Israel's Dilemma, by Ezra Sohar
Start with government owner-ship or effective control of the bulk of the manufacturing, agricultural, and financial sectors, themselves saturated with monopoly enterprises. Add a tax system that stifles initiative and virtually mandates cheating. Stir in a method of wage-setting that is supposed to be egalitarian (bad enough!) but, thanks to a bewildering variety of tax-free “perks” and special exemptions, is not. Overlay all of this with a huge bureaucracy and give it the discretion to allocate land, water, and housing; to determine who shall be permitted to obtain foreign currency, and at what exchange rate; and to decide who will be preferred for most jobs. You have here, in short, a prescription for an ossified, inefficient, bankrupt economy. You have Israel.
Or at least you have the Israel seen by Ezra Sohar, a physician and social commentator whose book is somewhere between an eye-opening catalogue of the dash for economic ruin by successive Israeli governments and the agonized cry of a patriot outraged by “the yawning chasm between the awesome potential and the feeble reality of modern Israel.”
Israel’s economic woes, argues Sohar, have their roots in the socialist ideology of its founders. At the turn of the century, “persuaded by the sheer force of Russian anti-Semitism that their contributions to socialism would have to be made elsewhere,” thousands of Eastern European Jews selected Palestine as “their experiment station.” In 1920 these young socialists established the Jewish Labor Federation (Histadrut), and within a decade they had become “the dominant force in the economic . . . life of Palestine Jewry.” Histadrut came to control agricultural settlements, manufacturing plants, a bank, the all-important sick fund (healthcare apparatus), hotels, theaters, and schools, among other things. The founders of this economic monolith were no shrinking violets: when some agricultural settlers objected to Histadrut’s takeover of their communities, they were brushed aside by the likes of David Ben-Gurion, who showed true revolutionary steel—the same quality that would stand Palestine’s Jews in good stead against the British and the Arabs—by declaring that “our movement’s economic unity cannot depend on moral convictions alone. Legal authority is needed to coerce traitors.”
When the British Mandate ended in 1948, ownership and/or control of most economic units by the new state seemed quite the natural thing to Histadrut’s socialist cadres. The Israel Land Authority was set up, and was granted ownership of 93 percent of Israel’s land; the electric, water, and transport facilities passed from the Mandate authorities to the new government; some 200 government corporations were formed, many of them monopolies; immigrants were assigned by central authorities to certain specified geographical areas; a web of rules and regulations was spun, requiring licenses and permits for almost any form of economic activity; and a system of subsidies was established, often arbitrarily determined by Israel’s apparatchiks, with political pull rather than profits being the force that determined whether or not a business would survive. According to Sohar, the Jewish state became the embodiment of “the most rigid socialist ideology in the Western world.”
The result of all of this is by now familiar: soaring inflation, high tariffs to protect inefficient industries, massive government deficits, repeated currency devaluations, a huge bureaucracy (by Sohar’s reckoning, some two-thirds of Israel’s wage-earners are employed directly or indirectly by the government or Histadrut), and a low standard of living for those unable to participate in the black economy or gain government favors through “protektzia,” or pull.
To Israeli politicians who attribute this sorry state of affairs to their nation’s defense burden, Sohar has an answer: nonsense. In what is perhaps the most interesting section of the book, he contends that before the Six-Day War of 1967, Israel spent no larger a portion of its resources on defense than did America. “This alone refutes the establishment’s claim that Israel’s pre-1967 economic difficulties resulted from the heavy ‘defense burden.’ ” As for the doubling g of defense expenditures after the Six-Day War, and their further increase after the 1973 Yom Kippur War, these are dismissed by Sohar on several grounds.
First, when American economic aid is taken into account, even current levels of defense expenditure—by Sohar’s reckoning, 8 percent of GNP after deducting net American aid of $3 billion and another $0.5 billion from Diaspora Jewry—should be manageable. Second, the relatively high level of this figure is itself a consequence of the socialist inefficiencies that pervade the military-supply industries. Third, Israel’s defense burden is magnified by the fact that Menachem Begin foolishly insisted on receiving American aid in the form of loans rather than grants; this, Sohar argues, failed to recognize that “in the Israel-U.S. military relationship, the U.S. comes off best” since it does not have to maintain its own forces in the Middle East, it obtains information about Soviet arms, and it has a place to combattest its own weapons. Finally, Sohar contends that Israel could afford its own defense if its “socialist, centralized regime” would stop squandering money on silly projects (like paying $7 billion to shareholders injured by Israel’s banking crisis).
Actually, I suspect that the true cost of Israel’s fight to survive in a hostile environment will never be tallied fully. One can estimate the value of hours lost to military service, but not the cost of disruption of normal work and manning procedures. Or the cost of developing, alone, resources more efficiently exploited in concert with neighbors. Or the cost of ruinous taxes on motor vehicles, made necessary in part by the lack of access to neighbors’ oil. Israel’s geopolitical isolation; its need to elect tough, unbending leaders; its dependency on foreign aid—all are costs, however intangible, imposed on it by neighbors who would destroy it. More important, it seems an exaggeration to treat all American and world Jewish aid as offsets to the military budget, on the assumption that such assistance would stop completely if peace broke out in the Middle East. Some would certainly continue, and would constitute a net inflow available for non-defense purposes.
Sohar’s tendency to overreach by minimizing Israel’s defense costs is but one flaw in his polemic. Another is his almost exclusive reliance on newspaper clippings for his presentation of the facts. Israel’s highly competitive press lovingly gathers and gleefully reports stories of government inefficiency; stringing them together into a book is not a sure route to accuracy.
Another failing is Sohar’s indiscriminate attribution of all of Israel’s ills to socialism. This is taken to sometimes absurd lengths. “All over the world, obtaining a driver’s license is a simple matter,” reports Sohar, bemoaning the long lines and the fact that in Israel, “Tension rides high throughout the whole affair.” New Yorkers, no strangers to long lines at the Department of Motor Vehicles, will be amused. So, too, with health care: Israel shares with capitalist countries an inability to organize the delivery of such services in an efficient and humane manner. Socialism may contribute to the problem, but it is hardly the sole cause of long waits for hospital beds, poor use of testing facilities, or the failure to contrive efficient methods to care for long-term patients.
Sohar’s subtitle is also somewhat misleading. He does indeed show “Why Israel Is Falling Apart,” but there is hardly a word here about “How to Put It Back Together.” Other than calling in the most general terms for tax cuts and privatization, and urging Israelis to “tell their government to get off their backs,” Sohar has little by way of prescription. Perhaps he views the cure as self-evident. But the failure of past reforms, and the difficulties faced by other countries in extricating themselves from the swamp of post-World War II socialist policies, suggest that there is no easy answer.
Strangely, the difficulty may be exacerbated by Israel’s robust democracy. Sohar points out that Israel is “unique [in] combining . . . democracy, including freedom of speech and suffrage, and total government control of the economy.” It is, he says, “the world’s only democratically ruled centralized economy.” This may be a bit of an overstatement: Sweden’s sinking economy comes to mind. But it is a fact worth pondering when considering whether or not this small, beleaguered nation can change its ways.
In Eastern Europe over the past year, underpaid workers, overworked professionals, and politically repressed intellectuals finally had enough, and took to the streets at the first sign of Soviet inability or unwillingness to use force to stop them. Israelis, instead, take to the ballot box. But their choice has been between the Tweedledum of a Labor party overtly committed to socialism and the Tweedledee of a Likud equally if covertly committed to perpetuating centralized control of the economy. True, Israelis can not only vote, they can complain in their free press and in books such as this one. But their system paradoxically seems more impervious to fundamental change than any in Eastern Europe, with the possible exception of the Soviet Union. Perhaps the democratic safety valve is releasing a bit too much steam for Israel’s long-term good.
And the inability to change its economic structure is Israel’s greatest danger. For the inefficiencies that Sohar so graphically describes may have passed from the merely maddening to the truly unsustainable. The new wave of Soviet immigration will, initially at least, require massive additional spending. Unless existing waste can be reduced, this will mean more borrowing, more inflation, further currency devaluation—and this at a time when American willingness to help has been sapped by media coverage of the intifada, some well-aimed shots by Israel at its own foot, and the Baker-Dole drive to reduce aid. Sohar is right: “a complete overhaul” is urgently needed. So far, it does not seem very likely.