The economics of Zionism

It’s ironic that Israel’s professional politicians, media and academia, as well as some of the self-appointed spokesmen for last summer’s protestors, are almost all working vigorously to oppose managerial remuneration, the social gap, manpower agencies, Welfare to Work programs and banks and their profits.

It’s ironic because all these ideas were brought to Zion by none other than Theodor Herzl. Herzl spoke from the heights of political and economic vision, where the air was too clear for the resentment of Occupy Wall Street or Occupy Rothschild Blvd.; he dreamed of immigrants who would see wealthy homeowners living in mansions and try to build even fancier homes.

He advocated the implementation of mass aliya by a private company, founded a bank and suggested manpower agencies connect unemployed workers with potential employers.

Herzl and later Zionists who supported economic liberty had a tough fight.

Louis Brandeis, a US Supreme Court Justice, helped raised large sums of money for Zionist activity, and he was a firm believer the money should be used efficiently. The Jewish community in Eretz Israel was “not in need of charity, but of capital... to continue that life of self-support and self-respect which had won the admiration of all,” he wrote.

When the Zionist movement tasked its official fund with mixing investments and charity, Brandeis was forced out and he eventually set up a separate investment fund that helped create a mortgage and credit bank. “The highest work that can be done,” explained Brandeis, “is to earn a living in Palestine.”

The establishment gave less than 10 percent of its funds to industry, urban settlement and investments, but from 1918-29, 73% of the money invested in Eretz Israel was private, and from 1930-37, 84 percent. The private sector built most of the country.

Ze’ev Jabotinsky was another major figure in the Zionist movement opposed by the establishment because of, among other things, his support for economic freedom.

Jabotinsky believed “every individual is a king” and the state should not impair his freedom. He noted that freedom of speech and assembly, majority rule, equality for all – are ideals that socialism combats. Practically, he advocated an end to the Histadrut’s monopoly over labor in Eretz Israel, which was preventing non-socialists from getting work.

This summer marks the centenary of the birth of economist Milton Friedman, winner of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (often referred to as the Nobel Prize in Economics). Academics are divided on the question of whether Friedman influenced the policies of Menachem Begin, who became prime minister in 1977, the year after Friedman won his prize. The truth is Begin’s commitment to economic liberty drew from the teachings of his mentor Jabotinsky, as well as from the time he spent in Soviet jails and labor camps, and he advocated free markets all through the 1950s and 1960s.

“Private initiative is the least expensive and most efficient system,” said Begin, but he said his commitment to the rights to life, liberty and the pursuit of happiness was based on the Bible’s statement that man – all persons of all religions, nationalities and races – is created in God’s image.

Jabotinsky wrote that the Bible is full of social protest, but not socialism. Its economic and social policy is one of freedom; rather than forbid or control economic activity, it deals with any negative results by means of institutions such as the Sabbath, tithing, the gleanings and corners of the field that were left for the poor, and the Jubilee.

Begin had always opposed Israel’s state-based centralized economy and as prime minister worked to end the government’s foreign currency controls and liberalize the economy.

The current prime minister, Binyamin Netanyahu, is from the Jabotinsky-Begin school, and he, too, emphasizes the importance of markets and liberty.

Over the decades, Israel’s leaders have sought charity and foreign aid rather than investment. Herzl, Brandeis and Jabotinsky must have turned over in their graves.

Despite a successful high-tech sector somewhat immune to state interference, the economy is still so centralized that even religious services are just another state monopoly. The instinctive reaction to last summer’s protest was to set up a bureaucratic committee that recommended increased state involvement in education, housing and employment, and higher taxes to pay for it.

The irony is that though Zionism was long identified with the socialist kibbutzim, even they have been bailed out by taxpayers and are now building shopping centers. Yet the bureaucracy still wants to grow at the expense of private individuals. Israelis would do well to reflect on the relationship between their heritage and economic liberty. It’s all so ironic – for if the vision of such greats as Herzl, Brandeis and Jabotinsky were to be realized, Israel would not need foreign aid, its citizens would not need to take to the streets to protest high prices and taxes, and secular Israelis might not be so put off by their encounter with state-enforced religion.

The writer directs the Center for Public Policy at the Jerusalem Institute for Market Studies (JIMS). This article is based on a paper he is presenting at a JIMS’ conference on “Religion and Economic Liberty,” being held May 20-23 in honor of Milton Friedman’s 100th birthday.