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Regulation in Israel
Values, Effectiveness, Methods
Edited by
Eyal Tevet
Varda Shiffer
Itzhak Galnoor
Eyal Tevet · Varda Shiffer · Itzhak Galnoor
Editors
Values, Effectiveness, Methods
Editors
Eyal Tevet Varda Shiffer
Open University of Israel The Van Leer Jerusalem Institute
Ra’anana, Israel Jerusalem, Israel
Itzhak Galnoor
The Van Leer Jerusalem Institute
Jerusalem, Israel
ISBN 978-3-030-56246-5 ISBN 978-3-030-56247-2 (eBook)

https://doi.org/10.1007/978-3-030-56247-2
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
Nature Switzerland AG 2021
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
the publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
made. The publisher remains neutral with regard to jurisdictional claims in published maps
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This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
The book is dedicated to the memory of our colleague, Dr. Nissan Limor,
who generously shared his abundant knowledge with all of us. Regretfully,
he passed away before publication of his article in the book.
Preface
This volume represents the second of three segments of a comprehen-

sive research project launched by the Chazan Center for Social Justice
and Democracy at the Van Leer Jerusalem Institute in 2007. The three
segments represent evolving and interwoven ideas that were examined
theoretically as well as through case studies in research groups that took
place at the Van Leer Institute between 2012 and 2017. The products of
these research groups generated three collections of articles. The first,
‘The Privatization of Israel,’ described and analyzed the ‘Privatization
Revolution’ and the withdrawal of the State from its traditional responsi-
bilities since the late 1980s. The second, this volume, deals with ‘Regula-
tion in Israel—Values, Effectiveness, Methods.’ The third, ‘Collaborative
Governance,’ proposes models of policy-making that involve stakeholders,
thus addressing some of the challenges brought about by the political
and administrative changes reflecting the privatization and the regulation
processes. All three are being published in Hebrew and in English.
As a result of the massive outsourcing of government activities and the
transfer of public assets to private ownership, new ways of securing the
availability and quality of public services and of safeguarding the public
interest were required. The term ‘regulation’ and the role of the regu-
lator have become much more salient, and government ministries began
to define themselves as regulators, when just a decade earlier they were
still operating as direct service-providing bureaucracies. It is this shift in
the role of the state, and its implications for institutional structures and
vii
viii PREFACE
for the ways in which the public interest is factored into governance, that
is the focus of this collection of articles. Each researches regulation in
a specific area, revealing the uncertain nature of the current regulatory
schemes—sometimes entailing a trial and error process, and sometimes
arousing strong opposition and fierce public debates. The speedy privati-
zation steps do not seem to have been accompanied by plans to guide the
government in the new role it had to assume.
Regulatory issues, some of them quite scandalous, coincided with the
preparation of this collection—prompting us to add a short postscript
which relates to current events. A reflection on the wider picture of regu-
lation in Israel, as described and analyzed in this collection, coupled with
frequent ‘news items,’ suggests that the government, the regulators, and
the regulated organizations, as well as the courts, are in the process of
figuring out what the issues are and how to cope with them. In many of
the areas examined in this volume, we see frequent changes in regulatory
frameworks, new layers of regulation being added to existing and more
traditional methods, and a quest for creating more transparency and trust
in the regulatory processes.
A more worrying aspect of this shift in the role of government is that
new opportunities for corruption seem to present themselves through
the tender mechanism and other forms of public-private partnerships.
The introduction of for-profit values into public services, in cases such
as public transportation and the water corporations, reveals the vulnera-
bility of the new schemes to corruption. It is hoped that the case studies
analyzed in this volume will generate a thorough review of current regu-
latory arrangements with a view to addressing the issues and challenges
raised.
Ra’anana, Israel Eyal Tevet

Jerusalem, Israel Varda Shiffer
Jerusalem, Israel Itzhak Galnoor
Acknowledgments
We wish to thank the Chazan Center for Social Justice and Democracy
and its director, Nomika Zion, for their long and outstanding support of
the entire ‘Trilogy’ project until the closure of the Center in 2018. The
Van Leer Jerusalem Institute, which hosted the Chazan Center, continued
to be the home of the project and of the present segment on Regulation
in Israel in particular. We are most grateful to Prof. Shai Lavi, the Director
of the Van Leer Jerusalem Institute, and to Shimon Alon, the COO.
This collection would not have come to light without the many
scholars and practitioners who participated in the research group, the
seminars, and the conferences that were part of the process of learning
and research. Not all the participants wrote articles that are included in
this book, but all of them contributed to our understanding of the issues
and our quest for improved regulatory schemes. We are grateful to all of
them.
The project benefited from the ongoing financial support of the
Kibbutz Movement and the Havatzelet Fund, and of the Sam and Bella
Sebba Charitable Trust, for which we are deeply grateful.
Special thanks to the English language editor Esther Hecht and to the
editors of Palgrave Macmillan for their diligent work and guidance.
ix
Contents
Introduction: Regulation—A Multifaceted Instrument 1

Itzhak Galnoor, Eyal Tevet, and Varda Shiffer
Regulation Policy as a Means of Balancing Conflicting

Interests
Banking Regulation in Israel: Balancing Systemic Stability

and Consumer Protection 27
Ruth Plato-Shinar
The Tricky Nature of State-owned Enterprises: The Impact

of Government Ownership 49
Avital Birger
Regulation of Water and Sewage Corporations: Impact

on Prices and Services 77
Eyal Tevet and Gal Talit
xi
xii CONTENTS
Old and New—Multi-layered Regulatory Schemes
Regulation of Third Sector Organizations in Israel 97

Noy Brindt and Nissan Limor
Regulation of Natural Resources and Environmental

Protection in Israel’s Marine and Coastal Zone 121
Tzipi Iser Itsiq
Caught Between Traditional Inspection and Performance

Measurement: Regulation of the Israeli Education System 145
Varda Shiffer
Innovative Regulatory Tools
When Cybersecurity Meets the Regulatory State:

Case-Study Analysis of the Israeli Cybersecurity
Regulatory Regime 173
Ido Sivan-Sevilla and Shani Sharvit
Regulating the Supply of Public Bus Services in Israel 195

Yoram Ida and Gal Talit
Israel’s Law and Regulation After the Gas Discoveries 217

Sharon Yadin
Conclusions: Over-Regulation or Under-Regulation? 239

Eyal Tevet, Varda Shiffer, and Itzhak Galnoor
Index 253
Notes on Contributors
Avital Birger specializes in corporate and administrative law and corpo-

rate governance of State-Owned Enterprises (SOEs). As senior deputy
legal counsel of the Government Companies Authority (GCA), she has
been responsible for legal aspects of privatization, structural changes,
and corporate governance reforms of many of the Israeli SOEs since the
1990s. As part of the accession process of Israel to the OECD, Dr. Birger
represented the GCA in the revision of corporate governance of SOEs in
Israel by the Working Party on State Ownership and Privatization Practice
of the OECD. As bureau member of the Working Party (2011–2014), she
took part in the revision of the OECD Guidelines on Corporate Gover-
nance of State-Owned Enterprises, published in 2015. Dr. Birger holds
a Ph.D., LL.M., and a LL.B. from the Faculty of Law of the Hebrew
University of Jerusalem.
Noy Brindt is a doctoral student (Ph.D.) in the Law Faculty of Haifa
University, Israel. His doctoral work focuses on institutional analysis
of non-profit organizations’ legal frameworks. His research interests
include corporate law, non-profit organizational law, corporate gover-
nance, non-profit theories, and organizations’ intuitionalism. Noy served
as a Research Fellow in the Van Leer Forum for Civil Society Organi-
zations and has collaborated on several research initiatives examining the
Israeli third sector regulation and legal regime. Noy is an active attorney at
law (LL.B.) and an economist (B.A.), serves as general counsel of several
xiii
xiv NOTES ON CONTRIBUTORS
Israeli non-profit organizations, and works as an independent researcher

and lecturer in the non-profit field.
Itzhak Galnoor Herbert Samuel Professor of Political Science at the
Hebrew University of Jerusalem (emeritus); Senior Fellow at the Van
Leer Institute, Jerusalem. He served on the Executive Committee of the
International Political Science Association (IPSA) and edited its Advances
in Political Science (Cambridge University Press) book series. He was
Head of the Civil Service Commission in Prime Minister Rabin govern-
ment (1994–1996); the Israel Science Foundation’s Executive Committee
and on the Governing Board of Hebrew University of Jerusalem. In
2007–2008, he was the Deputy Chair of the Israeli Council of Higher
Education. In 2015, he was awarded the Life Achievement Prize by
the Association of Israel Studies (AIS). Latest books in English: Public
Management in Israel: Development, Structure, Functions and Reforms,
Routledge, 2011. The Handbook of Israel’s Political System, (with Dana
Blander), Cambridge University Press, 2018. The Privatization of Israel:
The Withdrawal of State Responsibility (with Amir Paz-Fuchs and Ronen
Mandelkern), eds., Palgrave Macmillan, 2018.
Yoram Ida is a Senior Lecturer in the Department of Public Policy and
Administration, Sapir Academic College, and a Teaching Fellow in the
Department of Public Policy, Tel Aviv University. His research interests
include economic and social aspects of government regulation of public
transportation service, government regulation of employment of migrant
workers in Israel, and inequality in local government service provision.
He was a member of the Van Leer Jerusalem Institute—Hazan Center
for Social Justice and Democracy regulation research team.
Tzipi Iser Itsiq is a partner in Lipa Meir & Co. Law Firm and Director
of the Environmental Protection, Cleantech and Clean Energy Depart-
ment. Tzipi has extensive experience in promoting innovative regulatory
reforms in the field of environmental protection and in accompanying
legal and environmental disputes in her former role as Executive Director
of the Israel Union for Environmental Defense (Adam Teva Ve’Din). She
serves as a Lecturer and as the Director of the Center for Environmental
Protection at Netanya Academic College. Tzipi holds LL.B. and LL.M.
from Tel Aviv University and Ph.D. from Bar-Ilan University (Faculty of
Law), where her doctoral dissertation focused on environmental regula-
tion. Consecutively named a leading environmental lawyer by domestic
NOTES ON CONTRIBUTORS xv
and international rankings, Tzipi is frequently invited to take part in

government policy drafting forums on legislative and regulatory initia-
tives. Tzipi serves as a board member of the Israel Society of Ecology and
Environmental Science.
Nissan Limor was a Senior Research Fellow at the Institute of Law and
Philanthropy, Buchmann Faculty of Law, Tel Aviv University; a faculty
member and Chair of the Center of Civic Responsibility in this College
for Academic Studies, Or Yehuda. He was a known and distinguished
researcher, and his academic work covered a variety of areas, including civil
society, non-profit organizations, higher education, and the economy of
education. He taught previously at the Hebrew University of Jerusalem,
the Paul Baerwald School of Social Welfare, M.A. program for Manage-
ment of Non-profit and Community Organizations, and at the Ben-
Gurion University of the Negev, Guilford Glazer School of Business and
Management, M.A. program for Management of Non-profits. Nissan has
written and edited six books on non-profit management, regulation and
auditing, and numerous articles and policy papers. He also served as a
Senior Research Fellow and the Head of the Van Leer Forum for Civil
Society Organizations, at the van leer Jerusalem Institute. He was a
Director-General of the Office of the President of Israel and a former
Director-General of the Israeli Council for Higher education. Nissan
Passed away on Friday, November 17, 2017.
Ruth Plato-Shinar is a Full Professor of Banking Law and Finan-
cial Regulation, and the Director of the Center for Banking Law and
Financial Regulation at the Netanya Academic College. Ruth is the
author of the books: The Banks’ Fiduciary Duty; Banking Regulation in
Israel—Prudential Regulation versus Consumer Protection. The opinions
expressed in her books became binding precedents of the Israeli Supreme
Court. Ruth is the Advisory Board Chairperson of the Israeli Commis-
sioner of Financial Service Providers; the Advisory Board Deputy Chair-
person of the Israeli Commissioner of Capital Markets, Insurance and
Savings; a member of the Advisory Committee of the Governor of the
Bank of Israel, and the License Committee of the Supervisor of Banks.
She also serves on the Academic Boards of AIIFL at the Hong-Kong
University and CCLS at the Queen Mary University, London.
xvi NOTES ON CONTRIBUTORS
Shani Sharvit leads the policy division in the Israeli National Cyber
Directorate. The division is responsible for the development of cyber-
related public policy, the directorate’s government relations, and the
directorate’s budget. Ms. Sharvit previously held the position of Policy
and Administration Executive Director. In that capacity, she was respon-
sible for the implementation of the strategic government resolution
regarding cyber in Israel and for the directorate organization. In 2011,
Ms. Sharvit was the Head of the Establishment Administration of the
Israeli Cyber Bureau in 2011. Ms. Sharvit holds vast experience of more
than 20 years in the Israeli government, during which she worked at
the national decision-making junction on core issues in Israel’s economy
and society, promoting cross-cutting work on cross-government ministries
issues. Ms. Sharvit served as advisor to the Director-General of the Prime
Minister’s office and before that as an assistant to the Chair of the House
Committee of the Israeli Parliament. Ms. Sharvit has an M.A. (Honors
Program) in Public Policy and a B.A. in Political Science and Middle
Eastern Studies, both from the Hebrew University of Jerusalem.
Varda Shiffer is Senior Research Fellow, at the Van Leer Jerusalem
Institute. She worked at the Mandel Foundation-Israel between 1997
and 2012 and was the president of the foundation, and the founder
and director of the Mandel Center for Leadership in the Negev. She
served as chief scientist of the civil service commission and taught at
the Ben-Gurion University of the Negev. Shiffer has a Ph.D. in polit-
ical science from the Hebrew University of Jerusalem. At the Van Leer
Jerusalem Institute, Dr. Shiffer directs the program for developing models
of collaborative governance in local authorities.
Ido Sivan-Sevilla is a Public Policy Scholar and Postdoctoral Fellow
at Cornell Tech’s Digital Life Initiative (DLI). He is interested in the
design of and compliance with governance arrangements for our data
capitalist society, focusing on cybersecurity, privacy, inequality, manipu-
lation, and discrimination problems. His work has been published in the
Journal of Risk Research, Policy & Internet, Georgetown Journal of Inter-
national Affairs, the Columbia Science and Technology Law Review,
and NATO’s International Conference on Cyber Conflict (CyCon).
Ido completed his Ph.D. at the Federmann School of Public Policy
& Government at the Hebrew University of Jerusalem, was a M.A.
Fulbright Scholar at the Humphrey School of Public Affairs, Univer-
sity of Minnesota, and completed his B.A. with honors in Computer
NOTES ON CONTRIBUTORS xvii
Science from the Technion—Israel’s Institute of Technology. He holds

a vast background in information security, with eight years of experience
from the private sector, Israel’s Prime Minister’s Office, and the Israeli
Air-Force [Captain].
Gal Talit is an urban and regional planner and holds a Ph.D. in Public
Policy. Her main areas of research and teaching are: local government,
land and planning policy, privatization and outsourcing in the public
sector in general and local government in particular, and the regulation of
public services such as public transportation by buses, water corporations,
employment of migrant workers, supplying social services, and more.
She teaches at the Open University of Israel—Department of Sociology,
Political Science, and Communication. She was a member of the Van
Leer Jerusalem Institute—Hazan Center for Social Justice and Democ-
racy regulation research team. She was working for many years in the
public and private sectors. She is a member of public organizations, such
as a committee to determine the boundaries of jurisdiction between local
authorities and a Lay Judge (workers’ representative) in the Tel Aviv
Labor Court.
Eyal Tevet is Course Convener and Tutor in the Department of Soci-
ology, Political Science, and Communications at the Open University. He
is also a researcher and the academic co-director of a study on regulation
in Israel, conducted at the Van Leer Jerusalem Institute.
Sharon Yadin is an Associate Professor of Law at Peres Academic
Center, specializing in law and regulation, regulatory theory, and admin-
istrative law. Her latest research focuses on contractual regulation, regu-
lation by shaming, regulation in the digital age, and regulatory capture.
Sharon is the author of Regulation: Administrative Law in the Age of
Regulatory Contracts (2016), which was cited by the Israeli Supreme
Court, adopting its thesis, and New Regulation: A Revolution in Public
Law (2018). Her articles were published in leading law reviews worldwide
and won prestigious awards. Dr. Yadin is a Gorney laureate and a Lady
Davis scholar, and also serves as a member of prominent self-regulatory
bodies in Israel, including the Israel Press Council and Maala, a non-profit
promoting corporate social responsibility.
Abbreviations
CEO Chief Executive Officer

GCA Government Companies Authority
GCL Government Companies Law, 5735–1975
HCJ The Israeli High Court of Justice
ICT Information and Communication Technologies
IMF International Monetary Fund
INCD Israeli National Cyber Directorate
NPO Non-Profit Organization
OECD The Organization for Economic Co-operation and Development
PISA OECD’s Programme for International Student Assessment
PMP Proper Management Procedures
RAMA National Authority for Assessment and Evaluation in Education
RIA Regulatory Impact Analysis
SOE(s) State-Owned Enterprise(s)
TIMSS OECD’s Trends in International Mathematics and Science Study
WP SOPP Working Party on State-Ownership and Privatization Practices, a
subsidiary of the OECD’s Corporate Governance Committee
xix
List of Figures
Regulating the Supply of Public Bus Services in Israel

Fig. 1 System of Regulation of Public Bus Services in Israel (Source
Ida and Talit [2017, 83]) 201
Fig. 2 Planned Regulation System in Israel (Source Ida and Talit
[2017, 84]) 202
xxi
Introduction: Regulation—A Multifaceted
Instrument
Itzhak Galnoor, Eyal Tevet, and Varda Shiffer
Regulation1
Regulation does not exist in its own right. It is one of many policy tools,
such as primary legislation, taxation, subsidies, privatization, nationaliza-
tion, legalization, or the outlawing, of a behavior or activity, and removal
of regulation. In the past, the term mainly denoted the executive branch’s
oversight of commercial organizations, and it relied mainly on explicit
laws that authorized various state bodies, state officials, or local govern-
ment to act as regulators. Consequently, regulation was viewed primarily
as obligatory rules of conduct of organizations and individuals, and the
regulator was viewed as the one responsible for formulating and enforcing
the rules. A broader definition of the term emphasized the sociopolitical
role of regulation: “sustained and focused control exercised by a public
agency over activities that are valued by the community” (Selznick 1985,
1 This introduction is based on Galnoor and Oser (2015).
I. Galnoor (B) · V. Shiffer

The Van Leer Jerusalem Institute, Jerusalem, Israel
e-mail: itzhakg@vanleer.org.il
E. Tevet
The Open University of Israel, Ra’anana, Israel
© The Author(s) 2021 1

E. Tevet et al. (eds.), Regulation in Israel,
https://doi.org/10.1007/978-3-030-56247-2_1
2 I. GALNOOR ET AL.
p. 363). According to this definition, regulation is more than enforce-

ment of the law; its aim is to achieve social goals, including the proper
functioning of the economic market. One must distinguish between regu-
lation as defined above and quasi-regulatory activities, such as individual
initiatives of supervision, oversight, and independent establishment of
standards, rules, methods, and means of supervision, violations of which
are subject only to social or economic sanctions. By submitting to quasi-
regulatory activity, individuals and organizations distinguish themselves
in order to obtain a competitive advantage or position. In our definitions,
which appear at the end of this introduction, we have adopted the broader
view of regulation and have included additional components, but only to
a certain extent. On the other hand, we have defined the regulator more
narrowly, viewing the regulator as one who is part of an administrative
body in the state’s (or local government’s) executive branch and who acts
to implement regulation in accordance with the law.2
Legislation is the most common means of establishing a regulatory
body and of formulating rules for regulating a particular field. Examples
include Israel’s Accountants Law, Patents Law, Securities Law, the Agri-
cultural Supervision Authority Law, the Bezeq Law (satellite television
broadcasts), the Water and Sewage Corporations Law, the Natural Gas
Sector Law, the Bank of Israel Law, and the Public Broadcasting Law.
This list of laws represents several key motives for regulation: authoriza-
tion of professionals in sensitive fields, preservation of the individual’s
property right, regulation of the financial market, maintenance of public
health, balancing branch stability and consumers’ rights (e.g., in the water
and electricity markets or in banking), and supervision of public property
(such as the airspace). Other important motivations include coping with
what are called “market failures” (monopolies, the absence of competi-
tion between businesses, marketing of dangerous products, the absence of
transparency in information to consumers, and environmental pollution).
The list could include additional social motivations, such as regulation of
the public labor market by means of a minimum wage law, regulariza-
tion of the work of labor contractors, affirmative action for disadvantaged
groups, supervision of the use of drugs, or safeguarding the free use of
public resources, such as beaches.
2 For the broader definition, which sees legislation, monitoring, and enforcement of
laws as part of regulation carried out by the “regulatory state,” see Levi-Faur (2011a,
chapter 1).
INTRODUCTION: REGULATION—A MULTIFACETED INSTRUMENT 3
The roles of regulation that are the responsibility of entities in the

government’s public sector include supervision of local government by
appointees responsible for the Ministry of Interior’s districts; supervision
of the water pollution level in the national water carrier, conducted by
inspectors from the Ministry of Health; supervision of protection of the
beaches and prevention of pollution of the sea, which is the responsibility
of the Ministry of Environmental Protection. The supervisor of banks
is a typical regulator, as is the director-general of the Israel Competi-
tion Authority, the registrar of associations, and the Second Television
and Radio Authority, which was established by a special law in order to
oversee the commercial television channels. These are the varied forms
and methods of regulation that have been discussed extensively in the
literature.3
Sharon Yadin, for example, classifies regulation into three main types,
starting with the broadest, which includes all the means of social control;
followed by an inner circle in which the focus is the state’s intervention in
the financial market; and concluding with the limiting approach according
to which these are obligatory rules that the regulatory authority oversees
(Yadin 2016, pp. 22–24).
Another way of classifying regulation is to consider the approaches
regarding its necessity: those that assume that regulation is essential
and ask to what extent and how, as opposed to those that are inter-
ested primarily in questions of deregulation.4 Also, some argue that the
state should intervene—directly or by means of regulation—only when
there are market failures that justify such intervention, such as a natural
monopoly, inherent advantages of size, external influences, or a “free
rider.”5
3 Regulation, a journal published in the United States since 1977, is devoted to

regulation and deals mainly with promoting a policy of deregulation. Regulation and
Governance, a journal that first appeared in 2007, combines issues of governance and
regulation. See also Majone (1990).
4 See Baldwin (2006), Baldwin et al. (2012), Barzelay (1992), Behn (2001),
Gunningham and Grabosky (1998), Kelman (1981), Levi-Faur (2006), Moran (2003),
OECD (2009), Radaelli (2004), Radaelli and De Francesco (2007), Skrzycky (2003), and
Sparrow (2000).
5 That is, it is an inefficient distribution of goods or services that occurs when some
individuals are allowed to consume more than their fair share of the shared resource or
pay less than their fair share of the costs.
4 I. GALNOOR ET AL.
Often, the policies that the state introduces to contend with market
failures are privatization and outsourcing, accompanied by regulation and
various means of oversight. But does regulation actually solve the prob-
lems inherent in privatization and outsourcing, or is it merely a disguise
for the preference of interests of strong groups in society? In many cases,
the promises of regulation have been aimed at quelling opposition to
privatization, as, for example, in the attempt to privatize the prisons
in Israel (Galnoor 2018). Another difficulty is preventing conflicts of
interest when regulators in government ministries are appointed—after
they retire—to top positions in the businesses they previously regulated
as civil servants. These arguments have a factual foundation in Israel, but
they are not sufficient to invalidate privatization that is accompanied by
suitable long-term regulation. They demonstrate the need to institute
well-organized and effective regulation that will ensure protection of the
public interest, particularly of disadvantaged groups. Moreover, there is
no dispute regarding the need for regulation in crucial areas such as safety,
pharmaceuticals, environmental pollution, and food. To these must be
added the need to avoid the privatization of regulation itself. The privati-
zation of regulation is examined in relation to public transportation in the
article by Ida and Talit, which discusses how the public transportation
market was opened to competition by means of tenders.
The above refers to the operation of regulation when there are market
failures that justify it. However, a market failure may be discovered only
when a particular product or service has been put to the test by the market
and has failed. And what about products or services that cannot be put to
the test of the market for a variety of reasons, such as emergency services,
tax collection, and military conscription? The same applies to products
or services that are in demand in the private market—such as antiquities,
access to beaches and national parks—that many countries prefer to define
as valued public goods.
Brindt and Limor examine why the regulation of third sector organi-
zations is different and requires a different approach from the one applied
to other corporations. They also consider what differentiates this sector
with regard to regulation.
This introduction aims to demonstrate the complexity of the issue of
regulation and to show that “too much” or “too little” are merely slogans
that miss the mark (we will expand on this in the book’s summary).
According to our broad definition, regulation means continuous and
organized oversight in an official manner that is conducted by those
who are part of an administrative body in the executive branch or local

government.
A Comparative View
How and why does regulation develop? These questions have many
answers, some of them contradictory.6 For example, is the leading factor
in the development of regulation the public interest or the private
interest? Some answers to this question can be found in general theo-
ries dealing with institutional change of state functions or policy change.7
This question can also be examined in its historical context in relation to
the growth of the administrative state and the arrays of relations between
politicians and bureaucrats.8 Another stream in the study of regulation
focuses on the regulatory agencies—such as the Food and Drug Admin-
istration (FDA) in the United States—as organizations and examines their
power and the role their reputation plays in shaping how they operate.9
In the United States, regulatory authorities were established at the
end of the nineteenth century as federal tools in the struggle against
graft and monopolies of large companies. Thus, for example, the Inter-
state Commerce Commission (ICC) was established in 1887, the Food
and Drug Administration (FDA) in 1906, the Federal Communica-
tion Commission (FCC) in 1933, the Equal Employment Opportunity
Commission in 1964, and the Consumer Financial Protection Bureau and
the Financial Stability Oversight Council (FSOC) in 2011 in response to
the financial crisis of 2008–2009, which required state intervention. The
extent of federal regulation in the United States is enormous, and every
one of the above-named agencies has thousands of employees (e.g., in
2015 the FDA had some 9000 employees, and in 2016 the CFPB and
the FCC had 1600 and 1700, respectively).
6 For a fascinating discussion of the economists’ attitudes toward regulation and the
question of whether proponents of the welfare state are also in favor of broadening
regulation, see Klein (2015).
7 See, for example, how Jordana and Levi-Faur (2005) applied diffusion theories in their
study of “the regulatory explosion” of recent decades, which is manifested in the growth
and broad dissemination of regulatory agencies in many countries.
8 See Levi-Faur (2016).
9 Carpenter (2010), Levi-Faur (2005), and Majone (2011).
6 I. GALNOOR ET AL.
The American approach is based on the assumption that regulation is

intended to correct market failures and that it is essential to the proper
functioning of the economy. Regulation in the United States served as a
kind of substitute for the policy of nationalization adopted in European
countries (Majone 1994, p. 81). Regulatory authorities are established
in the United States on the basis of legislation. They are unique and are
meant solely for regulation. They are not an integral part of the execu-
tive branch headed by the president. This structure is intended to ensure
independence, at least with regard to the federal executive branch. The
regulatory authorities are usually headed by committees rather than by a
single individual.
In the last decade, there have been contrary trends in the United
States. The technological developments have forced the government to
contend with a new type of security threat; accordingly, the government
has had to increase regulation for cyber-security of crucial infrastructure
and to protect government bodies and specific sectors, such as health,
finance, energy, and transportation. The research literature has thus far
devoted little attention to how state regulation has been organized and
institutionalized around cyber defense. Sivan-Sevilla and Sharvit present
in their article an empirical and theoretical foundation of the regulatory
state’s ways of coping with the cyber problem as a public policy challenge.
In some additional areas—health, safety, and environmental quality—
regulation has been increased in the United States; other areas, however—
in industry, agriculture, and communications—have undergone processes
of deregulation. Crises intensify regulation. Thus, for example, the Enron
corruption case (2001)10 led to broadened regulation regarding manage-
ment of commercial entities and oversight of stocks and accounting.
Following the September 11, 2001, terror attacks, regulation was
increased at an accelerated rate in areas that were defined as related to
internal security, such as granting of entry visas and transfers of money.
The financial crisis of 2008–2009 led to even more financial regulation. In
Israel, protection of the financial system and the consumer is in the hands
of a single regulator, the supervisor of banks. Plato-Shinar examines the
10 Enron, the American energy corporation based in Houston, Texas, had more than
20,000 employees and a reported turnover of $111 billion. At the end of 2001, it was
revealed that the company’s reports of its financial status were based on accounting fraud
to an unprecedented extent (McLean and Elkind 2013).
tension between these two areas of authority—the stability of the finan-

cial system and consumer protection—and the requisite balance between
them, comparing them to decentralized models of financial regulation.
In Europe, and especially in Britain, the approach has been totally
different: Regulation is a key role of the state and it is mainly in the
hands of the civil service. Even when special regulatory bodies have been
established, they have been embedded in government ministries and have
been subject to the authority of the relevant minister. In Britain, only a
few laws are devoted solely to regulation, and this has left the state’s regu-
lators and local government broad room for discretion. The advantage of
the British system—as opposed to the adversarial approach that charac-
terizes the United States whereby regulation is enforced by specialized
authorities, by inspectors, and punishment—is the existence of a prag-
matic and mostly informal process. The process is intended to develop
cooperation between the government overseers and the bodies subject
to oversight—mainly commercial enterprises—and accordingly it defines
regulation as an arrangement, that is, a means of developing with the
bodies subject to oversight agreed-upon rules of conduct. This approach
exists in other European countries (Wilson 1989). The disadvantage of it
lies in the danger of entrenching loopholes that primarily favor powerful
interests that may conflict with the public interest. The question of public
interest with regard to state-owned companies and the balance required
between that interest and the maximization of profit for the shareholders
is discussed in the article by Birger, which analyzes the regulation of
government companies in Israel and considers the necessary changes and
adaptations.
The privatization policy in England led to the development of a
different regulatory policy, meant to ensure that the state would not give
up its responsibility totally. This policy led to the establishment of special
regulatory bodies, such as the Civil Aviation Authority (1972), the Equal
Opportunities Commission (1976), and The Office of Gas and Electricity
Markets (Ofgem) (1990). The downsizing of the civil service was accom-
panied by a multitude of regulatory rules and even the establishment of
special bodies to arrange the regulation itself, such as the director-general
of regulation of the executive agencies of the civil service and the Compe-
tition Commission for coordination and resolution of conflicting opinions
(Bishop et al. 1995; Boyer and Saillard 2002). Another development was
the supra-state regulation, like that of the European Union (EU), which
was intended to ensure commercial competition, free passage of workers
8 I. GALNOOR ET AL.
between countries, and protection of the environment.11 The negotia-

tions regarding Britain’s exit from the EU (Brexit) following the 2016
referendum addressed various issues, including these.
A study of 85 countries that examined the existence or absence of an
independent regulatory agency in 17 select areas12 found that democratic
states tend to establish more independent regulatory agencies.13 The
usual explanation for this tendency is the superior performance of these
agencies, but in practice the tendency apparently expresses the democratic
ability to delegate authority and allow greater room for expertise in the
processes of formulating and implementing policy. In contrast to such
countries as Britain, Slovakia, and Portugal, in which there are 17 inde-
pendent authorities, Israel does not tend to establish such authorities, and
as of 2020 there are only five independent authorities: the Bank of Israel;
the Securities Authority; the Antitrust Authority; the Financial Market,
Insurance, and Savings Authority; and the Water Authority. The influ-
ence of the Water Authority’s regulation on the institutional structure of
the municipal water market in Israel, the price, and consumer service is
examined in the article by Tevet and Talit.
In every democratic state, whatever the regulatory method and its
extent, a key question remains: To whom do the regulators answer? The
independence of the regulatory authority means that the public has no
way of overseeing it through elected bodies. On the one hand, there
is the phenomenon of the “captive regulator,” which consists primarily
of the development of symbiotic relations between the supervisors and
the supervised, even to the extent of blurring the boundaries between
11 Examples of such regulation include regulation in the area of agriculture, which led
to the increase in food prices in Britain; regulation of imports, which limited and made
difficult the entry of competing cheap products; in the labor market, primarily in relation
to recruitment and dismissal of workers; and in immigration, primarily because of the
fear of the entry of large numbers of migrants. These limitations served as a reason for
Britain’s vote to leave the European Union in the referendum of June 23, 2016. See also
Vogel (2003).
12 The areas are postal services, work safety, environmental protection, communications,
electricity, food, protection of privacy, gas, health services, pharmaceuticals, the central
bank, bank supervision, securities, antitrust, pensions, insurance, and water.
13 Source: Database of Jordana et al. (2011). We received the updated data for 2016
from Prof. Levi-Faur prior to their publication. We thank Libby Maman-Burstein for her
assistance in the data analysis.
them and harming the public interest, for which the regulatory mech-
anism was created or a government company or a public service were
privatized. On the other hand, there is evidence that regulation succeeds
more when it is not carried out by force but rather by means of discus-
sion and creation of a shared learning process for the supervisors and
the supervised (Carpenter 2004). The question of the state’s respon-
sibility is a general democratic dilemma that arises also in relation to
ministerial responsibility and the functioning of the regulatory agencies
in parliamentary regimes. A country’s transition from direct management
to regulation requires a new arrangement. First, the political responsibility
and the regulatory function must be separated so that the political respon-
sibility remains in the hands of the political echelon (e.g., by requiring
routine reporting by the regulator) and oversight moves to the regulator.
Second, the body put in charge by the state must acquire knowledge
and experience, both in conducting the regulation and in supervising the
regulators.
The State of Israel in its early days, was involved in almost every aspect
of life. There was little need for regulation of the business sector because
the state, the Histadrut (the general trade union), and the Jewish Agency
acted directly in the economic sector, and the state even shaped the
private sector with its industrialization policy (Levi-Faur 2001).
Israel inherited the British approach of applying regulation through
government ministries, and to this day most of the regulators in Israel
are appointed by the government and its ministers. Several laws require
consultation with a committee of the Knesset (Israel’s parliament)
regarding the appointment of regulators, but in general the Knesset has
little influence in this area. Over the years, the laws and regulations
have multiplied, and government bodies, such as the Israeli Electricity
Market Regulatory Authority, have been established specifically to enforce
regulation. Nevertheless, there are conflicting trends: On the one hand,
there is a tendency to increase oversight (e.g., of prices of products or
salaries of top executives)—that is, over-regulation. On the other hand,
the government makes decisions to institute deregulation. The absence of
a comprehensive approach characterizes the entire civil service in Israel,
so that even the discussion of the advisable boundaries of regulation is
in its infancy. In this respect, the privatization policy and the reduction
10 I. GALNOOR ET AL.
of government intervention have moved in a direction opposite to that

of the centralized oversight policy of the Ministry of Finance, and to
some extent also of other ministries, including the Ministry of Justice.
Alongside the regulators with limited authority over environmental pollu-
tion there are regulators with far-reaching executive and quasi-judicial
authority, such as the antitrust commissioner or the registrar of nonprofit
organizations. At the same time, having the authority does not ensure
that the regulator will indeed make use of it, as noted in the report
of the National Commission of Inquiry into the Bank Shares Regula-
tion (Bjeski Report 1986, p. 355). Moreover, even when the regulator
applies the authority, there is no guarantee of government probity or of
justice for all citizens, as is evident, for example, in the Supreme Court’s
ruling (244/00) concerning inequality in land policies by the Israel Land
Authority.
In addition, there is inherent tension between the decentralization
and centralization of authority, which has ramifications for the intensity
and character of regulation. The Ministry of Education, for example, is
in charge of the curricula of all the country’s public schools, and the
ministry’s inspectors are responsible for ensuring that the pupils indeed
learn in accordance with these curricula. This centralized approach can
be seen as an attempt to impose 100% regulation. In contrast, the
Dovrat Commission report (2005) recommended a drastic reduction in
the number of inspectors and recommended that the ministry should
continue to set policy and approve curricula, but place the responsibility
for implementing the policy on the principals and the teaching staff, with
no external inspectors. The report evoked a lively public discussion at the
time, but except for a partial broadening of the authority of the princi-
pals, it was not implemented and the centralized structure remained in
place. Shiffer shows how traditional regulation that did not adapt itself
to trends of decentralization and outsourcing in the array of education
services led to a widening of the gaps in academic achievement between
pupils of different socioeconomic backgrounds.
Israel’s civil service is still governed by the approach of centralized
supervision and regulation, despite the democratic and functional logic
of decentralization of authority. Centralization requires many regula-
tory positions in the government ministries and many duplications—for
example, in the Ministry of Environmental Protection, which serves as
a centralized regulatory authority. It also requires explicit laws that do
not prevent vague interpretation by both regulators and those regu-

lated (Cohen 2001). The article by Iser Itziq presents a review of the
development and characteristics of environmental regulation in Israel and
discusses the test case of the regulation of Israel’s maritime space and
Mediterranean beaches as an example of conflicting interests and the need
for a broad perspective and an integrated approach to regulation.
Another disadvantage of the Israeli system lies in the danger of making
loopholes permanent, especially for the benefit of powerful interests that
are opposed to the public interest. A good example of this is the Ministry
of Communications: The severe criticism of its functioning reinforces
the suspicion that regulators may develop symbiotic relations with their
“clients” and will cease, in effect, to serve the public. As we have noted,
Israel has only a few agencies whose sole function is regulation, and they
are not involved in carrying out the regulation itself. The most promi-
nent example is that of an authority established on the basis of a special
law, which defined regulation as its sole function: The Public Services
Authority—Electricity, was established in 1996, and 20 years later its inde-
pendent status was revoked and it was made subject to the Ministry of
Energy.
Thus, the questions presented above regarding the organizational
structure and the degree of centralization reveal only partial aspects of
the issue of regulation. The broad question, which is also the bone of
contention with regard to regulation, is fundamentally ideological and
touches on the perception of the state’s role. The argument is between
supporters of deep involvement of the state and broad regulation of
many areas, and supporters of reduced intervention and regulatory inten-
sity, with the exception of critical areas such as safety, pharmaceuticals,
environmental pollution, and food.14
Deregulation
The trend of removing functions from the civil service has led to an
intensification of regulation and even to the establishment of special regu-
latory bodies like those in the United States. In the wake of this, resolute
demands for deregulation have been heard, under the influence of the
Organization for Economic Co-operation and Development (OECD),
14 For a brief summary of the position of supporters of regulation see Dunleavy (1991).
For a summary of the position of the opponents, see Niskanen (2002).
the EU, and the World Bank (see Radaelli and De Francesco 2007). Their
goal: to remove entities from regulation, to reduce individual regulation,
and to lower the cost of regulation in order to lighten the burden on
businesses and strengthen the economy. Nevertheless, processes of dereg-
ulation have not abolished regulation. For example, reducing the budget
of the regulatory body or revoking the regulation in a particular area
(such as concerning peripheral equipment in the field of communica-
tions) caused the government monopoly to be replaced by an unlimited
private monopoly (Veljanovsky 1987). Technological changes set new
challenges, and regulation required renewal. In such cases, a need was
created to improve the regulatory rules. An example of this is the regula-
tory contract presented in the article by Yadin, an enforceable agreement
between the regulator and a private entity regarding the conditions of
individual regulation that will apply to it, including the mutual exchange
of compensation.
This book as well as the Hebrew version—Regulation in Israel (Tevet
and Galnoor 2019) present examples of shortcomings in the regula-
tion of privatized services in Israel in the areas of education, water, gas,
banking, communications, contract workers, government companies, civil
sector organizations, environmental quality, public transportation, health,
welfare, pensions, employment, and infrastructure branches. In light of
the many defects and weaknesses of the mechanism of regulation of
these services, the study of the privatization policy in Israel, published in
2015, recommended that before any decision is made regarding privati-
zation or nationalization, the required process—regulation, deregulation,
or reregulation—be defined precisely and that the costs of supervision and
oversight (the “forgotten” cost) be taken into account in the calculations
of economic feasibility (Galnoor and Paz-Fuchs 2015, p. 505).
Influenced by the OECD, in 2015 Israel adopted the Regulatory
Impact Assessment (RIA) as its main tool for deregulation and reregu-
lation. According to the RIA, the evaluation of the impact of regulation
is conducted both in relation to existing regulation and as part of the
process of formulating new regulation. Its main points are estimation of
the cost of regulation and its direct and indirect impact on the entire
economy. The aim is to institute a transparent, structured, and inclusive
process that will enable the regulator to decide on optimal regulation
with a benefit that is greater than its cost (Better Regulation Task Force
[BRTF] 2003).
The report prepared in Israel is similar to those customary in the

OECD countries, and it consists of several stages: description of the
existing situation, planning of a process of learning and data gathering,
consultation with experts and stakeholders, definition of the policy’s goals
and targets, formulation and analysis of alternatives, comparison of alter-
natives and choices, establishment of processes for future examination of
the regulation, and report of the recommendations.
This is an attempt to institute an orderly and logical process whose
correct implementation will make it possible at each stage to influence
the above mentioned stages, until the formulation of regulatory rules
whose aggregate influence on public welfare is much greater. In Israel,
the process is in its earliest stages and therefore it is not yet possible to
judge whether it will indeed lead to an improvement over the complex
regulation in the government ministries.
The Roman senator Cicero was apparently the first to ask, “Who is
guarding the guards?” He was referring to those who remained in the
palace to ensure the faithfulness of the queen while the king was away.
This question, which expresses a lack of trust in those whose role is
to guard, is actually an infinite loop: And who will guard the guards
of the guards? In our context, who will oversee and regulate the regu-
lators? As long as the regulator was part of a government ministry,
the answer was relatively simple: the guard responsible for the political
echelon of the ministry, which in democratic countries is under public
oversight. In most OECD countries, and in the United States, a different
approach was adopted and they instituted units of “regulators’ regula-
tors”—special Regulatory Oversight Bodies (ROBs) that are part of the
executive branch. The ROBs function in one of two ways: In one version,
their role is strictly consultative, only regarding preparation of a report
of the regulatory impact, and consultation with them is optional. In the
second version, consultation with them is required and the approval of
the ROB is required for every report. In this version, the ROB is also the
direct regulator of the regulators’ work (Wiener and Alemanno 2010).
Regulatory activity in Israel is expanding. Between 2001 and 2009
more than 6000 orders, directives, guidelines, and regulations, most of
them with regulatory content, were published (OECD 2011). Did Israel
improve its regulatory policy? The OECD believes that indeed there
has been an improvement since Israel joined the organization in 2010
(OECD 2015). Nevertheless, most of the studies in this book found that
Israel still lags behind other OECD countries in everything related to
the involvement of stakeholders in shaping regulation. Despite the offi-

cial responsiveness to the OECD’s demands with regard to regulation,
Israel has not taken significant steps toward enhancing the professional
ability of the government ministries to carry out their regulatory tasks,
and no regulatory oversight body has been established. True, in 2015 the
Division of Governance and Social Affairs was established in the Prime
Minister’s Office to spearhead the program for reducing the regulatory
burden. But meanwhile the government ministries are clinging to the
privatization policy and are outsourcing more and more services, and
this requires an intensification of regulation. It appears, therefore, that
despite a series of decisions, the government has no clear and consistent
regulatory policy.
About the Study

In 2007, the Center for Social Justice and Democracy in Memory of
Yaacov Chazan at the Van Leer Jerusalem Institute undertook a broad
interdisciplinary study that examined the areas of the state’s responsi-
bility, the shifting boundaries between the public and the private, and
the regulatory tools that the state employs. The study’s findings and
its recommendations for necessary changes in the privatization policy in
Israel were summarized in the book The Privatization of Israel (Paz-
Fuchs et al. 2018). The current book, although it exists in its own
right, is a kind of continuation of the privatization study; both it and
its predecessor examine the state’s areas of responsibility and the bound-
aries between public and private in everything related to regulation in
Israel. The shift from a study of privatization to a study of issues of regu-
lation was deemed necessary because of the assumption that regulation
guarantees the prevention of potential failures resulting from privatiza-
tion and outsourcing. The supporters of privatization opine that when a
particular service is given over to private hands, the state does not escape
its responsibility. Instead, its role changes—from executing the service
to supervising its nature, quality, cost, and accessibility. This assumption
requires examination. For example, privatization was intended mainly to
reduce the state’s intervention and to save public funds, whereas tight
regulation may intensify involvement and increase costs.
At first glance, the topics of the articles in this book seem far apart.
What is the connection between public transportation and beaches? or
between the education system and supervision of the banks? Between the
municipal water market and civil society? Nevertheless, our aim was to
diversify the types of regulated bodies: government companies, private
companies, for profit and not for profit, public services, and natural
resources. This is not a full list of regulated bodies or areas, but it is wide
enough to allow us to ask questions about the underlying ideas of regu-
lation and then to propose solutions that apply across diverse areas of the
economy, and different types of regulated bodies. Our aim is to follow in
the footsteps of the emerging research on regulation and to point out the
common denominator of regulation across diverse areas. This approach
also sees the common goals of regulation itself—safeguarding the critical
interests of the public, while not ignoring the additional important goal—
promotion of competition. Its ultimate goal though is to change the
behavior of individuals, groups, and organizations, whether they belong
to the business sector, the government, or the third sector; whether
they strive for profit maximization or they are nonprofits. The idea is
to ensure that essential public interests, including competition in the
business market, are not harmed because the regulation instituted is not
suitable or cannot be enforced.15 In the summary article of this book—
“Over-regulation or Under-regulation?”—Tevet, Shiffer, and Galnoor
present the conclusions drawn from the studies in the book and trace
their common grounds regarding these underlying issues of regulation.
Glossary
The intention of this glossary16 is to create a shared and relatively simple
language in a field in which there is a multiplicity of definitions. The
problem of a common language arose right at the start of the work of
the group that at the end of the process brought forth this book. The
15 On the approach that describes the state as “the regulatory state” and points out
the extent of regulatory events as an indicator for examining the relations between the
various actors and as an explanation of key aspects of the political-social-economic order,
see Levi-Faur (2011b).
16 The terms listed here are based on a host of sources, and there is a certain amount of
overlap between some of the terms. Participants in the Regulation Workshop at the Center
for Social Justice and Democracy in Memory of Yaacov Chazan at the Van Leer Jerusalem
Institute took part in preparing the definitions listed in this glossary: Motti Boneh, Noi
Brint, Itzhak Galnoor, Hanan Hever, Hadar Joana Jabotinsky, Eyal Tevet, Motti Talias,
Sharon Yadin, Nissan Limor, Keren Nativ Bornstein, Ruth Plato-Shinar, Hila Shor, and
Varda Shiffer.
group included specialists in the field of regulation; experts on a specific

topic—such as banking, health, environment, or communications—and
its regulatory aspects; researchers in public policy and administrative law;
and those who had experience of regulation at the practical level. Our
workshop, which went on for three years, taught us first and foremost
that we were not speaking the same language and that the disagreements
did not derive solely from different perceptions of the essence of regu-
lation and its roles but rather from different definitions of basic terms.
Therefore, one of our first tasks was to discuss the definitions of the basic
terms of regulation and create a basis for a common language.
The greatest challenge was defining regulation. Regarding the prac-
tical purpose of regulation, the scholars were agreed that its role is to
serve critical public interests. In contrast, on the ideological level—that
is, regarding the state’s role—they were divided. Regarding the essence
of regulation and the nature of the regulator, there was disagreement
among them that covered a wide variety of topics. The broad definition
that we adopted in the glossary makes it possible to distinguish between
who is a regulator and who is not, and between regulation and activity
that is quasi-regulatory and has regulatory characteristics.
Regulation. A method of continuous and formally organized oversight
that relies on rules sourced in laws, regulations, standards, procedures,
monitoring methods, means of education and training, and enforce-
ment powers. The use of these rules is generally left to the regulator’s
judgment.
Regulator. One who belongs to an administrative body in the execu-
tive branch of the state or of local government (or one who is authorized
by them), who deals solely with regulation or some of whose roles include
regulatory aspects. The regulator implements regulation in accordance
with the law, formulates rules, and decides how they will be enforced.
The purpose of regulation. To protect values and critical social and
economic interests. Regulation is intended to influence the behavior of
commercial, public, and social organizations, as well as individuals in
society.
The regulatory state. In the broad sense, the definition describes
a state whose roles have changed greatly and has become primarily in
charge of regulation. In the narrow sense, the meaning is a state in which
laws, regulations, rules, and criteria are the main tools for implementing
policy in general and for steering and regulating the economy in partic-
ular. The regulatory state withdraws from direct provision of services and
delegates to private bodies the authority to provide them. Nevertheless,

state institutions retain the functions of steering, overseeing, monitoring,
and enforcing policy. When this is the method employed, it is gener-
ally proposed that the regulatory powers of the government be separated
from the political process of determining the policy and that it be handed
over to autonomous professional agencies whose function is delineated by
law. The delegation of powers redefines the regulatory state as a state in
which there is no single source of governance but rather a decentralized
governing body (Levi-Faur 2011b).
Methods: Coercive regulation (“command and control”). Regula-
tion that is carried out in a unidirectional, direct, and coercive manner
by authorized state institutions (the regulators) by means of legal, direc-
tive norms generally anchored in main law and accompanied by criminal
or administrative sanctions.17 The usual means of enforcement includes
criminal fines, monetary sanctions, revocation of licenses, and administra-
tive orders.
The command and control method is based on the assumption that
without sanctions the probability of compliance is low. Therefore, there
is an emphasis on imposing prohibitions and limitations to influence
behavior of the supervised individual in everything related, for example, to
the manufacture of products, provision of services, pricing, quality assur-
ance, geographical distribution, and obstacles to entry into a sector. There
are methods that combine the command and control regulation with soft
regulatory tools (see below).
Methods: Soft regulation. Regulation conducted bilaterally (and even
multilaterally) that allows broader room for autonomy and discretion
of those regulated. Alongside means of enforcement and commanding
norms, and sometimes in place of them, use is made of guidance tools,
education, granting of the right of expression, and sharing (commonly
found mainly in voluntary regulation and social regulation. See below.).
Soft regulation is carried out also by means of transparency and disclo-
sure, shaming, and self-regulation (Parker 2002). The assumption is that
sanctions meant to intimidate are not always effective and that soft tools
are often preferable for achieving the goals of regulation. The use of this
method is more widespread when the danger from the supervised activity
is not especially great and when suitable conditions of trust exist.
17 See also Gunningham and Grabosky (1998).

Methods: Regulations by means of stakeholders. A branch of volun-

tary regulation (see below). Stakeholders in this context are entities that
have the ability to influence the organization and serve as a mechanism
of regulation, such as actors within the organization (members, workers,
creditors), external groups (clients, other individuals, and entities that
benefit from, or are influenced by, the organization’s activity), and the
general public. Regulation is conducted by means of communication
between stakeholders and the organization. This encourages the stake-
holders to influence decision makers to act to achieve the organization’s
goals and to prevent inappropriate divergence. The advantage of stake-
holders is that they identify with the organization’s goals and are familiar
with the sphere of its activity and the population it serves.
Such a regulatory regime is a domain of many actors who put into
motion a variety of ways of monitoring, supervision, oversight, and
influence regarding decision makers in the organization. Unlike formal
statutory regulation, regulation by means of stakeholders takes place in
a decentralized environment in a variety of ways and times, with a focus
on aspects that accord with the priorities set by the stakeholders. The
criticism of this approach points out the weakness of formal means of
enforcement in comparison with those granted to the official regulator.18
An example of such regulation is quality control of a product or service by
the workers or customers of an organization that manufactures or supplies
them. Another example is support of an organization by donors or volun-
teers from the civil sector to ensure its proper operation. If stakeholders
find that the organization strays from its goals, they can demand that the
faults be corrected and can even threaten to remove their support—which
would harm the organization.
Voluntary Regulation. Regulation that is not carried out by imposing
laws but rather by stating demands that are not legally binding. Unlike
command and control regulation, which is based on the threat of formal
sanctions, voluntary regulation is based on voluntary responsiveness to
demands. Many organizations that adopt voluntary regulation are moti-
vated both by ethics and social justice. One example is the Social Badge of
the B’Ma’agalei Tzedek organization, which is awarded on the basis of the
conditions of employment and benefits of employees and accessibility to
individuals with disabilities. Another example is the approval of the Israel
18 Black (2002), Hancher and Moran 1989, O’Rourke (2006), and Prosser (2005).
Standards Institute for the environmental management system. Voluntary

regulation is also adopted by organizations with strictly financial motives,
such as hotels that opt into the star rating system. Adopting voluntary
regulation indeed involves an increase in cost for the organization, but it
allows the organization to achieve a competitive edge, to announce to the
public its ethical responsibility, and to prevent government intervention,
which could be expensive and burdensome (Töller 2011).
Meta-regulation. A more authoritarian branch of voluntary regula-
tion, based on the adoption of rules of behavior beyond the regulator’s
statutory demands, in response to an explicit request by a public regulator.
Because it occurs following a request from outside the organization, it is
not voluntary regulation or fully self-regulation, and it contains a covert
or overt threat of intervention and an incentive in the form of assur-
ance of regulatory relief. The regulator’s intervention can be in the form
of a general request or a detailed list of demands, both of content and
framework, that the self-regulation must meet. The request can include
a demand to confirm the regulatory rules in advance or willingness to
examine the outcome later. If the organization in question does not
respond to the demand for self-regulation, the regulator can threaten
activation of command and control regulation, and then it can be called
“forced self-regulation.”19 For example, the Antitrust Commission has
activated the program of internal enforcement since 1998. Its aim is to
help the Antitrust Authority enforce the law by ordering businesses to
adopt internal patterns of behavior that focus on prevention and thus
avoid violating the antitrust laws. The Authority requires companies that
are interested in adopting the program to establish systems for over-
sight and detailed enforcement with the aim of preventing violation of
the antitrust law. The Authority determines the minimum requirements
for internal enforcement (appointment of a regulator, establishment of
an enforcement committee, development of regulations, and operation
of the oversight array), but it leaves the organizations the freedom to
formulate the program suited to their needs. The incentives for adopting
the internal enforcement program are the reduction of the exposure of
the corporation and its employees to violations of the law and sanctions,
saving expenses on litigation and fines; avoidance of tarnishing the image
of the business; and strengthening of the connection with the Authority.
19 Ayres and Braithwaite (1992), Baldwin et al. (2012), and Parker (2002).
Collaborative regulation.20 Instead of regulation that takes place in

one direction only, direct and imposed, the aim is to conduct multilat-
eral regulation, allowing not only shared discussion or autonomy in using
discretion by those supervised but also full participation in the process by
all sides. This method includes involvement of those who are supervised
in the planning and execution of the regulation, whether on the initiative
of the regulator or on the initiative of the regulatory body. Collabo-
rative regulation aims at building a consensus and creating relations of
trust between the participants. The final responsibility for carrying out
the regulation and its outcomes remains in the hands of the public regu-
lator, but the entire process is collective and deliberative, and thus it is
distinguished from regulatory methods (such as imposed regulation) in
which a rigid formal hierarchy is maintained between the regulator and
the regulated.21 Collaborative regulation reflects a broader approach than
the use of a regulatory contract as a mechanism of coordination.22
Social regulation. Whereas financial regulation focuses mainly on
regulating commercial bodies in the financial market, social regulation
is intended to arrange the regulation of additional areas regarding which
the public must be protected, including air pollution, epidemics, safety
at work, product quality, minimum pay, and the information market.
This regulation is conducted mainly through government intervention
(direct or indirect) in unregulated areas in the financial market, along-
side activity to change the public’s consumption habits. This regulation
20 The source of the term collaborative governance—a partnership of organizations and

interested agents acting together in the framework of the state, the economy, and civil
society. Decision-making is based on consensus and relations of trust between the partic-
ipants and is carried out by means of a combination of responsibility, policy setting,
funding, and execution (Emerson et al. 2011, p. 2). From this approach, we have derived
the term collaborative regulation—even though it has no clear definition in the literature
and is not commonly used—because we think it has an important role in the perception
of regulation in the future. Close synonyms are governance networks, social regulation,
and regulatory sociability.
21 Collaborative regulation is also related to the approach of regulatory negotiation
(REG-NEG), which consists mainly of preliminary discussions between the regulator and
the regulated to formulate the regulation (Ansell 2016). Another development of this
approach is the possibility of seeing collaborative regulation as a creative method for
solving problems. On collaborative governance in this context see Ansell (2016).
22 Regulation based on concessionary agreements as a substitute for regulation of price
control. On the approach to a contract as a means of governance and regulation, see
Susskind and McMahon (1985) and Yadin (2016).
spurs the establishment of unique regulatory bodies, in a kind of collab-

orative regulation (see above) of government, social, and commercial
entities.23 Social regulation makes use of soft tools, such as “nudging,” to
spark behavioral change, without force and without violating free choice.
One example is signing one’s willingness to donate organs posthumously;
another example is using persuasive means to prevent smoking, support
philanthropy, and save energy.24
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Regulation Policy as a Means of Balancing
Conflicting Interests
Banking Regulation in Israel: Balancing
Systemic Stability and Consumer Protection
Ruth Plato-Shinar
Introduction
Banking regulation is a broad field that is intended to control one of
the most dynamic and important systems of the economy—the banking
system.
The banks in Israel are subject to stringent regulation (Plato-Shinar
2016, pp. 14–16). The regulator in charge of the banking system is
the Supervisor of Banks at the Bank of Israel (Banking ordinance 1941,
s. 5), which constitutes the highest monetary authority and the central
bank of the State of Israel (Bank of Israel Law, 5770-2000, ss. 4, 5). In
some issues, regulatory authority over the banks is conferred upon the
Governor of the Bank of Israel.
This chapter examines the activities of the Supervisor of Banks and
the Governor of the Bank of Israel in respect of the three functions of
regulation: rule making, monitoring, and enforcement (Levi-Faur 2011,
pp. 3, 6).
The chapter focuses on the two main objectives of banking regulation:
maintaining the stability of the banking system (“prudential regulation“)
R. Plato-Shinar (B)
Center for Banking Law and Financial Regulation, Netanya Academic College,
Netanya, Israel
e-mail: shinar1@zahav.net.il
© The Author(s) 2021 27

E. Tevet et al. (eds.), Regulation in Israel,
https://doi.org/10.1007/978-3-030-56247-2_2
28 R. PLATO-SHINAR
and consumer protection (which is also referred to as “conduct of busi-

ness regulation”). While, usually, these two objectives complement each
other, in certain situations they might be contradicting. The chapter
examines whether these two goals should be divided between two sepa-
rate regulators, or stay consolidated in the hands of the Supervisor of
Banks.
The structure of the chapter is as follows: The next section (section
“The Israeli Banking System”) explores the Israeli banking system and its
unique characteristics. Section “The Supervisor of Banks and His Regula-
tory Objectives” focuses on the Israeli Supervisor of Banks and examines
his two regulatory objectives: maintaining the stability of the system and
consumer protection. As mentioned earlier, in certain situations these two
objectives may conflict with one another. An example of such a conflict is
analyzed in the section “Supervision of Bank Fees”, which demonstrates
the approach of the Supervisor of Banks to the conflict in the field of
the bank fees. Section “Optional Regulatory Models” examines whether
another model of banking regulation should be adopted in Israel, under
which consumer protection would not be handled by the Supervisor of
Banks but by another regulator, thus splitting the two regulatory powers
between separate regulators. Finally, section “The Preferred Model for
Israel” concludes, by recommending leaving the two regulatory powers
in the hands of the Israeli Supervisor of Banks. However, it also includes a
few operational recommendations for strengthening consumer protection.
The Israeli Banking System

The banking system in Israel consists of five major banking groups, in
addition to three small banks. Apart from the Israeli banks, four foreign
banks operate in Israel, but their activity is extremely limited, both in
absolute terms as well as in relation to their total assets (Bank of Israel
2017, p. 38).
The Israeli banks provide a wide range of financial services, including
corporate and commercial banking, retail banking, housing loans, and
credit card services. In addition, they are active in the capital market and
engage in securities trading, both on behalf of customers and for their
own portfolios. They also provide pension and investment advice services
(Banking (Licensing) Law, 5741-1981, s. 10). The law prohibits the
banks from managing provident funds, pension funds, and mutual funds,
and from holding companies that engage in such activities (Banking
BANKING REGULATION IN ISRAEL … 29
(Licensing) Law, ss. 10, 11; Plato-Shinar 2016, pp. 23–24). The law also
prohibits the banks from engaging in insurance activities, from control-
ling insurance companies and insurance agencies, and limits holdings in
an insurance company which constitutes “a significant financial institu-
tion” (Banking (Licensing) Law, ss. 10, 11, 24(a)). In addition, a law
introduced in January 2017 compelled the two largest banks to sell the
credit card companies under their control (Law to Enhance Competition
and to Reduce Concentration in the Israeli Banking Sector (Legislative
Amendments), 5777-2017, s. 1).
The five largest banks are public companies whose shares are traded on
the Tel-Aviv Stock Exchange. Two of them have controlling shareholders,
while in the largest three no controlling interest exists (Tel-Aviv Stock
Exchange 2019).
One of the important—if not the most important—events that brought
about a revolutionary change in the ownership structure of the banks in
Israel was the 1983 “Bank Share Manipulation Affair.” As a result of this
affair, the four major banks were nationalized by the State (Plato-Shinar
2016, pp. 37–38). A process of privatization started at the 1990s and has
been completed only in 2018 (Avisar 2018).
The Israeli banking system is strong and resilient (Bank of Israel 2019a,
pp. 1, 2, Tables 2 and 3). Israel successfully survived the 2007–2009
global financial crisis without significant damage to its economy and finan-
cial system. The financial institutions—including the banks—displayed
resilience, maintained their stability, and none of the institutions collapsed
(Braude et al. 2011).
One of the characteristics of the Israeli banking system is its high level
of concentration (Committee to Enhance Competitiveness 2016, pp. 6–
7, 12–14). As mentioned above, the Israeli banking system is dominated
by five large banking groups, whose assets value amounts to almost 94%
of the total assets of the system. Approximately 58% of the assets are held
by the two largest groups—Bank Leumi and Bank Hapoalim (Bank of
Israel 2016, p. 8). This centralized structure constitutes a duopoly, where
a small number of companies control the vast majority of the activities
in the sector. An entity that wishes to operate in Israel as a bank must
obtain a license from the Bank of Israel. However, for years, not only
has the Bank of Israel not attempted to stem the trend of concentration,
but it has even encouraged it, believing that concentration and power
will contribute to the stability of the banks (The Parliamentary Inquiry
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Regulation in Israel: Values,

Effectiveness, Methods Eyal Tevet

ISBN 978-3-030-56246-5 ISBN 978-3-030-56247-2 (eBook)

This volume represents the second of three segments of a comprehen-

Ra’anana, Israel Eyal Tevet

Introduction: Regulation—A Multifaceted Instrument 1

Regulation Policy as a Means of Balancing Conflicting

Banking Regulation in Israel: Balancing Systemic Stability

The Tricky Nature of State-owned Enterprises: The Impact

Regulation of Water and Sewage Corporations: Impact

Old and New—Multi-layered Regulatory Schemes

Regulation of Third Sector Organizations in Israel 97

Regulation of Natural Resources and Environmental

Caught Between Traditional Inspection and Performance

Innovative Regulatory Tools

When Cybersecurity Meets the Regulatory State:

Regulating the Supply of Public Bus Services in Israel 195

Israel’s Law and Regulation After the Gas Discoveries 217

Conclusions: Over-Regulation or Under-Regulation? 239

Avital Birger specializes in corporate and administrative law and corpo-

Israeli non-profit organizations, and works as an independent researcher

and international rankings, Tzipi is frequently invited to take part in

Science from the Technion—Israel’s Institute of Technology. He holds

CEO Chief Executive Officer

Regulating the Supply of Public Bus Services in Israel

Itzhak Galnoor, Eyal Tevet, and Varda Shiffer

1 This introduction is based on Galnoor and Oser (2015).

I. Galnoor (B) · V. Shiffer

© The Author(s) 2021 1

p. 363). According to this definition, regulation is more than enforce-

The roles of regulation that are the responsibility of entities in the

3 Regulation, a journal published in the United States since 1977, is devoted to

who are part of an administrative body in the executive branch or local

The American approach is based on the assumption that regulation is

tension between these two areas of authority—the stability of the finan-

between countries, and protection of the environment.11 The negotia-

of government intervention have moved in a direction opposite to that

not prevent vague interpretation by both regulators and those regu-

The report prepared in Israel is similar to those customary in the

the involvement of stakeholders in shaping regulation. Despite the offi-

About the Study

group included specialists in the field of regulation; experts on a specific

delegates to private bodies the authority to provide them. Nevertheless,

17 See also Gunningham and Grabosky (1998).

Methods: Regulations by means of stakeholders. A branch of volun-

Standards Institute for the environmental management system. Voluntary

Collaborative regulation.20 Instead of regulation that takes place in

20 The source of the term collaborative governance—a partnership of organizations and

spurs the establishment of unique regulatory bodies, in a kind of collab-

Carpenter, D. (2004). Protection without capture: Product approval by a politi-

Levi-Faur, D. (2005). The global diffusion of regulatory capitalism. Annals of

Radaelli, C. M. (2004). The diffusion of regulatory impact analysis: Best practice

© The Author(s) 2021 27

and consumer protection (which is also referred to as “conduct of busi-

The Israeli Banking System

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