In the first years of Israel's existence, the economic system was highly politicized, and political parties controlled most of the resource allocation. With time, this structure has gradually changed. The changes have not been sweeping or revolutionary but the result of several processes: a gradual transition of ideological beliefs, the impact of the United States as a role model, an increasing globalization of the economy, and the perception of most citizens that the issue of the immediate danger of annihilation has become less pressing. Several events may be seen as watersheds in the transition of the political economy of Israel. This article emphasizes mainly four: (1) the refusal in 1980 of the then minister of finance, Yigal Horowitz, to renew the agreement with the Histadrut on bonds; (2) the New Economic Policy of 1985 and its impact on the economy in general and on agricultural settlements in particular; (3) the capital market reforms; and (4) the sweeping victory of Haim Ramon in the Histadrut elections of May 1994 and the resulting changes in the power of that organization.
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References
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1. The state of Israel was founded on 14 May 1948, following a decision by the United Nations to partition Palestine at the end of the British mandate. Israel is an outcome of a revolutionary movement, the Zionist movement, aiming at the return of the Jews to the land promised them by God and from which they were exiled by the Romans. The movement began to crystallize from about 1870 in Russia, gathered momentum following the pogroms in the early 1880s, and blossomed into a political movement, the World Zionist Organization, which held its first congress in Basel, Switzerland, in 1897. The Zionist movement stressed Jewish nationalism, preaching that meaningful Jewish life was possible only if the Jews created their own nation-state in the land of their forefathers. The term “Yishuv” refers to the Jews settling in Palestine in the prestate period. In 1882, there were 24,000 Jews in Palestine, most of whom were very religious. These are known as the “old Yishuv.” The new Yishuv comprised pioneers arriving mainly in five waves. The first wave, between 1882 and 1903, brought between 20,000 and 30,000. These immigrants began to use cheap Arab labor, and this trend was bitterly opposed by the second wave of immigrants, who came from Russia between 1905 and 1913. The second wave consisted of about 35,000 young pioneers, many of whom were socialist idealists, as were those arriving in the third wave (1917-23), which brought about the same number of pioneers. The fourth wave of immigrants came in the mid-1920s from Poland, and the fifth peaked in 1932 and consisted mainly of German Jews. Labor leaders aspired to build a new and just society and created many institutions that were carried into the state period.
2.
At the third assembly of the Histadrut in 1927, Arlozorov criticized the tendency to ignore economic reality and the uncontrolled expansion of the Histadrut's economic institutions. It is astounding how prophetic this speech was for the situation in 1985. See Lev Grinberg, Split Corporatism in Israel (Albany: State University of New York Press, 1991).
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3. Although Ben-Gurion believed that the voluntary zeal of the pre-state period should be replaced by a new role of the state apparatus, his vision was not shared by others. Ben-Gurion coined the term “statehood” (mamalachtiyut) and disbanded the separate headquarters of the special commando units known collectively as Palmach that were controlled by kibbutzim to achieve one army. The kibbutz movement, however, continued to be preferred. While it may have lost some of its political power, the amount of land it controlled increased. In 1947 the kibbutz movement had 468,000 dunams of land, out of which 332,000 dunams were cultivated; in 1952 it possessed 1.6 million dunams, of which nearly 1.4 million were cultivated. This quadrupling was achieved because the government granted the additional land free of charge. One result was that the average amount of land per family jumped from 30 dunams in 1947 to 75 dunams in 1952. (See Eliezer Ben-Rafael, The Non-Total Revolution: Part II (in Hebrew) (Ramat Efal: Yad Tabenkin Institute, 1996).
4.
4. Israel Central Bureau of Statistics, Statistical Abstract of Israel, vol. 47 (1996).
5.
5. Ibid.
6.
6. Bank of Israel, Annual Report 1995 (1996).
7.
7. Yoram Ben-Porath, ed., The Israeli Economy: Maturing Through Crises (Cambridge, MA: Harvard University Press, 1986).
9. Apart from the war year of 1956, defense spending (as registered in the budget) took 8.3 percent of GNP per annum between 1955 and 1961. From 1962 to 1972, it took 16 percent per annum; in the period 1974-80, it reached an apex of 27.8 percent per annum. Cuts in defense expenditures in the 1980s allowed a major decline in the share of government spending in the economy. In 1981-85, defense costs were, on the average, 20.6 percent of GNP per annum and fell to 10.9 percent in the period 1991-95.
10.
10. Ethan Berglas, “Defense and the Economy: The Israeli Experience” (Discussion paper 83:01, Maurice Falk Institute for Economic Research in Israel, 1983).
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11. In 1975, 18 percent of industrial production was used as defense consumption. In 1994, it was 6 percent. Bank of Israel, Annual Report 1994 (1995), p. 101.
12.
12. Ibid., p. 117.
13.
13. Bank of Israel, Annual Report 1995.
14.
Michael Shalev , Labour and the Political Economy in Israel (New York: Oxford University Press, 1992).
15.
15. Bank of Israel, Annual Report 1995, p. 182.
16.
16. Bank of Israel, Annual Report 1988 (1989).
17.
17. Ibid.
18.
18. Yoram Mayshar, “Norms of Investment,” in The Israeli Economy: Maturing Through Crisis, ed. Yoram Ben-Porath (Jerusalem: Maurice Falk Institute for Economic Research in Israel and Am Oved, 1989), p. 120.
19.
19. Nadav Halevi, ed., Import Policy and the Exposure of Israeli Industry (Jerusalem: Maurice Falk Institute for Economic Research in Israel, 1994).
20.
20. Yair Aharoni, Israeli Economy: Dreams and Realities (New York: Routledge, 1991), pp. 168-169.
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21. Hevrat Ovdim controls the economic enterprises owned by the Histadrut.
22.
22. Sam N. Lehman Wilzig, Stiff-Necked People, Bottlenecked Systems (Bloomington: Indiana University Press, 1990).
23.
23. See Amnon Barzilay, Ramon: A Political Biography (in Hebrew) (Tel Aviv: Shoken, 1996).
24.
24. For a personal description of the changes in Koor, see Benni Gaon, He Who Dares Wins (in Hebrew) (Tel Aviv: Yediot Aharonot, 1997).
25.
ibid. (1990).
26.
26. Eva Halevy Etzioni, The Elite Connection and Democracy in Israel (in Hebrew) (Tel Aviv: Hapoalim Library, 1993), p. 71.
27.
See also D. Lemish and P. Lemish, “A Much Debated Consensus,” in Media Literacy in the Information Age, ed. R. Kubey (New Brunswick, NJ: Transaction, 1997), p. 215.
28.
28. Bank of Israel, Annual Report 1994, p. 114.
29.
29. Yitzhak Rabin, Service Book (in Hebrew) (Tel Aviv: Maariv, 1979).
30.
30. Maariv Weekend Magazine (in Hebrew), 3 Jan. 1997.
31.
31. Etzioni, Elite Connection and Democracy in Israel, p. 74.
32.
32. Arie Avnery, How Money Rules (in Hebrew) (Tel Aviv: Midot, 1996), p. 9.
33.
Kornai soft budget constraints are used because governments want to prevent unemployment, help weak parts of the population, or achieve other important national goals. Firms, in return for working to achieve such lofty objectives, receive tax exemptions, subsidies, tariff and nontariff protection, government guarantees, and so on. In Israel, a major tool used by the government was subsidized loans. The rate of interest on such a loan was based on the perceived importance of the project, disregarding market prices. A side effect of the situation was that the financial institutions learned to expect the government to bail out business firms and therefore allowed these firms to receive more credit than one could responsibly expect them to pay. For a well-analyzed illustration of this type of behavior, see Israel State Controller, Annual Report (1990), pp. 636-666.
34.
34. There are many different approaches to neocorporatism. Some stress the structure (representation of interests); others, the role of interest intermediation; and still others, the process of change in the role.
35.
35. Ben-Rafael, Non-Total Revolution.
36.
36. D. Patinkin, The Israeli Economy: The First Decade (Jerusalem: Maurice Falk Institute for Economic Research in Israel, 1960).
