Capitalism 4.0 – Israeli Experiments

"We are at a crucial turning point in the history of the world"

capitalism311(do not publish again) (photo credit: avi katz)
capitalism311(do not publish again)
(photo credit: avi katz)
WHEN THE DUST settles on the 2007-9 global crisis in Israel and abroad, what changes will have occurred in the way we live, work, save, spend, invest our money, pay our debts, and run our businesses? Will a few superficial bandages be slapped on the wounds of global capitalism? Or will there be meaningful, substantive reforms?
It is probably too early to know. The crisis is far from over and may get much worse before it gets better, especially in the US and Europe. At the moment, there are far more bandages than substantive reforms. America’s 2,400-page Dodd-Frank Financial Reform Bill, signed last month by President Barack Obama, is not even a bandage; it was neutered by the lobbyists.
Early or not, Anatole Kaletsky, an editor at The Times of London, has bravely tackled the question of capitalism’s future. His new book is titled “Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis.” Kaletsky claims we are at a crucial turning point in the history of the world, as important as the one following the Napoleonic Wars, when Capitalism 1.0 began, or the Great Depression in the US and Roosevelt’s New Deal, when Capitalism 2.0 began, or the fall of the Berlin Wall in 1989, which launched Global Capitalism 3.0. (Note how the interval of time between crises and successive versions of capitalism is shrinking.) In peering through the fog at the future, Kaletsky, an economist, boldly opposes the late Harvard University professor John Kenneth Galbraith’s dictum: “The purpose of economic forecasting is to make astrology look good.”
With regard to the “new economy,” Kaletsky is upbeat. In his book’s final section, he foresees a robust economic recovery, but only if governments use the powerful tools they command, such as deficit spending through borrowed money and low interest rates. However, he may need to do some fast revisions for the next printing. A fierce battle rages between Obama’s political advisors, who urge him to heed public opinion and slash the budget deficit, and his economic advisors, who urge continued fiscal stimulus spending. So far, the political advisors are winning. They echo an old Yiddish saying: “Borrowing is like scratching – it’s only good for a while!”
In Israel, Finance Minister Yuval Steinitz’s austere two-year budget stonewalls those who itch to spend. And Bank of Israel Governor Stanley Fischer has rather surprisingly begun raising interest rates. He is the first central banker in the West to do so. His motive: Prevent a housing bubble, as real estate prices in Israel soar. The news website Ynet reports Israel ranked fifth in the world in housing price increases during the past year, just behind Singapore, Hong Kong, Taiwan, and Australia.
Kaletsky argues that the new version of capitalism will be defined by experimentation, similar to Darwin’s theory of evolution in which random “experiments” (mutations) by nature mostly fail, but a few succeed and help species to change, survive to reproduce, and hence endure.
If Kaletsky had visited Israel, he would have learned a lot. Today, in Capitalism 4.0, a variety of experiments are underway. One of them is the cooperative, a group of people who join together, formally or informally, for a common purpose and whose organization aims not to make a profit but to benefit its members.
Cooperatives were first founded in 19th century Britain. They came to Israel in the wake of the socialist pioneers, but have adapted to free-market capitalism. Israel’s largest bus company, Egged, founded in 1933, is a cooperative, owned by its members. It was given its name by the national poet, Haim Nachman Bialik. Tnuva, Israel’s largest dairy company, was founded as a cooperative in 1926 by kibbutzim and moshavim; it was bought in 2008 by investment funds Apax and Mivtach Shamir for $1 billion.
Here are three Capitalism 4.0 cooperative experiments. If the world came here to study them, perhaps they might spread.
Food Cooperatives: I spoke with Tal-El Weisman, who as an 18-year-old just beginning his compulsory army service initiated a Tel Aviv food cooperative in which members join together to buy organic fruits and vegetables directly from farmers on Moshav Kadesh Barnea (also known as Nitzanei Sinai), located on the Egyptian border. By bypassing wholesalers and supermarkets, members leave more profit in the hands of the farmers while lowering the cost of food for themselves.
Weisman told me he launched the co-op partly because on his meager salary as a soldier he could not afford to buy the fruits and vegetables he wanted. Today, while Tal-El works to earn money for his post-army trek abroad, the co-op he founded has over 60 members. It runs solely on volunteer labor – every member has to volunteer to do one of the required tasks, such as organizing the orders, collecting money or splitting bulk shipments into individual packages. There are many such food cooperatives; the largest one is in Pardes Hanna, which uses sophisticated web-based software to manage its operations.
Home Buyer Groups: Groups of potential home buyers band together and negotiate with a contractor or developer to purchase, say, a block of 10 apartments, or even to buy land and engage an architect and builder. The benefits: Significant price discounts. For a while, this trend spread like wildfire. Government ministries and the Bank of Israel are unhappy about it, believing it contributes to a potential housing bubble, and have acted to limit it.
Kibbutzim: Roseanne Barr (Jewish star of the hit 80s TV show “Roseanne”) once quipped, “I made a million the hard way – I made $100 million for those who employed me.” This is precisely what a few CEOs of kibbutz industries have done, including Kibbutz Sasa’s Plasan Ltd., world leader in ballistic armor, headed by CEO Dani Ziv and wholly owned by the kibbutz’s 100 families. All the profits are shared equally among the kibbutz members. By the self-seeking greed of Capitalism 3.0, it shouldn’t work. But in Capitalism 4.0, it does.
Almost 50 years ago, economist Galbraith outlined his theory of “countervailing power” in his book “American Capitalism.”
Galbraith’s basic idea was that under free-market capitalism, businesses will inevitably grow in size and power, finding ways to circumvent anti-trust laws. Against this monopolistic trend, lobby groups, consumer groups and unions can organize to apply equal and opposing monopsony (single buyer) force to create balance and fairness.
In the US, capitalism did not evolve as Galbraith had hoped. The overwhelming power of big business, especially banks and financial services, came to dominate the American and global economy, created the financial bubble and almost ruined the world.
And Israel has apparently followed suit.
In a recent report, the Bank of Israel noted that “in terms of dispersion of control [of the economy], Israel is one of the most concentrated developed countries, and even resembles a developing country in this respect.” The study noted that 20 business groups, each controlled by one family, in turn control about one in four firms listed on the stock exchange and about half the market share (Gross Domestic Product).
Vigorous ongoing debate is taking place in Israel about how best to control or limit these families’ enormous influence.
“There is a lot of emotion right now. The general public asks: How come 20 families control the economy? Israelis want these families to have less power,” Omer Moav, former advisor to Finance Minister Steinitz and currently economics professor at the Hebrew University in Jerusalem, told the Financial Times recently.
Meanwhile, as debates about the 20 monopoly capitalists boil and bubble and a high-level government commission on the problem is about to begin work, ordinary people like Weisman are initiating smallscale experiments. May there be hundreds more. Let a thousand flowers bloom, as China’s Mao Tse-Tung said (but never truly implemented).
Let capitalism become, like some software, “open source,” with everyone contributing ideas rather than just a chosen few. From these will hopefully emerge a fairer, more stable, more sound type of Capitalism 4.0, one that will generate less obscene salaries for CEOs, less irresponsible risk-taking, more wellpaying jobs, fewer oligarch families and a far more equitable distribution of society’s wealth and income.
The writer is senior research fellow, S. Neaman Institute, Technion.