The country is rich, the citizens pay: how the "economic deep state" works | Prof. Moshe Cohen-Eliya

Israel's macro data looks surprisingly good. The Bank of Israel forecasts 4% growth and 1.8% inflation for 2026. After a long war, massive reserve duty call-ups, and unusual uncertainty, these are impressive figures.

So why doesn't the Israeli feel rich? Why are food, apartments, and cars so expensive?

According to the OECD, Israel is one of the five most expensive countries in the organization, and food and housing prices here are among the highest in the developed world. More importantly: the price level in Israel is higher than one would expect based on the GDP per capita. In other words, the problem is not just that we are a rich country and therefore expensive. There is a structural problem here, a problem that can be called the "economic deep state."

It must be emphasized: this is not about a group sitting in a dark room and coordinating prices. A deep state does not have to be a conspiracy. The economic deep state can be a power structure: a system of interests, regulation, entry barriers, and connections between institutions that has been forming for decades until it begins to protect itself.

Political economist Prof. Mancur Olson explained decades ago why small and organized groups often succeed in overcoming a large and dispersed public. For a large importer, bank, or food supplier, it is worth investing millions to protect a profit of hundreds of millions. Conversely, a consumer who pays twenty shekels more at the supermarket has no parallel incentive to organize. Thus, a "rentier economy" is created: those who are already inside fight to stay inside, and those who try to enter encounter standards, tariffs, licenses, regulation, and endless processes. The OECD found that in 20 food categories, three suppliers are responsible for about 84% of sales.

The State Comptroller found gaps of up to 226% between the prices of identical products in direct import versus parallel import. In the automotive market, direct importers held more than 97% of the market in 2023, and years of reforms have barely managed to undermine this structure.

In banking, the picture is similar: the five largest banking groups hold almost all the assets of the banking system. The Competition Authority even declared them this year as a "concentration group." Although the Bank of Israel opposed the move, it is hard to argue that there is no deep structural question of competition and power here.

And in the housing sector, the state itself is an essential part of the problem. In Israel, 13 years can pass from the planning stage to occupancy. When the state controls the land, planning, and licensing, and then wonders why supply does not respond to demand, there is no need to look for a secret cartel. The system itself creates the shortage.

The difficulty is exacerbated by the "revolving door" phenomenon, where regulators and the regulated operate in the same professional world, meet in the same committees, and move from one side of the table to the other. Again, this is not about corruption in the usual sense. Effective power structures do not need corruption. It is enough that an entire system gradually learns what is considered "professional" and "responsible," until the interest of the existing players begins to sound almost identical to the public interest.

Let's talk about the role of the Kaplan protest in this economic deep state. For months, we heard that the Kaplan protest was a struggle against the concentration of power and for democracy. However, this struggle was very selective. It showed immense sensitivity to any attempt by the elected echelon to change the balance of power against the judicial system or the bureaucracy, but much less sensitivity to non-elected economic power centers that affect the pocket of every citizen in Israel every day.

I am not claiming that every protester at Kaplan sought to protect monopolies. The claim is different: that the Kaplan protest rebelled against one type of power (of the political right), and at the same time sanctified almost every other power that carried the label "professional" or "independent," that is, it sanctified the forces identified with the old hegemony.

The old hegemony has a blind spot. It sees power when it is in the hands of a politician it does not like, but finds it difficult to see it when it is in the hands of regulators, banks, and interest groups that speak its language.

Therefore, treating the cost of living is not another "reform." It is a struggle against a power structure: opening imports, lowering entry barriers, dismantling centralization, limiting the revolving door, accelerating planning and construction, and creating conditions where new players can truly compete with the veterans. Otherwise, we will continue to pay "rents" to the power centers, many of which fund the Kaplan protest itself.

A deep state is not just someone who holds authority for which they have no responsibility. It is also someone who holds a rent that no one dares to touch anymore. And the economic deep state does not hide in the dark. We meet it every time we open our wallet.

Prof. Moshe Cohen-Eliya is the founder of "Masad HaAretz - The Research Institute of the People of Israel."