The News Behind the News

If it weren't so sad, it would be the joke of the young 21st Century. As reported by Ha'aretz on May 15, 2000, "Antitrust Commissioner David Tadmor recently warned IDB Holding Corp. to steer clear of possible antitrust violations by its subsidiary, Nesher Cement." Now what is so pathetic about the antitrust commissioner warning IDB about Nesher's anti-competitive behavior? If you don't know, and you should if you have any interest in economic freedom and Israel, and you must know if you are contemplating to own a home in Israel, the answer is contained in the Introduction to Policy Studies No. 32, authored by Senior Koret Fellow Amir Etziony in 1998:

"An average Israeli wage-earner who wants to buy a house worth $200,000, has to work for a month to a month-and-a-half to pay the difference between the price of cement in Israel and in surrounding countries like Egypt, Turkey or Cyprus. This fact cost Israelis $80-$140 million dollars in 1996.

"The main reason for these high cement prices in Israel is the monopolistic structure of the industry which is totally controlled by one company: Nesher, Ltd.

"Since the late nineteenth century, cement has been a major component of the building process. For example, Theodor Herzl wrote about building a cement plant in Altneuland. Since then, cement manufacturing has been part of the fulfillment of the Zionist dream.

"Nesher, Ltd. dedicated its first plant in Haifa in 1925. Today, the company makes 100 percent of Israeli cement and more than 90 percent of the quantity sold in both Israel and the Territories -- more than six million tons (metric tons), judging by the annual average of the past few years. Nesher is also the largest importer of cement, bringing into the country the remaining small proportion of cement that is not already manufactured in Israel.

"Israel's cement prices, at $70-$75 per ton, are much higher than the $40-$60 per ton charged in surrounding countries, such as Jordan, Turkey, Egypt and Cyprus. Nesher's prices generate enormous profits which are estimated at 12 percent of the net turnover of Nesher, and which provide handsome profits for Koor and Clal, the two conglomerates that jointly control it. Nesher's employees also benefit from these profits, their average wage having climbed to twice the national average.

"Apart from the profits earned from the high prices of cement, Nesher also earns lavishly through a sibling company named Touval Hovalot, Ltd., which enables it to dominate the cement-haulage system. This sibling company regulates the distribution of jobs among the haulers for a 30 percent commission or more. Thus, hauling cement generates annual profits of NIS 40 million.

"These profit figures raise the question of how Nesher has managed to maintain its monopoly for so many years, with no enterprising industrialist standing up and building a competing plant or even importing cement in commercial quantities.

"The answer lies in a variety of factors: first and foremost, a surfeit of government connections which have resulted in ramified import protection, red tape, and extraordinary government aid. Nesher has backed these with various strong-arm tactics that have defeated every attempt to open up the market and, especially, to build cement unloading facilities at the ports. Such facilities are essential for large-scale imports, and Nesher alone owns them. Nesher's pressure includes threats against its customers lest they dare buy cement from the small importers who have tried to penetrate the market. Customers who "misbehave" subsequently encounter mishaps and delays on Nesher's part."

Now, you need not wonder if Mr. Etziony's study succeeded to establish with logic and facts that Nesher was not only a monopoly power sponsored by its State operatives, but also a mean-spirited, predator crushing any threat to its stranglehold on competitive cement in Israel. Immediately following the publication of the IASPS study, Nesher (Hebrew for Eagle) swept in with talons readied for the attack on its newly-discovered adversary brandishing letters threatening lawsuits and the like. The Institute responded to Nesher as it has to other monopolies that have threatened legal action: We welcome a suit that would expose the facts and garner even greater publication of the evils of your monopoly and predatory behavior. There was no lawsuit. The eagle decided to continue to prey on competitive cement from Turkey and most of all on the Israeli consumer.

Now, comes Mr. Tadmor. In what can only be described as the most impish of cease and desist letters, he writes, as told by the story in Ha'aretz:

"In a letter to three IDB group executives, the head of the commission's enforcement division wrote that the information it has raises a suspicion 'that Nesher is working to foil a foreign manufacturer, the Lafarge Corporation, in its intention to export and distribute its cement in Israel.'

"The letter added that the commission is certain IDB does not want to violate the law, and is therefore enclosing clarifications regarding what the law says. Nesher said in response that the alleged information came from 'interested parties' who are trying to advance their own business interests through the commission."

Yes, of course the antitrust commission is certain IDB does not want Nesher to engage in antitrust violations. Why everyone in Israel knows that consumers pay artificially high prices for cement because up until now Nesher and IDB have been law abiding monopolists.