A New Israel

Political revolutions can be compared to kicking through rotting doors, and Israel’s Labor Alignment provided just such a barrier to Likud’s stunning victory on May 17. It is now well known that the Labor Party was broadly perceived to be corrupt, suspected of hoarding illegal slush funds. Quite aside from Prime Minister Rabin’s currency violation, the party was implicated in kickback schemes, and as a result some of its key officials—Asher Yadlin and Michael Tzur—were jailed. Avraham Ofer, the former housing minister and a leader of what is left of Mapai, committed suicide before he could be thoroughly investigated. Furthermore, Labor’s campaign was uninspired—more or less a reflection of its remaining leadership—and pursued without genuine enthusiasm. The Friday before election day,. the party took a full-page advertisement in Ha’aretz in which a number of prominent academics grudgingly and circuitously explained why voting for the Labor Alignment was the least depressing of available choices. Less highly educated people were apparently not impressed.

But the Alignment was perceived by many people as also compromised and corrupt by the way it distributed political favors and economic patronage, doing so with the arrogant confidence of a traditional aristocracy. When times were better, such highhandedness could be overlooked; but times are not good in Israel today. For the last three years inflation has been running at between 40 to 50 percent. As a result, real wages have been falling sharply, while labor unrest (including wildcat strikes) and white-collar crime have increased dramatically. Much of this inflation can be attributed to a rise in the world price of oil and food staples, and, more significantly, to Israel’s huge defense budget now comprising about 40 percent of total expenditures and 35 percent of GNP. This, however, is by no means the whole story.

A good part of Israel’s ruinous inflation derives from the economic policy blunders of Labor’s former finance minister and political boss, the late Pinhas Sapir. From 1967 on, Sapir deliberately set out to industrialize and develop Israel’s economy by subsidizing private investments, claiming that Israel must rationalize production by encouraging “market forces.” At first this was intended to lure foreign Jewish investors—but Sapir also felt he had to attract capital with matching, low-interest government loans to assure a profitable return. He soon extended this practice to domestic investors. The policy rapidly degenerated into the “system”—ha’shitah—in which Sapir (acting in the name of a workers’ state) had unprecedented economic power, bestowing bundles of money and wry Yiddish wit on the bigshot entrepreneurs of Tel Aviv, London, and New York, and on the Histadrut enterprises as well.

Instead of creating a streamlined mixed economy, Sapir’s “market” approach only created an oligarchy of people with connections in both the public and private sectors. It also generated sporadic growth, and the obvious enrichment of Israel’s bourgeoisie—all behind the mask of the traditional Labor “movement.” Sapir, moreover …

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