LOOKING BACK over the past 80 years of Israel’s history since The Palestine Post
printed its first edition, one cannot help but marvel at the economic miracle
that has transformed the Jewish state.
From a quasi-socialist society
with a centrally controlled economy and a Histadrut labor federation – that
acted not only as a workers’ union, but also as the owner of nationalized
industry (Solel Boneh), banks (Bank Hapoalim), and health maintenance (Kupat
Holim Clalit) – Israel has become a center for entrepreneurship, innovation and
Working under free market conditions, Israeli
entrepreneurs have created thousands of start-ups. Today more Israeli companies
are traded on the major New York exchanges than any other country in the world,
aside from the US, Canada and China – all this with a population of less than
Google executive chairman Eric Schmidt told Start-up
Nation authors Dan Senor and Saul Singer – the latter my predecessor as
editorial page editor at The Jerusalem Post – that the US is the No. 1 place in
the world for entrepreneurs, “but after the US, Israel is the best.”
did Israel manage to make this transition so smoothly and in a relatively short
time? The most obvious answer is that for a variety of reasons, Jews, including
those refugees who wound up in Israel either by choice or by circumstance, have
a strong affinity for capitalism and private enterprise.
Even before the
modern era, wherever Diaspora Jews were given a chance to compete on a level
playing field, they have excelled. With the advent of modern nationalism, which
for the first time began to separate religious identity from national identity,
Jews were given the opportunity to compete in newly developing free markets. And
Jews benefited disproportionately.
Their high levels of literacy made
them particularly well-positioned to take advantage of the increasing importance
of learned knowledge as a means of making money.
In countries such as
Russia, where the reactionary regime continued to tie national identity to
religious affiliation, Jews turned to socialism. But this was not so much out of
a special Jewish bias toward the socialist ideal, as it was the most effective
way of attaining equality.
Indeed, Russian Jewry’s strong ties to
socialist thought had a critical impact on the fledgling Jewish state’s
However, the extent to which Israeli society adhered to
socialist ideals has been both exaggerated and overrated.
Jerry Z. Muller has pointed out in his book of essays Capitalism and the Jews,
“while the pre- and post-independence history of the State of Israel was
ideologically stamped by socialist Zionism, the reality was more complex – and
Diaspora Jewry as a whole – including the Jewish
refugees who arrived in Israel – brought with them a strong predisposition to
the capitalist ethos. After all, western and central European Jews who were
given the chance did well in free economies. And while the capitalist ethos was
discouraged and repressed by leading Labor Zionist ideologues, it remained a
strong force within Israeli society.
Acknowledging this fact can help us
better understand the remarkable transformation the Israeli economy has made –
particularly in the last three decades – from a quasi-socialist, centrally
controlled economy, to a vibrant free-market economy driven by private
Labor Zionism, which dominated Israeli politics in the
pre-state era and for the first decades after the creation of the Jewish state,
was openly antagonistic to free trade and commerce – the cornerstones of
entrepreneurship and capitalism.
Russian Labor Zionist ideologue
A.D. Gordon was strongly influenced by the romance of the peasantry, as
articulated by Leo Tolstoy, and believed manual labor – particularly agriculture
– bound a people to its soil and to its national culture.
capitalism as wasteful, unproductive and parasitic, and saw it as the source of
Jewish suffering in the Diaspora.
Marxist Ber Borochov, another Labor
Zionist ideologue, believed that a productive national existence required the
creation of a Jewish working class.
In the debate over competing
strategies for building up the Jewish homeland, socialism seemed to win out over
capitalism. The view that Zionism was a social revolution, driven by the
collective farmers of the kibbutzim and moshavim and that the state should be
directly involved in construction, agriculture and industry, was adopted by both
Chaim Weizmann and David Ben-Gurion.
However, the extent to which private
enterprise contributed to the building of the Yishuv and to the State of Israel
was more substantial than is commonly recognized. Private Jewish capital –
mostly from abroad – made up 87 percent of all investments in Jewish Palestine
between 1932 and 1937. Economic support provided by Jews in the Diaspora, who
donated money they had earned through capitalist enterprise, was crucial to the
early economic growth of the state.
The pragmatic Ben-Gurion, though
ostensibly a socialist in outlook, was careful not to form a government
coalition with the Marxist Mapam party, in part out of concern that doing so
would scare off private investors. Only after Mapam renounced its ties with the
Soviet Union in 1955 in the wake of the Prague trials did Ben-Gurion include it
in the coalition.
Mapai apparatchik Pinhas Sapir, who – together with
Labor Zionist leader and third prime minister Levi Eshkol – dominated economic
policy-making during Israel’s first three decades, understood the importance of
private enterprise for economic growth. Sapir, who blocked a plan by the
Histadrut’s industrial arm, Solel Boneh, to greatly expand its empire by
building a steelworks in Acre, saw the growing power of the Histadrut as a
threat to the entrepreneurial spirit.
Sapir was instrumental in
recruiting local businesspeople and foreign investors to develop the textile
industry, and helped bring private foreign investment by Diaspora Jews to
Israel. Though this period was marred by backroom deals and cronyism, it was
under Sapir’s guidance that the first generation of Israeli millionaires was
Two early waves of immigration – from Poland and from Germany –
brought thousands of entrepreneurs and professionals to the Yishuv.
came Polish Jews, often owners of small businesses escaping the growing anti-Semitism of the early 1920s.
They were followed in the next
decade by German Jews fleeing the Nazis.
These immigrants came with the
capital and the skills to set up small factories in the
Capitalist sentiments and a rejection of Mapai’s socialism
catapulted the General Zionist party – a precursor to Likud that ran on a
platform of private enterprise and free markets – from seven to 20 Knesset seats
in the 1951 elections with a campaign slogan “Let us live in this
Even before it was joined by the Sephardim and Oriental
Communities party and the Yemenite Association, the General Zionist party was
the largest after Ben-Gurion’s Mapai.
Herut – the major right-wing
political party that challenged Mapai’s political hegemony – rejected Mapai’s
socialist romanticization of the working class, valued the role of Jewish
entrepreneurship, and argued that the future belonged to the bourgeoisie, not
the proletariat. This was the position of Vladmir Jabotinsky, founder of the
Revisionist Zionist movement.
True, when the Likud party – an offshoot of
Herut and the General Zionists – finally came to power in 1977, ending 29 years
of Labor Party rule, then-prime minister Menachem Begin did not immediately
usher in a new era of free enterprise. But this was largely because the Likud
leadership was overwhelmed by the depth of the economic crisis bequeathed to it
by the Labor Party.
Still, it had become painfully clear that the
state-directed, quasi-socialist economic model was no longer working.
era of big infrastructure projects was over. The nationalized and
Histadrut-owned companies dominating economic life had become bloated and
In the wake of the 1985 Economic Stabilization Plan, which
introduced more fiscal discipline, devaluation of the currency and the
suspension of cost-of-living allowances, hyperinflation began to fall. The
government also undertook a long-term program to sell off state-owned companies,
deregulate markets and reduce state spending.
All of these measures,
which marked the end of the socialist era of Israel’s economy, set the stage for
the period of rapid economic expansion that followed.
liberalized economic environment helped let loose free enterprise, innovation
and entrepreneurship that had been stifled over the decades but which had always
existed, if only latently, within Israeli society.
Nowhere is this more
evident than in the hi-tech field. Israel’s workforce has a large proportion of
scientists and engineers. There are 140 scientists and technicians and 135
engineers for every 10,000 people, the highest ratio in the world. But Israel
also has a unique mix of entrepreneurs and venture capitalists that are capable
of turning new ideas into commercial products.
Kibbutzim that for decades
had been run according to purely socialist ideology quickly made the transition
to a competitive, capitalist market. The legendary Kibbutz Deganya, home to the
Gordons, also came to house businesses such as Toolgal – a producer of blades
studded with diamonds that cut concrete and metal.
located on a kibbutz, Toolgal was run in accordance with the strictest
Skilled workers from outside the kibbutz were hired,
business decisions were made in according to profit/loss criteria, and the
company competed in the international arena.
Entrepreneur par excellence
Eli Hurvitz, the legendary CEO of Teva Pharmaceuticals, grew up in a Labor
Zionist household and was a member of Kibbutz Tel Katzir before leaving for the
world of business.
If the Jews of Israel had lacked the requisite
entrepreneurial acumen, privatization of industry, relaxation of government
control over capital markets and other reforms alone would never have sufficed
to transform Israel into such an innovative economic powerhouse.
may be true that socialism was the dominant articulated ethos in the first
decades of the State of Israel’s existence, the Jews of Israel – like Jews
elsewhere – always had a predisposition to capitalism and free
Before achieving national independence Jews excelled as citizens
in their various host countries. Today the Jewish state’s industries –
particularly hitech – compete as equals in international markets. In hindsight,
the shortlived era of socialism was nothing but an unrepresentative blip.
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