocation of resources to cronies.

      Another panelist, Yoram Turbowicz, former controller of monopolies and cartels who was first to
      raise consciousness about the severity of the problem, made only brief mention of "the high
      concentration [in financial markets] and little competition." Turbowicz did not seize the occasion
      to pursue this serious charge further or to elaborate on its crucial negative consequences.

      These consequences were only alluded to, again, in a survey by Prof. Oded Sarig, who cited several
      studies indicating that open and developed competitive financial markets encourage economic growth.
      Yet for some reason he refrained from drawing the natural conclusion, that the lack of such markets
      is a key reason for our decade-long lack of economic growth.

      Everyone on the panel tiptoed around the major issue of our dysfunctional financial markets. This is
      a pity because without dealing strongly and openly with this major issue our chance of overcoming
      our severe economic problems - a task such a conference should be dedicated to - are not too
      promising. This important conference can do better.

      Note: The headline of my last column might have been misunderstood to mean that I wished to label
      the entire Left "pathological." I was referring only to part of the Left.

      The writer is president of The Israel Center for Social and Economic Progress, an independent
      pro-market policy think tank. dorondun@...
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