Commentary Magazine


Can Israel Support Herself?
The Means: Production and Austerity

With the announcement in September 1955 of the Egyptian-Czechoslovak arms deal and the emergence of the Soviet Union as a major force on the Middle Eastern scene, Israel entered the most critical period of her existence since the end of the war of liberation. Largely—though not entirely—unrelated to these political and military factors, Israel also entered, during 1955 and 1956, upon a crucial stage in her struggle to build an economy sustained by its own production and resources and free of the need for foreign gifts and loans.

Progress toward the goal of economic independence had been steady and impressive during 1952-54, and one might have confidently expected it to continue. Israel’s economic system was developing under a generally capable and selfless administration. It was being guided by many qualified economists and some outstanding foreign economic advisers. It was being closely watched by the country’s newly established central bank, by the economic ministries in the government, and by an alert press. The country had received over two billion dollars from various sources abroad and had benefited from heavy investments in all spheres of economic activity. By the end of 1954, most of the investments channeled into agriculture, industry, and mining had had sufficient time to mature and bear fruit in the form of exports and substitutes for imports. Moreover, solid achievements had been made in production and in the rate of productivity (output per man and machine), and as a result exports were expanding.

But in 1955 this movement toward a self-supporting economy came to an abrupt halt. There was a resurgence of inflationary pressures and a rise in imports without a corresponding increase in exports; this, of course, brought a larger foreign trade deficit. Nor did the first half of 1956 see any improvement. Indeed, the bitter wage dispute that took place earlier this year only served to put off even further the time when Israel will be able to stand on her own feet.

To some extent, the reversal of 1955-56 can be traced to factors largely outside the control of the state. First of all Israel, lacking as she does many natural resources, and dependent on imports for many raw materials, foodstuffs, and manufactured goods, has an economy highly vulnerable to changes in world market conditions. About these the state could do nothing. Moreover, the Arab boycott cost the Israeli economy an estimated $40 million annually—in heavier expenses for importing oil, in denial of nearby markets and sources of supply, and in other ways. The defense budget, whose total amount was secret, plus the labor power drained away both by a standing army with large reserves constantly called out for drill or emergencies and the working time devoted to guard duty in the border settlements, took a further toll of the country’s resources. Apart from all this, Israel received over 36,000 immigrants in 1955, double the number admitted in the previous year. Immigrants generally brought little or no means of their own, and for all the generosity of world Jewry, contributions from abroad did not cover the cost of absorption.

But world market conditions, defense, and immigration tell only part of the story. There were factors in the recent economic decline rather more amenable to control, and for these the state must be held at least partly responsible.

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The early years of Israel’s existence were marked by a costly war, mass immigration, and rampant inflation. By the end of 1951 the economic situation was forbidding in the extreme. Prices kept going up, rationing and controls dominated the market, acute shortages of raw materials appeared. The foreign trade deficit widened and the foreign exchange position of the state became precarious. The result was a sharp decline in the value of Israeli currency and a loss of confidence in the stability of the economy.

But with the introduction of the new economic policy of February 1952, things began to improve. The immediate objective of that policy was to curb inflation by monetary and fiscal means, but its ultimate purpose was to make the economy stable and independent. To this end, basic wages were frozen and a concerted drive to step up productivity was begun; in an effort to restore competition, price controls and the “cost-plus” method of computing profits were abolished; exports were encouraged by various devices.

These measures laid the groundwork for the spectacular increase in both agricultural and industrial production and led to the greater stability of prices and money which made 1953-54 so encouraging a period. The clearest sign of the country’s progress toward economic independence was its improved trade balance; as a result both of the fall in imports and the expansion of exports, the foreign trade deficit declined from $333 million in 1951 to $208 million in 1954.

The year 1955 also saw the discovery of oil in the Negev and the completing of the Yarkon-Negev water pipeline. A very impressive advance was made in the output of industrial crops, especially cotton, which had been introduced only several years earlier by a California grower. Various savings schemes connected with the purchase of homes and orange groves, or linked to the cost-of-living index or the dollar-exchange rate to guard against inflationary fluctuation, met with popular success.

These favorable developments, however, concealed certain unhealthy trends. In its annual report for 1954, the Economic Advisory Staff, a group of eminent American economists formerly attached to the Office of the Prime Minister,1 expressed concern over the fact that the level of consumption—that is, expenditures on foodstuffs, consumer goods, housing, and services as distinguished from expenditures on means of production—had been rising steadily over the past few years. This meant that a substantial portion of the country’s capital, manpower, and material resources was being used up to raise the standard of living, instead of being sunk into new farms, industrial enterprises, and mining plants whose production would help reduce dependence on imports and lead to an increase in exports. In part, this dangerous situation was due to mass immigration, but it was also being encouraged by certain social and economic policies. And the people were growing accustomed to a standard of living which could only be maintained by the continued large-scale inflow of external capital. What would happen when foreign assistance was no longer forthcoming in such volume? The implication of the Economic Advisory Staff’s report was that the country would do better to utilize the largest possible share of its available resources for the development of new means of production, against the time when the sources of outside capital would be exhausted.

By the middle of 1955—several months before Nasser’s September 27 announcement of the arms deal with Czechoslovakia—it became clear that the government, instead of controlling the level of consumption, was promoting its rise. For several months preceding the elections of July 1955, government agencies and public institutions, in order to win the sympathy of the voters, increased expenditures on housing, public works, and unemployment relief by borrowing from the banking system. This swelled the amount of money in circulation, an inflationary condition which was aggravated by the increasing flow of German restitution payments to individuals and by a slight relaxation of the stringent credit controls. The government was faced with the dilemma of letting prices go up or of meeting the consumer demands by making more goods available through imports; it chose the latter course, with the result that prices remained remarkably stable throughout 1955. But the expansion of imports due, among other factors, to a population increase of 71,000, a rise in import prices, and the stockpiling of essential supplies of food, fodder, and fuel made necessary by considerations of security, produced for the first time since 1952 an increase in the trade deficit, which went up from $208 million in 1954 to $252 million in 1955. The wider trade gap was largely a result of the rise in imports from $296 million in 1954 to $338 million in 1955.

But the real disappointment of 1955 was the failure to expand exports. Indeed they actually declined, from $88 million in 1954 to $86 million in 1955. Except for a jump in citrus and diamond exports, the record for the first half of 1956, particularly in industrial exports (motor cars, textiles, and metal products), was a disappointing one.

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Israeli economists and government officials did not hide their concern over the “stagnation” in the export trade. They had frankly hoped that it would continue to advance and exceed the $100 million mark in 1955. That it did not do so cannot be blamed entirely on the government or on the manufacturers. The citrus crop declined because of the natural fatigue of trees, and industrial exports to Turkey fell as a result of that country’s precarious foreign exchange position and its tightened import policy.

However, the pattern of trade with Turkey was revealing. It had been carried on within the framework of an agreement under which Israeli exports did not have to meet direct competition from other countries. Faced with a stiffened credit policy on the part of her European suppliers, Turkey found in Israel a ready exporter, even a willing creditor. And for her part, Israel, aside from cherishing the friendship of a Middle Eastern and Moslem state, found the Turkish market to be what one Israeli newspaper called a “paradise.” A number of industries specialized in producing for this market, and the export of industrial goods to Turkey climbed from year to year, so that by 1955, 15 per cent of all Israeli exports was going there. But this trade depended on changeable economic and financial conditions in Turkey rather than on the competitive position of Israeli goods. When Turkey was forced to restrict her imports in 1955, Israeli exports were the first to be hit. Turkey will remain an important buyer of Israeli goods, but the mistake of Israeli manufacturers and exporters was to depend too much on her, neglecting to search for other markets where a greater demand for Israeli exports might be developed.

Moreover, Israeli manufacturers were spoiled by a home market which was ready to absorb even low-quality goods at high prices. Many producers found it simpler and more profitable to sell in the domestic market than to undertake the effort and expense of catering to foreign customers. Inflationary conditions at home as well as the reluctance of the government to pay subsidies to exporters unless production costs were reduced contributed to this state of affairs. But the domestic paradise now appears to be as short-lived as the Turkish one, for consumers have lately been showing greater resistance to high prices. And while the government has adopted a more flexible subsidy policy, it still insists that manufacturers should aim at making their products competitive on the world market in both price and quality, rather than look for government handouts. At present, owing to Israel’s high wage rates and the relatively low level of productivity, costs of production are still too high and the quality of many items, although considerably improved in makeup, design, and packaging, leaves much to be desired.

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What with the resurgence of inflationary pressures, rising imports, a virtual standstill in the export trade, and a grave military crisis, the economy of Israel reached a crossroads toward the end of 1955. Egyptian arms superiority forced a policy of preparedness on the young state: intensive production of arms at home, the acquisition of heavy defensive arms from abroad, and the building of shelters and fortifications. This ate up some funds originally earmarked for industrial and agricultural development, but a substantial share of the cost was covered by voluntary popular contributions to a defense fund and the revenue from special taxes.

However, the military emergency did not alter in any way the basic question facing Israel’s economy: would she or would she not learn to stand on her own economic feet? It was still necessary to decide whether the increased production at home should be directed toward export markets and the greater volume of imports from abroad applied to enlarging the productive capacity of the nation, or whether they should be used to raise present consumption at home. Specifically, was the country to advance toward eventual economic independence by increasing production and exports, or toward yet higher living standards by raising wages, continuing the cost-of-living allowance system, and increasing social benefits?

Most of the country’s economists and government leaders had no doubts about the answer. They were fully aware of the limited resources of the economy, its precarious stability, its dependence on foreign aid. The Minister of Finance, the governor of the central bank, the head of the nation’s largest commercial bank, foreign economic advisers, labor economists, and others proclaimed the need for greater output and efficiency together with restraint in pressing demands for better living standards, and particularly for higher wages. They warned of the consequences that might follow from short-sighted policies—or from no policy at all. Yet in the midst of one of the gravest emergencies since the state’s creation, it was confronted with a demand for an increase in basic wages.

The new economic policy of 1952 had frozen basic wages by voluntary agreement between the Histadrut (the General Federation of Labor) and the Manufacturers Association. Despite growing union opposition, the wage freeze remained in force until early 1956. Real wages rose nevertheless as a result of job upgrading and overtime. Furthermore, the 1952 policy included three other features which served to swell basic pay: a worker whose output was above a fixed norm received premiums, a practice almost unknown before 1952; a system of family allowances based on the number of dependents was followed in many enterprises; and wages were automatically adjusted to the cost-of-living index.

This last provision proved the troublemaker. According to labor-management wage contracts, each one-point rise in the index meant a one per cent increase in basic salary (before allowances and bonuses were added). However, until the end of 1953, the cost-of-living increment was paid only on monthly salaries under IL 80, and it is still not paid on those over IL 125.2 Because prices were always on the rise (before 1953 they went up steeply, while in later years the rate of increase has been much slower), the lower-income groups became the main beneficiaries of the cost-of-living scale. This, of course, served to narrow the gap between wage levels. And the fact that the cost-of-living allowance was tax-free, while high incomes were subject to a progressive income tax, narrowed the gap still further, until wage differentials in Israel became smaller than anywhere in the world. By the end of 1954 a person in the highest grade of the civil service (say, a director-general of a government ministry) enjoyed a net income less than twice that of the lowest grade (janitor or clerk).

Early in 1956 government officials, academic workers, and professionals rebelled and demanded an income that would recognize their skill and education, their standing in the community, and their role in the economy. The demand was not new; in response to a previous expression of it, the government in November 1954 had appointed a committee, headed by Israel Guri, chairman of the Knesset Finance Committee, to consider the question. The committee submitted its final report nine months later, shortly after the July 1955 elections: it recommended that a 3.5:1 ratio between the net salaries of the highest and lowest grades be established to supplant the prevailing 2:1 ratio. In August 1955 the government accepted this proposal “in substance”; and in September it promised to put into effect a revised salary scale retroactive to July 1955.

The labor movement, which refused to concede that a farm laborer or a factory worker was entitled to less than a professor or an engineer, did not take kindly to the Guri report—it proclaimed that all workers were entitled to a raise. Faced with a demand for a general wage increase that would unsettle the entire economy at a critical period for the nation’s defenses, the government withdrew its promise to carry out the Guri recommendations, whereupon the professionals struck—for thirteen days in February 1956. Their spokesmen regretted being compelled to take so drastic a step during a national emergency, but they had no other way, they said, of protesting against the “utter disregard of their just cause.” An agreement was finally reached whereby the professionals were to receive 66.6 per cent of the 1955 government-approved increase this year, 13.3 per cent in 1957, and 20 per cent in 1958.

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In January 1956, before the professionals’ strike, the Histadrut executive adopted a resolution recommending a limited but general increase in basic wages. All the arguments and warnings brought against such an increase were of no avail. The final decision of the Histadrut Trade Union Department—forced through by its Mapai members on February 27, 1956, against the opposition of the members of the two leftist parties, Achdut Ha-avodah and Mapam, who wanted bigger raises—was to limit increases to a range of 5 to 15 per cent, two-thirds to be paid this year, the remainder in 1958.

Achdut Ha-avodah and Mapam felt that the bigger wage bill could be paid by reducing profit margins and by steeper progressive income taxes. But profit margins in Israel were on the whole not excessive, and the tax burden was heavy enough already. The income tax assessment books for the period 1952-53, published last year, showed that there were no millionaires in Israel: only one person reported an income higher than IL 100,000 ($280,000 at the then official rate of exchange), and only a relative few had incomes above IL 10,000. Seeing that the percentage of people with high personal incomes was so very small in Israel, no significant redistribution of income in favor of the labor sector was possible. Any attempt to increase wages or the level of consumption of the mass of workers would only intensify dependence on outside capital and divert a larger share of the national income from investment to current consumption.

The opposition to a general wage increase did not come from government officials, economists, and bankers alone. At first, the Manufacturers Association refused to pay any wage increases not based on higher productivity or improvement in skill, but when the unions persisted in their demands, and threatened to resort to “active measures,” including strikes, the employers consented to negotiate. Agreements were reached with most of the unions providing for wage increases ranging from 3.7 to 10 per cent retroactive to January 1956.

The general wage increase was already taking its toll during the first half of 1956 in the form of mounting prices and a poor record on industrial exports; the coming months can only see matters getting worse. The new defense taxes on income and commodities will push prices up even further, and what is most important, the automatic link between wages and prices established by the system of cost-of-living allowances will accentuate inflationary pressure: higher prices will boost wages further and this will in turn raise prices again, to the detriment of workers and manufacturers alike.

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Israel’s labor leaders and many of the rank and file understood the dangerous economic consequences of an ever mounting wage bill. Why, then, did they demand wage rises and consistently uphold the cost-of-living allowances’? The answer can be found in Israel’s social philosophy. The product of Labor Zionist egalitarianism and the experience of building a homeland in barren and hostile surroundings, its basic premise is that the state is responsible for the economic welfare of the people.

Concretely, this philosophy gave birth to an exemplary social welfare system, including relatively high wage rates, cost-of-living and family allowances, job security, liberal health benefits, free educational facilities, easy terms on housing loans, and a national social insurance scheme. In the case of immigrants, the policy of the government aimed at bringing their standard of living up to the level of the community’s despite the fact that many of them hailed from backward countries. This meant the expenditure of vast sums on housing, current consumption, and expensive social services. In the short run these did not contribute to productive capacity, but they were held to be essential for the eventual absorption of immigrants and the long-range stability of the economy.

Social benefits were certainly responsible in large measure for the effort of Israeli workers, old and new, to increase output and efficiency, for their high morale, and for their readiness for personal sacrifice. Nevertheless, these benefits unduly raised production costs—as witness the cost-of-living allowances and the recent wage boosts—or impeded productivity, as a high degree of job security tends to do.

Even more important, the social-welfare system created a standard of living higher than present production and resources can support, a standard which has been kept artificially ‘high by the enormous flow of capital from abroad.

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Except possibly during the Second World War and the very first years of the state’s existence, the standard of living showed a steady upward trend, and is higher now than it was in the 30’s or 40’s. (In 1939 a representative worker’s family spent over three-quarters of its income on food and rent; in 1950 about half was spent on these two items, leaving the other half for clothing, household furnishings, amusements, travel, tobacco, etc., etc.) It is also considerably higher than that of neighboring countries, many Asian and African countries, and even a number of European ones. Thus nutritional standards, while lower than in the United States and Scandinavia, are higher than those in France and Italy.

There was, of course, nothing wrong with Israel’s desire to maintain a high standard of living—on the contrary. But was the young state facing up realistically to the possibility that foreign assistance would come to an end in the not so distant future?

Some of the external sources of capital were already exhausted. These included $135 million in Export-Import Bank loans, $100 million in sterling balances, and $15 million in foreign securities held by Israelis. Some of the other major sources on which Israel was now relying to finance development would no longer be available within a number of years. U.S. grants declined from $85 million in 1952 to $36.6 million in 1955. For the fiscal year 1957, the administration in Washington requested $63 million in foreign aid for Egypt, Jordan, Lebanon, Libya, and Israel, and informed opinion estimated that Israel would get no more than $20-$25 million of that sum. Writing in a recent issue of Israel Economic Forum, the assistant director of the U. S. Operations Mission in Israel stated: “The United States Government has made it clear that its aid is to be reduced in amount progressively and eliminated at the earliest possible date.”

Finally, the German reparations agreement, which stipulated deliveries to Israel of $822 million in goods and services, was due to expire in 1965-67, depending on the rate of annual deliveries; over one-quarter of the total had already been used up.

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Israel was also depending on three other sources of capital from Jewish communities abroad, and especially the American Jewish community: contributions, bonds, and private investments. Over the past few years, the United Jewish Appeal, the most important fund-raising organization, spent (mainly through the Jewish Agency) an average of $50 million per annum on immigrant absorption, agricultural settlement, vocational training, medical services, and so forth. This amount was not sufficient, however, to meet the entire expense of immigrant absorption. World Jewry would continue to finance large-scale immigration to Israel and help meet a substantia] part of the cost of full integration, but by the early or middle 1960’s, practically all major sources of mass immigration would have dried up. What would happen to UJA income then? Neither the UJA nor Israeli leaders expected contributions to provide a built-in subsidy for Israel’s economy or to underwrite her trade deficit. Said Prime Minister Ben Gurion: “The money given by Jews abroad is not intended to raise our standard of living. We have a right to that money only if we use it for the absorption of immigrants. . . .”

Since its inception in May 1951, the Israel bond organization sold close to $250 million worth of Israel bonds in the U.S. and, more recently, in a number of European and Latin American countries. In 1955, over $40 million in Israel bonds were sold. Bond purchases could not be expected, however, to exceed that amount by much and for long.

As for private foreign investment, over $100 million in foreign capital was put into Israel since the establishment of the state. The government encouraged private investment from abroad by enacting laws granting liberal tax relief and other assistance to such foreign investments as were deemed beneficial to the economy. In the last three years investments amounted to $15-20 million a year, and given continued improvement in internal economic conditions and greater freedom for investors, they may go up.

We can conclude, then, that though external capita] (investments and contributions) would continue to flow to Israel for many years, the amount would be too small to cover her large trade deficit. Moreover, while the flow of foreign capital began to dwindle, Israel would have to meet larger debt payments. Payments of principal and interest on the Export-Import Bank loans would have to be completed by 1965. Other commercial long- and medium-term loans fall due even sooner. From 1963 on, Israel bonds would have to be redeemed. Enterprises based on foreign investors would become well established and the transfer abroad of profits and dividends would also rise considerably.

Clearly, unless production and exports were increased, there would be a decline in the Israeli standard of living. What form might such a decline take? It was unlikely that cultural, educational, and health standards would be affected, for they could probably continue to be supported by outside aid. Nor would the nutritional standards fall, although there might well be less variety and continued rationing of imported foodstuffs. The decline would be most marked in consumer goods other than food: household maintenance, apparel, travel, and services.

If exports did not rise very substantially, Israel simply would not have the foreign exchange with which to import essential supplies of machinery, raw materials as well as foodstuffs. It was possible to reduce imports by cutting consumption and producing goods locally. But in Israel’s case imports could not be reduced below a certain level: the country would always lack certain materials. And the social-welfare system made it difficult to cut consumption.

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The only way Israel could avoid a fall in living standards or resist economic stagnation was to increase her production, utilize all her available resources more fully, and concentrate on producing for export markets rather than for home consumption. But the more Israel exported, the more she would have to import, since it was impossible to step up production without a larger supply of raw materials, machinery, and fuel. And as the population grew, so would the import bill, which by 1965 might reach over half a billion dollars. To achieve economic independence by 1965, Israel would have to export nearly that much. In 1955 exports added up to less than $100 million. Could Israel make the necessary jump to $500 million in the next ten years?

The Economic Advisory Staff report mentioned above pointed to one extremely important fact—that a full half of the labor force was employed in “non-productive” occupations (trade and services), while only 9 per cent worked in construction, and a mere 40 per cent in agriculture, industry, and mining. The percentage of those engaged in the production of goods was “lower than that recorded in any other country.”

Israel could not afford such a distribution of her labor force. The number of people now engaged in “productive” economic branches would have to be swelled from the ranks of the unemployed, under-employed, and those who contributed little or nothing to production. (The Guri committee thought the country would do very well with 4,000 fewer civil servants than at present.) But a shift in occupational distribution could come about only if agriculture, mining, and industry were developed to make room for new hands.

This the government had been doing in agriculture, which was consequently one of the bright spots in Israel’s economic picture. A growing share of the food basket was filled by local production, thereby reducing imports, and some 40 per cent of the nation’s total exports were agricultural products, notably citrus.

There were, however, serious limitations to further agricultural development. By the end of 1951 most of the country’s arable soil had already been brought under cultivation, and the emphasis shifted to irrigation. But the plan to reclaim more and more land through irrigation was hampered by a shortage of water which was expected to be especially acute within three or four years, when all underground resources and the Yarkon River’s water would have been fully utilized. Originally it was hoped that by 1960 virtual self-sufficiency would have been attained in agriculture: imports of foodstuffs, fuel for irrigation, and farm equipment were to be largely offset by exports of citrus, peanuts, eggs, fruits, and vegetables. But because of Syrian obstruction of the Jordan waters diversion scheme and the long-drawn-out negotiations over Johnston’s Jordan Valley development project, this hope could not be realized. According to revised estimates, the agricultural deficit would still be about $40 million in 1960.

The limitations on agriculture indicated that in order to achieve economic independence Israel must concentrate on other sectors of her economy: mining, industry, and services to foreign countries. Israel possessed more mineral wealth than had commonly been thought, but most of the minerals turned up were of a generally low grade, and whether they could be exploited commercially remained in doubt. There was a good chance that potash, super-phosphates, and copper would in time make a contribution to the export drive, but at present minerals accounted for only $1-2 million per year in exports.

Even if the potentialities of Israeli mining were fully realized, however, the major share of the required expansion in exports would have to be supplied by industry. Israel’s industry has shown phenomenal growth since the establishment of the state. But it has been plagued by a number of serious problems, such as dependence on imported raw materials, machinery, and fuel, high production costs, the lack of an enforced standard of quality, and a shortage of managerial and supervisory personnel.

The significance of the dependence on imported materials cannot be sufficiently emphasized. Wherever economically feasible, local sources of raw materials should be tapped to the full. This was already done with cotton and sugar beets, and experiments are now being conducted to determine the possibility of producing pulp from the eucalyptus tree. Beyond that, to improve Israel’s competitive position in the world markets, industry must attain a higher rate of productivity, and concentrate on manufactured goods which require more than ordinary skill and efficiency.

Israel could also earn more foreign exchange by specializing in supplying services to other countries. Such “invisible” exports have already proved that they could make a creditable contribution to economic independence. Israel’s merchant fleet and the El Al Airlines are expanding. The Technion, or institute of technology, did specialized research for the U.S. Air Force. The Bedek Aircraft Corporation Maintenance Base at Lydda was authorized by the Civil Aeronautics Administration to engage in repair and maintenance for American aircraft. A combine of Israeli woodworking factories recently completed work on a contract for decorating and furnishing the Municipal Theater at Addis Ababa in Ethiopia, and was awarded other contracts in Cyprus. Israeli firms did construction work in Turkey, and Israeli capital has been invested in several Turkish companies. In March 1956 Israel signed a pact with Burma calling for the establishment of joint industrial projects in that country and assistance in reclaiming a million-acre wasteland there.

Tourist income—another source of foreign exchange—was likely to rise. A recent survey conducted by the U.S. Operations Mission estimated that in 1958, the tenth anniversary of the founding of the state, 86,000 tourists would visit Israel, and by 1960 the number of visitors would reach the 100,000 mark, twice the 1955 figure.

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In the fall of 1956 there was as yet no indication that the Arab states were willing to make peace with Israel. Israel would therefore have to advance toward the goal of economic independence under the burden of heavy defense expenditures and Arab economic warfare. Despite boycotts and blockades, she would have to intensify her efforts to sell her products on foreign markets, including the potentially vast American one; the absorption of part of the labor force by the defense establishment required civilian labor to be fully and productively employed; the limited wealth of the country meant that there must not be any wasteful or uneconomic use of resources; and the need to absorb thousands of immigrants each year called for increased investment in new means of production.

Never again would the state be able to avail itself of such foreign aid as had been provided by the sterling balances, United States grants, and German reparations. Nor could the recent oil strike in the Negev be expected to offer a panacea. Even if the discovery of additional oil eventually covered all domestic fuel requirements, the saving to the economy would be no more than $40-50 million a year.

Only a far-sighted, constructive, and well-coordinated economic policy, utilizing the full measure of the government’s fiscal, monetary, administrative, and moral tools, and demanding greater effort and more personal sacrifice from a population which has known more than its fair share of suffering and self-denial, could bring Israel nearer her goal of economic independence.

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Footnotes

1 The Economic Advisory Staff was established on April 1, 1953, on the basis of a contract with Mr. Oscar Cass, Economic Adviser to the Israel embassy in Washington. Its central task was to advise the government on how economic independence may be achieved. Its members included Bernard R. Bell (formerly chief economist of the Export-Import Bank), Bertram M. Gross of the Council of Economic Advisers to the President, Professor Abba P. Lerner of Roosevelt University, and other outstanding economists. Upon expiration of the group’s contract in July 1955, most of its members were retained as advisers for various government agencies.

2 At the present rate of exchange the Israeli pound is worth fifty-six cents. It is meaningless, however, to convert these figures into dollars since both living standards and the purchasing power of a dollar-equivalent in Israel are so different from what they are in the United States. Suffice it to say the salaries are not high.

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