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A New Israel

I

Political revolutions can be compared to kicking through rotting doors, and Israel’s Labor Alignment provided just such a barrier to Likud’s1 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.2 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, created a fiscal monster that became apparent after the 1973 war, which dampened Israel’s post-1970 boom. His resignation and subsequent death left the program in a shambles; without him there was nobody left to manage the flow of money from abroad and to coax investors into some of the government’s economically important but less profitable projects (e.g., textile mills in the new “development towns”).

Sapir’s undistinguished heir, Yehoshua Rabinowitz (who was rewarded with the Finance Ministry after being defeated for re-election as mayor of Tel Aviv), did little to salvage the situation. The Israeli government is still stuck with outstanding low-interest loans amounting to billions of Israeli pounds, and today has to borrow at interest rates fully 25 percent higher than those at which it had been lending. Almost 26 percent of Israel’s budget is now gobbled up by new subsidies for capital investment and by servicing the debts on old ones; literally, socialism for the rich. To make matters worse, state welfare programs have had to be cut correspondingly. They now account for only about 18 percent of the national budget.

Furthermore, Rabinowitz has failed to enforce the new tax regulations which the Ben Shachar Commission drew up over three years ago. Tax evasion is still a way of life among Israel’s bourgeoisie. Conservative estimates have put the amount of unreported or “black money” in Israel’s economy at around fifteen billion Israeli pounds. This money is spent quickly, mainly on luxury housing or imported commodities, and traded on the black market for export to Switzerland. It is little wonder that merchants are accustomed to 50 percent profit margins on durable consumer goods.

The Labor Party has thus created a crippled, incompetent, highly inflationary capitalism, which is hardest on the workers and middle-class wageearners who are Labor’s natural constituency outside the workers’ agricultural settlements. But this kind of capitalism also offends the sensibilities of the same nouveaux arrivés who have benefited from it. The real source of the anomie which seized so many voters in the weeks before the election was in the feeling that the machinery of daily life was out of control and that the very survival of the country was at stake. Much of this feeling was sublimated into the language of pessimism about “Zionism” and national defense—“how can we survive the Arabs if American Jews won’t want to live here?”

In part, then, the vote for the Likud, as well as for Yigael Yadin’s Democratic Movement for Change (DMC), was a vote to turn the government over to men who want to see the ethics of a market society honestly declared and enforced. It reflects the view of a good part of Israel’s upper middle class that the country has become a market society of profit-seeking enterprises and that it ought to be administered by those who recognize this fact and are not cynical about it. The vote promises the arrival in political power of Israel’s corporate elite—men such as Mark Moshevics, the past president of the Israeli Association of Manufacturers, Buma Shavit, the current president, both prominent in the Liberal Party wing of the Likud, and Step Wertheimer, the prominent industrialist who has associated himself with the DMC. It also invites some radical economic reforms congenial to them.

Not coincidentally, Likud’s finance minister-designate, Simcha Erlich (a former leader of the Liberal Party—once the General Zionists), has already promised sweeping relaxations of government interventions in the economy. There will be, he says, an end to food subsidies; a reduction in government spending; an end to bonds linked to the cost of living, the favorite of workers’ pension funds. Government lands will be sold off. There will be a greater “tolerance” for unemployment and compulsory arbitration of wage disputes in “essential” services. Erlich has also promised an amnesty for those who reveal their black money and pay a tax on it (I wonder if he thought of just changing the currency?). The inflationary capital subsidies will be phased out except for housing. He has also announced that he would appoint Milton Friedman, the University of Chicago economist (and the author of Capitalism and Freedom), to the post of chief economic adviser. The latter has already speculated that the Histadrut and the state should be made to sell their corporations to private concerns (Ha’aretz, May 24), a policy which would fundamentally change Israel’s political economy. Histadrut, the vast labor organization, for example, runs enterprises of all kinds throughout Israel.

Friedman’s blind faith in the “hidden hand” of the market may prove too dogmatic even for the Likud. Nevertheless, that Erlich’s Draconian measures can be generally hailed as “progressive” suggests how completely Sapir and Rabinowitz have prostituted the Israeli economy in the name of social planning.

Had Labor failed only to manage the economy, that might have been enough to defeat it. Beyond this, as I have noted before (NYR, May 2, 1974), the Labor Alignment has been consumed by factional dissent and ideological atrophy for many years. Labor never really recovered from the Lavon Affair (1960 to 1963) which split the Party into two rival groups. On the one hand stood the so-called “old guard” of Mapai and Achdut Ha’avoda (Pinhas Sapir, Golda Meir, Avraham Ofer, and Yigal Allon). They tended to be dovish on foreign policy, concerned to maintain the Histadrut as the manager of many welfare programs, and careless in using socialist rhetoric as a cover to protect their entrenched privileges.

The other faction, the young technocrats of Rafi who followed Ben-Gurion out of Mapai (Shimon Peres, Moshe Dayan, Gad Yaacobi), wanted the state bureaucracy, rather than Histadrut, to run welfare programs and cultural affairs (“mamlachtiyut“). They favored the army rather than the Labor movement as the chief vehicle of social integration; in their view the immigrants from North Africa would most successfully absorb Israeli ways in military service. They were also inclined to disengage the state from direct economic activity. And since Ben-Gurion recruited them mainly from the army, they tended to be hawkish in foreign policy, supporting a policy of heavy retaliation against the bases of Arab infiltration before the 1967 war, and resisting the principle of territorial compromise on the West Bank thereafter.

This conflict was never fundamentally resolved. The apparent unity of the Labor Party, reconstituted in 1968 during the up-beat months following the Six-Day War, was merely a façade which crumbled after 1973. These strains also exacerbated personal rivalries, as evidenced in recent months by the steady subversion and near defeat of Yitzhak Rabin by his defense minister, Shimon Peres. Such spectacles caused many Israelis to hunger for strong leadership. Peres (and Rafi) finally—and, it now appears, temporarily3—won control. But it was an empty victory; by then, many had had enough of the Labor Party itself.

More important, this squabbling prevented Labor from taking an articulate and decisive stand on the status of the occupied territory. Especially after Prime Minister Levi Eshkol died in 1969, Labor’s moderates were helpless to force the withdrawal of the illegal squatters’ settlements on the West Bank erected by right-wing and religious groups under the leadership of Rabbi Levinger. The first of these settlements was Kiryat Arba, founded on the outskirts of Hebron in 1968. Such settlements achieved precisely what their founders intended: they became the “facts” which have changed the priorities and compromised the flexibility of Israeli diplomacy. But they also became the tangible vindication of a new “Zionist” vocabulary and “pioneering” élan—strident, mystical, atavistic—with which a new generation of Israelis has been growing up, and which find their purest expression in the intensely chauvinistic movement called Gush Emunim.4

During this election young voters from all backgrounds turned to the Likud and to the National Religious Party (NRP) in overwhelming numbers. These parties consistently promoted a rhetoric which frankly justified the West Bank settlements, while the government was often equivocal about them in principle and helpful to them in practice. Unfortunately for Labor, young Israelis—especially those in the army—tended to vote this time to get their parents to live up to what they perceived are the latter’s ideological pretensions. The Labor Party’s moderates, who believed in a more open policy toward the occupied territories, were cowed for six crucial years by Golda Meir’s punitive discipline. They were thus as responsible as Begin and Gush Emunim for a political language that takes the annexation of the West Bank virtually for granted. Rabin’s lack of ideological initiative on these questions, by the way, also made his own government’s more moderate actions appear cowardly; especially when later endorsed by Shimon Peres who, as Begin delighted in reminding everyone, was himself a leading advocate of annexation before assuming control of his divided party.

  1. 1

    By Likud I mean to denote also splinter factions aligned with Likud, most prominently Ariel Sharon’s Shlomzion movement which won two seats. In all Likud’s strength stands at forty-five members of Knesset to the Alignment’s thirty-two. Likud can also count on the parliamentary support of Moshe Dayan, who resigned from Labor but kept his seat when he was named foreign minister by Begin. Dayan’s friend Gad Yaacobi may vote for Likud as well.

    Likud will also get the vote of Flatto-Sharon, a big-time French swindler who figured that parliamentary immunity was the best way to beat extradition and admitted spending five million Israeli pounds to buy the required votes.

  2. 2

    See my article, NYR, May 16, 1974.

  3. 3

    Peres’s hold on the party is by no means secure. Rabin has already come out of his self-imposed exile and announced that he will resume the prime ministership until a new government can be sworn in. Clearly, he is ready for another duel with Peres.

  4. 4

    See my “Israel Letter: The New Trap,” NYR, October 30, 1975.

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