Here’s a quote from Moshe Koppel’s Article on Religion and State in Israel we reposted yesterday:
[T]he only organization legally allowed to issue an official kashrut certificate in Israel is the state rabbinate.
In the free-market system of kashrut supervision used, for example, in the United States, a certifying organization depends on its reputation to stay in business; if it is not respected by consumers, food manufacturers will have no incentive to pay for its services and it will go out of business. Different organizations tend to serve different markets, and for each, some level of stringency is a condition of survival. The system has proved to be quite efficient.
Under Israel’s quasi-monopolistic system, by contrast, the standards of supervision are extremely low. Since inspectors are paid directly by the establishments they supervise, they have strong incentives to overlook problems; also, inspections in Israel are extremely infrequent. Under normal market conditions, such poor service would be punished, first by suspicious restaurant patrons and next by the restaurants paying for the supervision; in a state-funded system, kashrut supervision is immune to punishment by clients.
An added disincentive is the fact that the state rabbinate is itself not at liberty to raise standards: on several occasions, the courts have ordered it to provide certification to establishments that did not meet the rabbinate’s own standards. Such, again, was the case in which the Supreme Court enjoined the chief rabbinate to force local religious courts to grant certification against their own best judgment. In a free-market system, it would not have been possible for the courts to have dictated standards to the rabbinate; nor would it have been necessary for them to do so, since the market demand for more lenient supervision would not have been frustrated by a legal monopoly.