[Vision2020] The "Third Way" and Israel's Economy

[nickgier at roadrunner.com]

Good Morning Visionaries:

Jews all over the world just finished celebrating Yom Kippur—the Day of Atonement—and October 6 was the 43rd anniversary of the start of the 1973 Yom Kippur War. Israel is always in the news about uncertain peace talks or military operations, so I would like to take this occasion to write about the nation’s economy. 
 
For my radio commentary and column this week I continue the pressure on Tea Party Folks and others who offer an Austrian (=libertarian) disaster for our economy.  According to their theories, Israel should not have survived its first 30 years economically.  The full version is attached.

I've collected all my columns on the successes of the Third Way at www.home.roadrunner.com/~nickgier/ThirdWay.htm

Have a great day.

Nick


THE “THIRD WAY” AND THE ISRAELI ECONOMY

Jews all over the world just finished celebrating Yom Kippur—the Day of Atonement—and October 6 will be the 43rd anniversary of the start of the 1973 Yom Kippur War. Israel is always in the news about uncertain peace talks or military operations, so I would like to take this occasion to write about the nation’s economy. 

Israel is yet another example of the success of the Third Way between Communism and unfettered capitalism. According to libertarian, free-market theory, Israel should have failed economically long before the existential threats of the wars of 1967 and 1973.  

Most of the Zionists who settled in Palestine were hard-core socialists.  They established the most successful communes in human history. We know them as kibbutzim, and there was initially no private property, no money, no police, no courts, not even private mail. All the children were raised collectively. Today there are 80,000 Israelis still living in 250 kibbutzim.  They produce 12 percent of the nation’s exports, but they comprise only 2 percent of the population.  

The kibbutzim are famous for their agricultural products, but they have thriving industries as well. The concept of drip irrigation was invented on Kibbutz Hatzenm and its company Netafim now has offices in 110 countries. Primarily because of experiments on the kibbutzim, Israel is able to recycle 70 percent of its water, the most of any country in the world.

>From 1950-55 Israel’s economy grew at a blistering 13 percent per year and then an averaged 10 percent into the 1960s.  From 1948-1970 the gross domestic product (GDP) per capita quadrupled while the population tripled. 

Most free marketeers believe that governments that target certain industries for growth are bound to fail, but most of Israel’s “industrial policies” have been great successes. At the time most Israelis thought his idea was absurd, but American Jew Al Schwimmer convinced the government to invest in what is now Israel Aerospace Industries. Starting with surplus World War II aircraft smuggled past the British, the company-- still government owned--now employs 16,000 people and produces jet planes, helicopters, and missiles.  

In 1977 the conservative Likud Party broke 30 years of Labor Party rule, and except for 6 years of Labor governments, Likud has ruled Israel since then.  Over time Likud brought the country back to the Middle Way between government control and free enterprise that has characterized the most successful mixed economies of the Third Way.

The economy actually got worse as inflation climbed to over 1000 percent by 1984. Likud was eventually able to reduce government expenditures from 77 percent of GDP to 46 percent, comparable to the U.S. at 45 percent, but much lower than Sweden and Denmark at 58 percent.  Significant for the growth of private enterprise was a dramatic decrease in government-controlled credit from 65 percent to 5 percent.

Raising venture capital has always been a problem for a country perceived as averse to free markets and constantly at war with its neighbors.  From 1990-2008 an Israeli industrial plan focused on technology and it issued grants totaling $2 billion dollars to lure foreign investors to the country. (A comparable U.S. contribution would have been $84 billion.) The return as been sixfold on government investment. 

After the fall of the Soviet Union in 1989, about 800,000 Russian Jews immigrated to Israel over a 10 year period.  Many of them were well trained engineers and computer scientists.  By jump-starting its high tech sector, Israel was able to produce 500,000 skilled jobs far more quickly than a free labor market would have.

Even with conservative leadership for last 27 of 33 years, Israel’s income taxes are still 46 percent in the highest bracket. There are high budget deficits, even with $3 billion in U.S. aid every year. Much government money goes to welfare and subsidized housing for people 22 percent of whom live below the poverty line. 

Even though Prime Minister Benjamin Netanyahu has pushed GOP-style policies and privatized most major companies, Israel still does not do very well by most international comparisons. With higher taxes and more government spending, Denmark ranks sixth in “ease of doing business” while Israel ranks 29th.  On the Economic Freedom Index (www.heritage.org) Denmark sits in 9th place right after the U.S., but Israel is far behind at 44th.

Aristotle, Confucius, and the Buddha all agreed that the moral virtues are relative means between extremes, and that the virtues must be fine tuned to adjust for different circumstances.  I believe that the virtues of industry and commerce may very well come under the same principle. 

The Third Way between capitalism and Communism is a delicate balancing act between market forces and necessary government intervention.  As opposed to the Scandinavian countries, Israel appears not to have found its proper mean.

Nick Gier taught philosophy at the University of Idaho for 31 years.
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