Socialism doomed, Israel business interns say here

Socialism in Israel is going the way of the kibbutz farmer.

Once integral to a fledgling economy, both are headed for obsolescence, if three Israeli college students get their way. The three were recruited by Koret to research the business practices of key industries in Israel.

The interns presented their findings to about 80 Jewish leaders during a Koret-sponsored luncheon at San Francisco's Sheraton Palace Hotel last week.

All three came here from Washington, where they worked as aides in the offices of U.S. policymakers such as House Speaker Newt Gingrich (R-Ga.) and House Majority Leader Dick Armey (R-Texas).

None of the interns actually drove an industry out of business, but their research revealed government-sanctioned practices that in this country would inspire a U.S. antitrust posse to gather men for a hunt.

Before investigating a powerful auto insurer, Bar Dadon, 25, of Jerusalem, was paying $500 a year to insure her car. The sum is half of what she paid for the vehicle. Every two years, she was paying over again for the car in insurance payments, she said.

Unhappy with the high rates, Dadon wondered what kind of rates she could get if her insurer, Avner, had competition. But Avner is actually a union of all the auto insurers in the country, and consequently enjoys a monopoly status.

Technically, such a setup is illegal in Israel, unless the government backs the organization and heavily regulates it. Despite the decline of socialism in recent decades, this setup still describes many industries in Israel.

The government continues to be the major shareholder in many Israeli banks, retains majority control in state-owned enterprises, owns 93 percent of the country's land and exerts considerable influence in most sectors of the economy.

Before Dadon got involved, Israel's insurance commissioner had known that Avner survived off undisclosed commissions from its member insurers. But while state law prohibits the insurance cartel from taking a profit, the commissioner had no idea how much money Avner was making.

Dadon decided to investigate the insurer after taking on the Koret internship. During that investigation, she discovered a small insurer that had broken away from the union. The breakaway company confided to her what it had been paying Avner. The numbers were far higher than the insurance commissioner had ever imagined, she said.

Dadon presented a report of her investigation to the insurance subcommittee at the Knesset two months ago. One Knesset member jokingly inquired if she was wearing a bulletproof vest.

But there was no vest that could deflect the angry words coming from insurers. They accused her of defaming them by suggesting that the state insurance system encouraged conflicts of interest and the overcharging of consumers, Dadon said.

"One insurer said, `Girl, how old are you? I don't want to listen to someone who doesn't understand insurance,' " she recalled.

The other two interns, Efrat Nativ and Amir Etzioni, presented their findings on Israel's taxicab and cement industries. The two were similarly discouraged by their findings, pointing to exorbitant pricing due to government-aided monopolies.

Like these industries, so are 65 percent of Israeli businesses dependent on a government relationship, reported the Koret institute's Zev Golan, an associate director who mentors the interns.

Golan's goal is to expose corruption that he believes is inherent to socialized industry. His aim is part of the institute's wider mission to eradicate socialism in Israel and bolster a free market economy.

By training young scholars who are unhappy with the economic status quo, the institute ensures that there will be committed individuals with the know-how to affect public policy, perhaps as a career calling.

Said intern Nativ, "I could do better without the government telling me what to do every day of my life."

She said many entrepreneurial Israelis immigrate to the U.S. to establish startups rather than deal with government interference in Israel.

The institute and its interns have had some success in their reforms. In the 1980s, they successfully lobbied to eliminate price controls on dairy products, which allowed the dairy industry to replace Israel's substandard milk with a European-quality product.

Whether or not Dadon's presentation to the Knesset subcommittee will someday lead to lower insurance rates for Israelis is yet to be seen.

Whatever the outcome, Dadon felt reassured when a Knesset member confided: How is it you had the ability to say what none of us have had the courage to say?

Lori Eppstein

Lori Eppstein is a former staff writer.