Economic Deep State in Israel Drives High Living Costs Through Regulation and Market Concentration

Professor Moshe Cohen-Eliyahu explains that Israel's high cost of living is sustained not by secret cartels or conspiracies, but by a complex economic "deep state." This system consists of entrenched regulation, high entry barriers, market concentration, and interest groups that protect their economic rents across sectors such as supermarkets, banking, automotive imports, and housing.

The State Comptroller found price disparities of up to 226% between direct imports and parallel imports of identical products, highlighting the lack of competitive pressure. In the automotive market, direct importers controlled over 97% of the market in 2023, despite years of reform attempts. The housing sector suffers from prolonged planning and construction processes, sometimes taking up to 13 years from planning to occupancy, with the government’s control over land, planning, and licensing contributing to supply shortages.

Cohen-Eliyahu also discusses the "revolving door" phenomenon, where regulators and industry players frequently move between roles, reinforcing a shared professional culture that aligns incumbent interests with public interest narratives. This system is not necessarily corrupt in the traditional sense but is a powerful structure that protects existing players.

The recent protests at Kaplan Hospital challenged one form of power, the political right, but simultaneously reinforced other entrenched powers labeled as "professional," "independent," or "gatekeepers," which uphold the old economic hegemony. The article argues that addressing the cost of living requires dismantling this power structure through measures such as opening imports, lowering entry barriers, breaking up concentration, limiting revolving doors, accelerating planning and construction, and enabling new competitors to challenge incumbents.

Without such systemic changes, Israeli citizens will continue to pay inflated prices, effectively subsidizing entrenched economic interests that ironically also fund some protest movements. The economic deep state is visible every time consumers open their wallets, representing a rent-seeking structure resistant to reform.