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This book constitutes the first attempt at a comprehensive description, history, and analysis of Israel's economy. Plessner examines events of the past two decades and advances the hypothesis that problems within the Israeli economy can be explained by the extent of its departure from the institutions and rules that govern predominantly market economies. He argues that Israel is unusual in that it affords an opportunity to analyze a socialized economy embedded in a democratic society. Individual chapters describe Israel's economic growth and stagnation, the government's domination of capital and credit markets, and the absence of a truly independent private sector. The concluding chapter evaluates the stabilization program of the 1980s and its aftermath and provides a prognosis for the future. Told within the framework of the story of Zionism and the creation of the Jewish state, this book answers the question of why the Israeli economy finds itself today in the same state in which it has languished since 1973.
"The book tells an interesting story about the workings of the Israeli economy. The author presents and interprets a rich array of historical material. At the same time, he shows a solid knowledge of economic theory as well as economic practice. Unlike other books about Israel, this volume captures the interplay between social, economic, and historical factors that permit one to have a broad understanding of Israel's economy." — Robert Lerman, The American University
Preface
Introduction
1. The Roar That Became a Whisper
The Bumpy Road of Political Economy
Early Growth in Israel
Growth Does Not Mean Efficiency
Other Factors
Appendix
2. Obstacles to Growth: The Abducted Capital Market
The Absence of a Free Capital Market
The Basic Features of the Financial System
The Background
The Interest Rate Law
The Process of Domination
3. The Capital Market: The Origins
First Steps
The Foundation Fund (Keren Hayesod)
Land Ownership
The Private Sector Flourishes
Rhetoric vs. Facts
Early Statehood
Appendix
4. Obstacles to Growth: The Economic Culture
The Economic Culture
The Wedge Between Effort and Reward
The Government as the Economy's Creator
The Relief from Responsibilities
5. The Economic Culture: The Origins
The Basic Ideology
The Origins of the Contrived Economy
Farm Primacy
The Housing Sector
The Advent of Rent Control
Unions and Wages
6. Obstacles to Growth: The Would-Be Business Sector
The Business Sector—A Tour
The Wedge
The Moral Hazard
A Market in Chains
7. The Would-Be Private Sector: The Origins
Early Farming Days
The Ideological Background
The Conquest of Labor
The First Failures of the Histadrut Economy
The Class Struggle—Unions and Wages
The Credit Crunch
The Adaptation of the Private Sector
Early Statehood
Appendix
8. Obstacles to Growth: The Almighty Weakling
A Summary of Government Activities
The Illusion of Strong Government
The Emasculation of Israel's Government
9. The Inflationary Prescription: Institutions and Policies
The Cost-of-Living Allowance
The Impossibility of Monetary Policy
The Oil Crisis and the New Economic Policy
The 1977 Mahapach —Economic Reform
Appendix
10. Inflation! The Obstacles Gang Up
Phase 1: The Early Stages
Phase 2:1978
What Caused Israel's Inflation?
The Cost of Inflation
The First Attempts to Stem Inflation
The Manipulation of Bank Shares
A New Approach to Inflation—"Dollarization"
The Bank Shares Debacle
Old Habits Die Hard
Appendix
11. Stabilization and Missed Opportunities
Stabilization: The Program and Its Impact
The Road Ahead
Appendix
Notes
Index