Lucky Larry's Largesse

Desert boom. (Israel's free-export processing zone)
From: Reason | Date: 10/1/1994 | Author: Pollock, Robert
"TILL NOW THE WALLET COMES out--and the government takes half," declared Knesset member Raphael Eitan. He was explaining why despite a highly skilled labor force, excellent ports, and a prime location at the crossroads of Europe, Africa, and Asia, Israel's economy stagnates. Burdensome tax and regulatory policies have long made it a terrible place to do business. That is, until now. "Now" was June 20, the day the Knesset approved the creation of Israel's first free-export processing zone (FEPZ).
More than 100 companies have already expressed interest in locating in the zone, including clothing manufacturers Liz Claiborne, Phillip van Heusen, and London Fog, as well as chemical, trade, telecommunications, and pharmaceutical firms. That's because they will benefit from exemptions from tariffs, personal and corporate income taxes, and a whole host of regulations. And Israel is the only country in the world to have signed free-trade agreements with both the United States and the European Union, giving companies in the zone a competitive advantage abroad, too. In return for the hands-off treatment, Israel expects the zone to generate as many as 50,000 jobs within four years.
The FEPZ will likely cover about 500 acres located near Beersheba in the Negev desert. It will operate as a privately run, semi-autonomous laissez-faire state. In the coming months, Israel will award the rights to serve as concessionaire in the zone. The winning investors will purchase the land and be responsible for providing all infrastructure and services. In return, they will get to lease the land for a profit. This means roads, water, sewers, electricity, and telecommunications, as well as police and fire protection, will be privately provided--another bonus for potential tenants. Backers expect the zone to be able to offer the lowest telecommunications rates in the world. In an information economy that can mean huge savings.
The FEPZ is not unique as a concept. The first free zone started in Taiwan in the '60s. And depending on how you define them, there are now between 120 and 150 special free-market zones in 70 countries. But Israel's FEPZ is important because it may herald a coming wave of privately created, financed, and run free-market zones. It was not proposed by any politician nor planned by any government. It began as an offer from a group of Jewish-American venture capitalists that Israel quite literally couldn't afford to refuse.
ALTHOUGH IT MAY SEEM ODD THAT A LAbor government would accept such an offer, the economic situation forced a move away from government intervention, says Jerry Stoch, an Israeli consul for economic affairs. High inflation and unemployment in the '80s were followed immediately by a tidal wave of immigrants from Russia, Ethiopia, Bosnia, and elsewhere. They needed jobs. Meanwhile, thousands of Israel's own entrepreneurially inclined citizens were emigrating to the United States. And without general economic growth, the new Palestinian-administered regions promised to provide fertile ground for militant activity.
But with Israel's tax and regulatory climate, no relief was in sight. Getting government approval for a new business venture might take two years. And at the $40,000 income level, it cost an employer $3.60 to give an employee an extra dollar of after-tax income. Even at the lowest pay levels, that ratio was 2-to-1.
Reliance on foreign aid long allowed Israel to forego much-needed economic reforms. Last year, the unilateral transfers--in other words, free money--that Israel received from overseas totaled about $6.7 billion. That's more than 10 percent of its Gross Domestic Product. About $3 billion came from the U.S. government, about $3 billion more from private donors. Prominent New York real estate broker Larry Silverstein, for example, alone has raised more than $250 million annually for Israel.
But when it came to investment, even the donors said no way. Upon passage of the FEPZ bill, Member of Knesset Amir Peretz (Labor) recalled how he once said to a donor, "Stop building us buildings, we have enough; stop building clubs and recreation centers. Build us a factory. But the donor replied: 'Your bureaucracy ruins everything. Forget attracting investment and entrepreneurship.'"
Enter David Yerushalmi, a former California real estate developer and lawyer who had recently emigrated to Israel. As it happened, he was also a former student of Robert Loewenberg, president of the Institute for Advanced Strategic and Political Studies, the Jerusalem-based think tank where the idea for the Israeli FEPZ originated. The possibility of an FEPZ gave Yerushalmi a chance to put his business talents to work for his homeland and make a profit in return. He convinced 26 Jewish-American businessmen who had been prominent donors to Israel that they could do the same. In 1992, Yerushalmi's Israel Export Development Corporation (IEDC) offered Israeli Finance Minister Avraham Shohat a guarantee of at least $750 million in investment in return for creation of the FEPZ.
THE ROAD TO APPROVAL WAS NOT EASY. Two committees appointed by Shohat to study the proposed FEPZ rejected the idea, as did the chamber of commerce. Labor groups, academics, and many in the media invoked the images of primitive sweatshops, suggesting that Israel would be turned into a "banana republic." One Israeli journal claimed that the zone amounted to a free license to import or distribute drugs. In fact, the zone will be subject to most of Israeli law. As Yerushalmi pointed out, it is unlikely that close to a billion dollars would be invested without significant assurances of the zone's security and responsibility.
Yerushalmi persuaded six U.S. senators and 13 representatives to send letters to Prime Minister Rabin backing the zone. Several mayors in the economically depressed Negev wrote the Ministry of Finance pleading for the creation of an FEPZ. And the IEDC provided numerous studies to address the arguments of opponents. In the end, Shohat and Rabin ignored the committees' findings, and the FEPZ emerged from the Knesset virtually unchanged from the original proposal. The legislation passed with unanimous support from both the Labor and Likud parties. All three votes against were cast by the communist Hadash party.
Even statist politicians could not ignore the evidence rolling in from the Far East. When just Hong Kong was free and prosperous, it could have been a fluke. But when China's special-processing zones gave it the world's fastest-growing economy, the evidence was just too strong to ignore. Even tiny Portugal at the far end of the Mediterranean employed FEPZs as part of a strategy that gave it Europe's fastest growth rate.
The rapidly increasing number of free-market zones worldwide bears witness to the birth of the quicksilver capital theory in action. Because technology has increased the mobility of capital, governments must shape up before business ships out. This means government policy will increasingly be dictated by economic reality, not vice versa. In the case of the Israeli FEPZ, not only did capital actively seek out a business-friendly environment, it actively worked to create one.
The emerging reality is not lost on the Israeli government. Amid the orgy of praise for free markets following the bill's passage, MK Michael Eitan (Likud) observed, "Those afraid of the law are not afraid of its failure, because private money, not taxpayers' money, is at risk. Rather, they are afraid it will succeed and that the bureaucrats will lose their power. I say to these reactionaries: The world is changing. The time has come to change your economics textbooks." MK Gedalya Gal (Labor) added, "If it succeeds, if there is growth and new jobs, then we can consider widening the FEPZ to include the entire country."
Indeed, it now seems impossible for the Israeli government to stop economic liberalization from spreading to the whole country. The clamor to join an FEPZ will come from anyone who could benefit from deregulation, no taxes, and no customs. That means just about everybody doing business in Israel.
BUT NOT JUST IN ISRAEL. LATE LAST YEAR, Gateway Ventures, also headed by Yerushalmi, signed an agreement with the autonomous Russian republic of Chuvashia, an industrial area on the Volga River, to develop and manage the first free-trade zone ever in the former Soviet Union. Yerushalmi plans to locate Israeli and U.S. high-tech companies in the zone, and estimates the project will cost about $2 billion. The prime minister of Georgia invited Gateway to tour his country as well, suggesting they set up an information technology center in a free-trade zone to be located there. And Gateway is also working on setting up free-trade zones in Hungary, Dubai, the Baltic states, other former Soviet republics, and countries in the Far East.
For now, Yerushalmi's energies are focused on winning concession rights in Israel's FEPZ. As the zone's original backer, IEDC seems favored to get the job. It has already pre-leased 50 percent of the space, has Merrill Lynch and Salomon Bros. ready to underwrite the first phase of construction, and will be ready to break ground early next year if it wins.
It turns out that Marx was right about the power of capital. But happily it's governments, not workers, being pushed around. Technology has made this a smaller world, and the resulting increase in mobility has made capital a force capable of liberating peoples worldwide from the grip of controlling states. As Likud MK Raphael Eitan declared after the bill's passage, "We have reached a time when we must put an end to government interference in trade and the economy. We must free ourselves from the government centralization of the past and bestow freedom, especially the freedom to make money."
Robert Pollock is REASON's 1994 Burton C. Gray Memorial intern.
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Not *that* David Yerushalmi?!
Oh but yes! Fanatical right wing Zio-extremist and Islamophobe... see his site http://www.saneworks.us/indexnew.php
Oh wait, it now costs $150 a month to see more than the front page of the site! Really?
From the front page:
As we informed you last, we have completed the conversion of SANE into the research and public relations arm of a public interest law firm in association with the Law Offices of David Yerushalmi, P.C. to handle aggressive and offensive pro bono litigation targeting on the one hand the Left-Elite’s effort to undermine if not destroy simply our national existence on the way to the “transnational” one world state and on the other hand the Muslim Brotherhood-Jihadi effort to force the West into a state of dhimmitude such that Shariah dominates our world view if not our actions. These seemingly two polar opposites are in fact convergent and converging at the point of tyranny in the effort to achieve the world state.
We see this development in Obamacare, in the bailout and effective takeover by government of the financial and automobile sectors, and we see it in the use of language where public criticism of this destruction of ‘self’ and of its reflection in a people with a national identity is now termed sedition; yet, real sedition by Muslim jihadists is called free speech in the context of multi-culturalism. This is words or speech in the employ of tyranny.
Good catch. Isn't it
Good catch. Isn't it interesting how the same exact kind of Orwellian-speak is used to defend Zio-fascism as is used to defend right-wing capitalism?
David Yerushalmi undoubtedly honed his double-speak tactics propagandizing for Israel: Israel's genocidal policy against Palestinians is really "Israel exercising it's right to defend itself"; Setting up a racist apartheid state that makes Arab Palestinians, and even Arab Jews second class citizens is called "the Middle-east's only Democracy", etc.
These rhetorical tactics are immediately transferable to his propagandizing for right wing free market fanaticism: Pursuit of economic policies that ostensibly provides basic humanitarian necessities like medical care to those who can't afford it (not that 'Obamacare' is the ideal formula) or does anything other than cater to the top 2% of the population is called "destruction of ‘self’ and of its reflection in a people with a national identity"; Undermining labor and environmental regulations and encouraging a race to the bottom with the spread of these so-called free-export processing zones in which the mega-rich get even richer and the already shrinking wages and options for the working class are decimated is called "liberating peoples worldwide".
But wait, there's more!
http://wtcdemolition.com/reading/pi_1995_03.pdf
David Yerushalmi involved in anti-mosque ad campaign
SIOA: NYC's MTA Drops Restrictions on Free Speech, Allows Bus Ads Linking 9/11 to Ground Zero Mosque
NEW YORK, Aug. 9 /PRNewswire-USNewswire/ -- New York City's Metropolitan Transit Authority on Monday dropped its restrictions on the free speech of the human rights organization American Freedom Defense Initiative (FDI) and Stop Islamization of America (SIOA). MTA officials reversed an earlier decision not to allow FDI bus ads that pointed out the link between the September 11, 2001 jihad terror attacks and the proposed Islamic supremacist mega-mosque at Ground Zero.
FDI Executive Director Pamela Geller announced: "The MTA has recognized the justice of our position in our lawsuit, and has agreed to run our ad as originally submitted. This is a great victory for freedom of speech, and we are grateful to our attorneys David Yerushalmi and Robert Muise for mounting such an effective defense against politically correct censorship."
Lucky Larry and Yerushalmi
Bizarre lawsuit
In 1987, Solomon Inc. decided to lease office space in the building after all, and signed a contract. Then everything went haywire again. The slowdown in construction, which had hurt most of the major entrepreneurs in New York, got to Silverstein, too. He had a hard time repaying loans and was forced to sell properties.
In 1993, he became entangled in a lawsuit. Harry Miller, a Vietnam War veteran, sued Silverstein, who owned the Runway 69 dance club in Queens, for his alleged involvement in the trafficking of heroin. Also on the list of defendants were Richard Nixon, Bill Clinton, Ross Perot and Colin Powell, who were alleged to have perpetrated acts including serial murder for 25 years, since the war in Vietnam, as part of a conspiracy to distribute heroin. In January 1994, a New York court threw out the suit; an appeal by Miller was later rejected.
Although the bizarre suit was not reported in the press, it bothered Silverstein. Information about it reached Israel. Opponents of the free-trade zone in the Negev said that Silverstein, who was involved in illicit business in New York, should not be allowed to be part of the Israeli project. It was not until the late 1990s that Silverstein began to recover. The leasing of the WTC properties was to be the climax of his life.
Why was he so eager to get the WTC contract, he was asked a week after the terrorist attack on NBC Television's morning show. Silverstein, tearful, holding the contract in his hand, replied that it had been his dream from the moment he completed the construction of 7 WTC. He looked up at the towers, he recalled, and felt an uncontrollable urge to own them. In another interview, he said that the 47-story building No. 7 looked like a peanut next to the Twin Towers, and he didn't want another peanut.
Free trade in the Negev
Like everything in his life, the leasing of the towers was also a rough ride for Silverstein. He made the final preparations for the bid from his hospital bed, after a drunk driver hit him five days before the bids were due. Silverstein was positive he would win: He was close to local politicians, he had donated $15,000 to the campaign of Governor Pataki. His business relations with the Port Authority were very good. After the car bomb attack at the Twin Towers, in 1993, Silverstein gave the Port Authority offices at 7 WTC in place of those that were damaged in the explosion.
After Silverstein lost and - when the winning firm backed out - was declared the winner in the bidding, he ran into problems with the Port Authority. A bitter argument broke out over the size of the first payment: The Port Authority wanted $800 million; Silverstein was willing to fork over no more than $616 million. Some of the Port Authority directors wondered whether Silverstein, who was just getting back on his feet after the real-estate crash, would be capable of operating the WTC properties, and demanded that the negotiations be broken off.
Finally, to prevent embarrassment (the Port Authority was afraid of a public backlash if talks with a second entrepreneur were broken off immediately after the first debacle), the decision was made to sign with Silverstein. Silverstein was delighted. He raised the rent of most of the towers' tenants by 40 percent. Financial analysts said he would reap a profit of $40 million in the very first year. Life seemed better than ever.
His friends in Israel were happy for him. Silverstein has ties of various kinds in Israel. He is a donor to Tel Aviv University and to the Tel Aviv development foundation. He held a few fundraising events at his home in New York for the foundation with the participation of the then-mayor of Tel Aviv, Roni Milo. Silverstein is a nice guy and a pleasant conversationalist, not like most rich Americans, Milo says.
Silverstein is also a member of the joint American-Israeli commission for housing and community development, which was established by former president Bill Clinton. In the early 1990s, he was involved in projects to build housing for new immigrants. The Israeli political world got to know Silverstein when he tried to create a free-trade zone in the country. He became friendly with Yitzhak Rabin, Benjamin Netanyahu, Ehud Barak and Ariel Sharon.
Ahaz Ben Ari, a former legal adviser in the Prime Minister's Office and the chairman of the Free-Trade Zones Council, remembers Silverstein as being "not easy to deal with, a hot-tempered type who spoke aggressively to the prime minister. He had the feeling that he was going to save the Negev and the homeland, but was not getting the response he deserved."
Silverstein conceived the idea of creating the free-trade zone in 1989. He met with Shimon Peres, who was then the finance minister, and with his deputy, Yossi Beilin, and tried to convince them that the project was an urgent necessity. The idea was that he would be given land in the Negev and would establish tax-free industries there. The Negev would benefit by getting new jobs, and Silverstein would benefit by raking in plenty of money. Peres and Beilin objected: Free-trade zones of the kind envisaged were usually created in the Third World and had the reputation of being slave markets. The local workers earn starvation wages, while the entrepreneurs enjoy full tax exemption and make high profits.
Silverstein did not give up. The economic difficulties he encountered in New York forced him to look for an additional source of revenues. In September 1992, he met in New York with the new finance minister in the Rabin government, Avraham Shochat, and again raised the idea of the free-trade zone, claiming it would create 20,000 new jobs and make the Negev flourish. With Silverstein were his partners in the investment group, Larry Tisch, the owner of CBS, and Sy Sims, a major New York discount retailer.
"I formed a very good impression of them," Shochat recalls. The investors, however, were somewhat less impressed with Shochat. David Yerushalmi, from the West Bank city of Ma'aleh Adumim, who was their representative in Israel, writes on his Web site that Shochat had no understanding of economics, business or free markets. What impressed him was the fact that a group of leading Jewish businessmen wanted to invest without asking for anything in return.
The prime minister, Yitzhak Rabin, also supported the project, Yerushalmi notes, and he then put pressure on Shochat. However, Shochat didn't want to make the decision alone. He set up a commission headed by Yoram Gabai, the director of the State Revenue Administration, to examine the implications of establishing a free-trade zone. Gabai was against the initiative.
"I took a negative view of creating a zone like this of any kind," he says. "The sponsors wanted to create an island, which would be free of all the country's laws. That contradicted our basic approach, which espoused the homogeneity of the system. We rejected the idea outright."
Silverstein didn't like Gabai's report and tried to get it changed.
"One day, I was summoned urgently to the office of Yitzhak Rabin," Gabai recalls. "I was wearing a plain shirt - I had no idea I would be called in to the prime minister. I found a few American investors there, all wearing suits and ties, who had arrived on a private flight from New York and were going back that same day. They wanted to know why I had written what I had written.
"I explained to them that a zone of the kind they wanted was suitable for backward countries, but not for a developed country like Israel. I told them that in the end, the zone would become a money-laundering center and that no one apart from lawyers would make a profit from it."
Shochat and Rabin ignored Gabai's report and set out to enact legislation that would make the Americans' initiative a reality. In October 1993, the government submitted a bill to establish free-trade zones in Israel. Its terms were the fulfillment of every investor's dream. In countless conversations that Silverstein and his representatives conducted beforehand with cabinet ministers and Knesset members, they emphasized that Israel would not have to invest a cent in the project, but the bill stipulated that the government would underwrite infrastructure costs up to the boundary of the free-trade zone, and would also expropriate land.
No special qualifications were demanded of the franchisee, apart from the vague requirement that he be capable of managing the zone. The benefits were enormous. For 20 years, which could be extended for an additional 20 years, the franchisee would be exempt from payment of all taxes, customs and levies. Most of the Israeli labor laws would not apply to those who worked inside the free-trade zone. The chairman of the Histadrut federation of labor, Amir Peretz, who submitted a private bill on the same subject, supported the initiative, he says, "because they promised 20,000 new jobs. From the point of view of the Negev, that could have been a welcome change."
Bowing to pressure
For about half a year, from the time the bill was submitted until it was enacted into law in June 1994, Silverstein and his representatives met with all the relevant MKs and cabinet ministers. "We fought a major campaign," says Dafna Barak, director-general of the Free Trade Zones Council. "We did everything except to lie down in front of the prime minister's door."
Their efforts produced results. The bill became law on June 20, 1994. Support for the free-trade zone cut across political parties. The debate in the Knesset before the second and final readings was a demonstration of support for the American millionaire.
Amir Peretz explained that, "With this track, we have the opportunity to assist and approach the entrepreneurs in the belief that they are not out to cheat anyone. We must not take a narrow view of the sponsors, because only an entrepreneur who makes a profit is one from whom we can later demand that he improve the workers' wages."
MK Michael Eitan (Likud): "If these investors and capitalists make a profit and don't pay taxes on it, what's wrong with that? It's true that they will make a profit, but I don't begrudge them that profit."
The party ended when senior Treasury officials argued that the law posed a threat to the stability of the economy and set out to amend it. In the original version, the companies involved received full tax exemption, whereas in the amended version only industrial firms were given that sweeping exemption. Instead of a majority in the regional council, as the original wording stipulated, under the amendment the representatives of the franchisees had only one seat on the council.
Silverstein fumed. He wanted the whole package - "but that would have created serious distortions in the economy and would have put our reputation at risk and created a tax haven," says Shochat, who was torn between political pressure and the good of the economy.
"The initial idea for the project came from a warm Jewish heart," says Ahaz Ben Ari, "but when they started making more and more demands, we said enough, there is a line we mustn't cross, even if the price is the salvation of the Negev. Anyway, it's far from certain that the Negev would have been saved."
The assassination of Yitzhak Rabin gave the American group new hope for their project. Silverstein asked Colette Avital, then Israel's consul-general in New York, to set up a meeting for him with Shimon Peres, who succeeded the slain Rabin as prime minister.
"My ties with Silverstein grew closer when I tried to get Shochat to give the matter second and third thought, and to give the free-trade zone a chance," Avital recalls.
Peres met with Silverstein, but remained adamant in his objections. Silverstein was furious.
"People barely listened to him, officials insulted him," Dafna Barak says. "I love the project and what happened just made me eat my heart."
Close ties with Netanyahu
The ascension to power of Benjamin Netanyahu opened a new chapter in the saga. Silverstein is left-leaning in his political views - he supports the Democratic Party - but after despairing of Rabin and Peres, he believed that Netanyahu, whom he called a hero of the free market, would push the project forward.
The two have been on friendly terms since Netanyahu's stint as Israel's ambassador to the United Nations. For years they kept in close touch. Every Sunday afternoon, New York time, Netanyahu would call Silverstein. It made no difference what the subject was or where Netanyahu was, he would always call, Silverstein told an Israeli acquaintance. Their ties continued after Netanyahu became prime minister. They met several times and Netanyahu promised to give the project his support.
The obstacle was now the new finance minister, Dan Meridor. He met with Silverstein and told him he was against the idea: "I don't believe in that system," Meridor says. "If a free-trade zone is such a great idea, why not do it throughout the country? And then who will pay taxes?"
Netanyahu succeeded in bypassing the treasury and getting a decision passed in the Knesset, according to which the free-trade project would be under the responsibility of the minister of national infrastructure. The official reason was that Yaakov Ne'eman, who had replaced Meridor as finance minister, had previously been the project's legal adviser, and could not now handle the matter.
The debate in the Knesset on this transfer of authority, which took place in July 1997, was an embarrassing show of capitulation to the demands of the money-man. MK Ze'ev Boim (Likud) said he thought it was the intelligent step to take and the right time to do it. The transfer of authority is a cardinal national matter, said MK Roman Bronfman (then a member of Yisrael b'Aliyah). MK Shmuel Halpert (United Torah Judaism) noted that it was especially important for the powers in question to be placed in the hands of the national infrastructure minister, Ariel Sharon, who will be able to contribute enormously to the law's implementation.
Sharon did, in fact, contribute substantially. A few weeks after the debate in the Knesset, he ordered funds to the tune of NIS 6 million to be transferred to the project and promised that another nine million would follow. In April 1999, he proposed that the law be revised again to permit commercial firms to benefit from the full tax exemption, too, as Silverstein wanted.
However, Sharon's initiative was stopped dead in its tracks by the elections of May 1999. Still, the change of government did not look ominous to Silverstein - on the contrary. He was friends with the new prime minister, Ehud Barak, too. In 1995, when Barak left the army, Silverstein offered him the job of acting as his representative in Israel, hoping that the former chief of staff, with his ramified connections, would be able to push the project through. Barak turned down the offer, but continued to stay in touch with Silverstein. They met at various social events and Barak introduced him to some of the members of his family.
Silverstein had another close contact in Barak's bureau in the person of Isaac Herzog, who handled Silverstein's legal affairs along with Yaakov Ne'eman. "I didn't touch the subject during my period as cabinet secretary," Herzog says. None of this stopped Barak, after his election as prime minister, from trying to help Silverstein advance the project.
"They came to Barak," says Shochat, who was then the finance minister again. "Barak examined the subject with all kinds of confidants and also talked to me about it. I told him that I was vehemently against it."
Barak drew on the help of Yaakov Terner, the mayor of Be'er Sheva, the "capital of the Negev," who was an ardent supporter of the free-trade zone.
"Silverstein gave me speeches from which I understood that he had better investment potential in other parts of the world," Terner says. "He presented a Zionist aspect. I supported the idea because I thought I had to find an opening anywhere we had an opportunity for thousands of jobs." They met in New York. "I tried to persuade him not to despair and to keep the ember burning," Terner recalls.
In May 2000, when his business in New York started to recover and after he understood that Barak was busy with other things and wouldn't go the extra mile for him, Silverstein announced that he was dropping the initiative.
"As a result of this experience," the tycoon was reported as saying in The Jerusalem Post (May 18, 2000), "We've learned something: Don't try to do business in Israel, certainly don't do business with the government because you'll get killed. I'm never going to do this again. The sad thing is that this has turned off so many potential American businessmen from doing business in Israel. And that's a tragedy."
http://wtcdemolition.com/reading/Up%20in%20smoke%20-%20Haaretz%20-%20Isr...
CNI Profiles Silverstein Crony Yerushalmi
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