April 29, 2002


Socialism is dead everywhere – except Israel

If war is the health of the State, as Randolph Bourne put it, then the Israeli state must be bursting with a monstrous vitality – and so it is. The beleaguered and shrinking private sector groans under the burden of a parasitic state that grows fat on an endless stream of American "aid," both economic and military. As the Israeli economy goes into another of its periodic tailspins, and Prime Minister Ariel Sharon's "right-wing" government calls for higher taxes and "belt-tightening," one can almost hear the cry to bail out our good and faithful ally even before it is uttered. Anticipating this, why not examine just what sort of economy we are subsidizing – and ask what we're getting out of it.


Israel was conceived in the minds of its original founders and supporters as an explicitly socialist state. The very idea of private property was anathema to the founders of the state of Israel, who were socialists almost to a man. However, the early success of the Zionist project demonstrated, not the superiority of socialism over capitalism, but quite the opposite. As Alvin Rabushka points out, prior to independence, virtually all investment in the country was private, involving the purchase of land by private individuals and the dispensing of private funds raised by the Zionist organizations abroad. But it wasn't just ideology that prompted the still-birth of the Israeli private sector. After independence, private capital investments in Israel contracted to no more than 15 percent of the total between 1948 and 1990. The reason: German reparations. Rabushka writes:

"In what must rank as one of the great ironies in economic history, German reparations financed the transformation of Israel from a private-investment, private-enterprise, free-market economy to a socialist system that fulfilled the vision of Jewish leftists…. The German government gave $850 million, a huge sum at the time, to the government of Israel as collective compensation for the millions of Jews who died at the hands of the Nazi regime and had their property stolen."

Instead of being used to build the infrastructure so sorely needed by the infant economy, however, Prime Minister David Ben-Gurion handed the dough over to the Jewish Labor Organization, the Histadrut, which established a network of state-owned enterprises. No private company or individual was allowed title or access to their own piece of personal "compensation." Instead, in accordance with their socialist ideology, the funds were administered by "the workers" – that is, by their alleged representatives in the Histadrut and the various political parties, who appointed the boards of directors and allocated the cash.


Rabushka minces no words in characterizing the Israeli economy as socialist through and through:

"It is important to point out that the Central Bureau of Statistics describes business activity in Israel under the rubric of the business sector, not the private sector. The business sector in Israel is not really private in the meaningful sense of the word."

Created by German reparations, Israeli socialism quickly strangled any emerging free markets, and, over the long stretch of the Israeli Labor Party's unbroken rule, "a system of almost total identity between political and economic power" – as Israeli economist Yair Aharoni describes it – was created that persists to this day. The defeat of the Laborites by the Likud did not change matters: "This high level of political involvement was a major characteristic also of the governments created by the Likud parties," Aharoni writes, who, if anything, deepened Israel's commitment to the centrally-planned economy:

"Despite a wider recognition that market forces may be a better means for resource allocation decisions, government bureaucracy and politicians found it extremely hard to give up even a little bit of their cherished power. Despite much preaching, government intervention deepened; and the diverse methods of the intervention continued, irrespective of the party of power. Government intervention shifted from rationing, ad hoc decisions and administrative controls to the control of virtually all sources of capital and their administrative allocation at varying rates of subsidy."


The great hope of the Zionist ultras, Bibi Netanyahu, when he was Prime Minister, accelerated the process of complete statization in a "right-ward" direction: handing out hundreds of millions in subsidies to the religious parties, the kibbutzim, and the privileged caste of bureaucrats, their offspring, sycophants, and other socialist spear-carriers. All were allowed by Netanyahu to feed ceaselessly at the public trough. A trough, one notes, that is regularly filled to the brim with over $3 billion per year in American aid (a figure that doesn't include loan guarantees and special financial arrangements that give the Israelis an extra bang for their buck). In a wonderful article by Zev Golan, associate director of the Institute for Advanced Strategic and Political Studies (IASPS) in Jerusalem, the key to understanding the Israeli economy is contained in a single axiom:

"An entire country is on the dole. The huge amount of foreign aid that comes in props up a bankrupt socialist system and prevents Israel's private sector from making any real progress. Those in power live off the money of others and live for it.

"This system is that which keeps the public-sector half of Israelis on top of the other half. This holds for Labor Party officials, or party-appointed officials, as well as Likud, for Jewish Agency officials, as well as state-paid rabbis. This sector's main purpose lies in preserving its domination over the productive sector, over the private sphere, in perpetuating itself. To this purpose it will subsume any other interests – economic growth, moral integrity, political independence."

Well, then, the answer is to reform, to privatize, to institute a free market revolution in the only supposedly Western country left in the socialist camp. But that isn't going to be so easy.


Indeed, it may be impossible, given not only the exigencies of war, but, more importantly, the peculiar imperatives of a settler colony superimposed on the economy by the very nature of the Zionist project. As Aharoni points out, in Israel:

"The criteria for the existence of an economic entity were never its efficiency or its competitive strength. Rather, it was the ability of the unit to create employment. Israel also attempted to shield business firms from competition, thus creating a business culture in which export based on competitive advantage is neither nourished nor preferred."

In short, the Israeli government has, from the beginning, been concerned not with economic efficiency but in winning the demographic battle. The essentially military tasks of pushing the previous inhabitants out and creating a territorially contiguous and defensible state overrode purely economic considerations, as they always do. Given the egalitarian and socialist roots of Zionism, it was only natural for the embryonic Israeli state to offer newcomers generous housing and other subsidies in addition to government-created jobs. But it is difficult to imagine that Israel could have survived otherwise. The Zionist movement could call on the Jews of the world to commit to aliya, and come live in the land God had promised them, until they were blue in the face, but if they didn't offer guaranteed jobs and other inducements, the number of immigrants would have been radically reduced.


Israel, a socialist Sparta, could never adopt radical free market reforms and still retain its identity as a distinctively Jewish state. Multiculturalism – in the truest, and only meaningful sense of that much abused term – is the inevitable result of free commerce: laissez-faire dissolves artificial boundaries of race and religion and divides the world up into natural geographic and economic units. It also tends to wash away irrational prejudices, which soon become economically not viable. In undergoing a free market revolution – not just privatizing garbage collection and legalizing cloning, but unchaining the small private sector, eliminating religious-based immigration, and dismantling the Israeli welfare state, including the settlements – Israel would become something completely other than what its founders envisioned: a free market Athens where religion is entirely a private affair.


Unfortunately, Israeli society is presently headed in the opposite direction, towards Sparta, and is now embarked on a campaign of conquest that aims at driving the Palestinians out of the occupied territories and into Jordan. The recent military operation had all the earmarks of a classic ethnic cleansing operation: or else why level the Palestinian Education Ministry, the Department of Public Works, and physically destroy entire communities?

Jenin exemplified the foreign policy of a national socialist regime in action, but this missive from the IASPS – "Fascism in Israel?" – puts Israeli domestic policy in the proper perspective. IASPS reports on a meeting held late last year where Israel's economic leaders met and established a task force to bail out the sinking economy. The group's prescription: a freeze in public sector wages and a freeze in lay-offs, more inflation, and increased subsidies for the industrial dinosaurs of the state-owned sector. This decision was made by the Finance Minister, the Governor of the Bank of Israel, the head of the Manufacturers Association and the Histadrut labor union boss. In short:

"There it is: money, big government, big business, and big labor, the cornerstones of the fascist economy. But not everyone is equal in the fascist state. Some are more equal than others. In this case, Histadrut rules the roost. Peretz warned that any deal will not be 'on the workers' backs.' 'After all, said Peretz, 'the economy belongs to the workers. Governments rise and fall, but the workers remain constant.'"

The difficulty of being a libertarian or a libertarian sympathizer in the Israel of today is reflected in the bitterly despairing tone of the writer's concluding remarks:

"It's reassuring in this age of globalism, multi-national corporations, capitalism, and markets, that Israel can remain true to its economic heritage: the fascist state led by the workers."


It is surely among the most ludicrous ironies of history that, having defeated two forms of socialism in the past 50 or so years – one on the battlefield, and the other in the hearts of men – the US is now supporting, single-handedly, one of the last socialist regimes on earth. This is particularly odd, coming from a Republican administration that trumpets its desire to spread free markets far and wide. We are often told that the moral superiority of Israel is inherent in its democratic form of government. But there's a slight problem: in a democracy you can vote yourself a guaranteed annual income at somebody else's expense, and, in Israel's case, that somebody boils down to you, the American taxpayer.

Thanks to you, the American taxpayer, the socialist ideal didn't die with the collapse of the old Soviet Empire. You are paying for Israeli socialism, including for the provocative settlements the purpose of which is only to create a pretext for war. You are footing the bill for those American-provided tanks rolling over Ramallah and an army outfitted with the best weapons US tax dollars can buy. US aid to Israel has been increased, yet again, and still it isn't enough. The Israeli economy is on the brink of collapse, and, although Israeli officials are trying to blame skyrocketing deficits on the war, it seems that isn't the whole story, as the Los Angeles Times reports:

"Israeli officials have blamed the nation's economic ills, including a budget deficit of about $2.7 billion, primarily on the latest violence, but other analysts say the conflict is only partly to blame. Several say the government's budget, passed two months late in February, was bloated from the start. Nonetheless, 'wars cost money and a lot of it,' Finance Minister Silvan Shalom said as he urged Israelis to tighten their belts and support the government's proposals for spending cuts, tax hikes and salary freezes. Speaking with Israel Radio, Shalom said the nation needs to embark on an economic 'Defensive Shield' program, akin to the army's just-completed West Bank offensive of the same name."

Oh, yes, that's just what Israel needs – and we know who's going to be paying for it. But it isn't just the cost to the overburdened US Treasury. A larger point needs to be made here by asking: what is it buying us?


The system described by Zev Golan – a self-perpetuating kleptocracy such as existed in the former Soviet Union – is empowered by war, and so the war will continue. As long as Israel is in a state of perpetual conflict with its neighbors, and the US aid machine keeps running, the socialist power elite who run the country will maintain and extend their power. This accounts for the intractability of the Israelis in negotiating a fair peace.

Israel must be geographically contiguous, the early Zionists declared: they would not have been content with disparate Bantustans, broken up by settlements and "Arab only" roads. But the Palestinians are not to be so favored. A peaceful compromise and the evolution of a bi-national solution to the Palestinian question would reduce the rationale for overseas aid, both governmental and private, and threaten the perks and privileges of Israel's state-supported middle and upper classes. Therefore, it will never happen, unless….


Imagine that George W. Bush becomes half the President his father was and decides to play the aid to Israel card. As unlikely as that seems, just bear with me for a moment, and conjure a picture of Dubya getting up there and, instead of begging and pleading and cajoling the Israelis to please, please, pretty please get out of the occupied territories, the President declares: get out, or else the free ride is over.

Don't think he couldn't get away with it. He's given Sharon every opportunity, every benefit of the doubt – and enough rope to hang himself with. The President has allowed the US to be humiliated in the eyes of the world, as the Israeli tail seems to be wagging the American dog, and suddenly George W. Bush seems less presidential. Bush's personal authority has been diminished by Sharon, and there is only one way to reassert it – and, at the same time, assert the primacy of raw American power, i.e. economic power.


He's said "get out" three different times, three different ways. Now is the time to add: or else! The sheer unilateralist verve of such an action would immediately restore his stature, and also mute the protests of the "Israel First" wing of the conservative movement – which would be so stunned, at first, that they wouldn't know how to react.

Congress would never go along with it, you say, but a President emboldened by a steely determination – or a sense of crisis – could simply issue an executive order and assert the vast powers granted to him, purportedly to safeguard the "national security." With the stroke of a pen he could prevent the transfer of any aid to Israel and bend Sharon to his will. Abroad, the American President would be hailed for standing up to the Israelis, while at home he would face a storm of protest – but only from a very small, if quite noisy, minority. The majority of Americans, I believe, would admire the unilateral boldness of such a decisive act, while readily absorbing the lesson that we have to lay down the law to our alleged allies as well as to our adversaries. And if Sharon and his supporters in this country raise too much of a ruckus, if the fight gets particularly ugly, I'm sure the President has at least a couple of dimes he can drop on the Israelis.


It's a fantasy, I admit, but as the President's poll numbers keeping ominously dipping, and Sharon's defiance continues to diminish the American President's stature on the world stage, some in the administration who call for a more even-handed approach to the Middle East may gain Dubya's ear. Perhaps his father can talk some sense into him. An article in Slate reminds us that the elder Bush once openly complained, during a 1991 White House encounter with the press, about the strength of the Israeli lobby on Capitol Hill. "On another occasion," writes Anne E. Kornblut,

"Bush reminded his critics that the United States gives 'Israel the equivalent of $1,000 for every Israeli citizen.'"

Will Dubya listen to the good advice of his father, or will he be bullied into allowing himself to be made into a fool? The education of George W. Bush is looking like it's going to be a long and tortuous procedure, and rather painful for the President as well as the country, but it appears some progress has been made. The Saudi peace plan, a comprehensive framework for ending the stand-off, has been endorsed in principle by the US, and Powell did, after all, meet with Arafat, a symbolic gesture of great import for both sides of the Israeli-Palestinian conflict.

Ah yes, one recalls the first Bush administration, when the President of the United States and his advisors didn't take orders from their satellites, with a pang of genuine nostalgia. Why, I remember that era of legend, when a Secretary of State could get away with cursing out American supporters of Israel – even using the "f"-word! – in what he thought was a private conversation, noting that "they didn't vote for us anyway." Will those halcyon days ever return?


The politics of this issue would seem to dictate it. Since the Democrats, led by Senator Joe Lieberman and Dianne Feinstein, are staking out a position of 100 percent unconditional support for Sharon, James Baker's cold political calculation seems right on the mark this time around, too: those voters for whom support to Israel is the number one priority are already lost to the other party. If and when the President chooses to butt horns with Sharon, the political costs are bound to be manageable. Most Christian fundamentalists, whose allegiance to Israel is based on theology, will grumble, a very few will defect, and the rest will go along with the program, since they have nowhere else to go.

In the end, of course, it all depends on the President of the United States, his personal character, his inner life, his influences, his whims – and his integrity, or lack of it. The fate of the Republic, and the world, rests on the whims, the moods, the knowledge – or lack of it – of a single individual, one elevated to heights of power so dizzying as to drive any ordinary man over the brink of madness. That's what we bought into when we voted to give up our old Republic for an Empire.

Er, uh, but I don't remember voting on that – do you?

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Justin Raimondo is the editorial director of Antiwar.com. He is also the author of Reclaiming the American Right: The Lost Legacy of the Conservative Movement (with an Introduction by Patrick J. Buchanan), (1993), and Into the Bosnian Quagmire: The Case Against US Intervention in the Balkans (1996). He is an Adjunct Scholar with the Ludwig von Mises Institute, in Auburn, Alabama, a Senior Fellow at the Center for Libertarian Studies, and writes frequently for Chronicles: A Magazine of American Culture. He is the author of An Enemy of the State: The Life of Murray N. Rothbard.