Photo-Reuters-Ronen-Zvulun
Prof. Sam Lehman-Wilzig – THE FUTURE OF ISRAEL’S VIABILITY AND VITALITY (5) – The Activist State
Last week I discussed in-depth the third of seven factors – Cohesive National Identity – underlying national competitiveness and dynamism https://israelseen.com/prof-sam-lehman-wilzig-the-future-of-israels-viability-and-vitality-4-cohesive-national-identity) – to evaluate what lies in store for Israel in the coming decades. Here I will look in-depth at a fourth factor: The Activist State.
The early Zionist movement had no choice but to be strongly involved in attracting immigrants and ensuring their survival and prosperity, as almost Jews coming to Palestine were poor, with the land itself having few natural resources. The result: Socialist ideology and practice dominated and not the more western-style liberal economic approach, aka Revisionism. This continued after the State’s establishment, again because of the need to absorb huge numbers of immigrants as well as to defend the nascent, vulnerable state from attacks.
As time went on, though, Israel’s bureaucratic Socialist system became sclerotic. The Likud’s 1977 electoral victory was not only a political turning point but an economic watershed as well. Finance and commerce were liberalized, the bureaucracy was pruned back, and (after a disastrous early hyper-inflationary period) the economy took off, as Israelis’ brainpower and initiative were finally allowed to flower.
Nevertheless, the state did not disappear. It remained active – more so in the realm of social welfare than in economics – providing a strong safety net, far more in line with Scandinavia than the U.S. or England. For example, Israel’s universal health care system is considered one of the world’s best, based on competition between four central HMOs, each providing comprehensive health services at very low cost to their patients (who pay a monthly health care fee based on income).
Moreover, given the continued external threats to the country, the State of Israel is highly active in developing a world class security apparatus: IDF, Shabak (internal security), and Mossad (external security). Serendipitously, this has proven to be very constructive, for two related reasons. First, a high-tech military-industrial complex has emerged, exporting high-tech arms to the world in huge terms per capita. Second, and nourishing this, are elite army units (cyber, intelligence, etc.) that provide a steady flow of the highest quality (wo)manpower to Israel’s military and especially civilian high-tech sectors (biotech, agritech, infotech, fintech, communications, artificial intelligence, etc.).
It is here that one finds the secret of Israel’s economic success: the state is activist but does so mainly in laying the foundation for free market dynamism, rather than controlling the economy from “on high” in classic Socialist fashion. True, this approach is not uniform across all sectors of the economy. For instance, the state still owns 90% of the land, leading (among other factors) to sky-high, real estate prices. On the other hand, it has been gradually removing structural obstacles standing in the way of an efficient economy. Two quite different examples: a new BOT (Build-Operate-Transfer) port was just built in Haifa, to increase competition in this serious import bottleneck; agricultural tariffs have recently been removed – along with huge subsidies to the farm sector for R & D for it to modernize itself in the face of inevitable import competition: market liberalization but with state activism to ensure continued domestic competitiveness.
There is one area in which Israeli governmental activism is highly controversial: Religion & State. Actually, the government itself is not much involved, but it has delegated almost all activity related to marriage, divorce, and conversion to the Rabbinate. And yet here too we find an interesting phenomenon: increasing numbers of Israeli citizens are ignoring or bypassing the rabbinical establishment through several workarounds e.g., overseas marriages that have to be recognized by Israel (based on international treaty), local Conservative or Reform weddings without registering in the Interior Ministry (but many couples with a civil contract accepted by the secular legal system), and so on. This is a longstanding phenomenon on the Israeli scene, in which the Israeli public pushes back against structural, quasi-governmental activism – similar to what it has done with quasi-public Sabbath transportation, commercial stores opening on the Sabbath, etc. Thus, Israel’s governmental activism is held on a leash by the public that won’t tolerate statist over-paternalism.
In short, Israel continues to search for the ideal equilibrium between State intervention (or “encouragement”) and private market initiative – not only in purely economic affairs but also in social areas of life. The process might seem somewhat messy, but the active search itself is a sign of socio-economic health. In the final analysis, the proof is in the pudding. The Israeli economy (and currency) is one of the strongest in the world: unemployment is very low; national debt relative to GDP is low too; economic growth is still very impressive; and even the earlier bugaboo of high inflation has been kept low over the past few decades (today, it is only half of U.S. and European inflation rates).
There is still much to be done e.g., the cost-of-living is far too high. Nevertheless, Israel’s activist involvement in the economy and society seems to have reached a midpoint where the pluses outweigh the minuses by a wide margin. Should the country manage to continue along this middle-of-the-road approach that can best be described as “restrained activism,” the future of its economy should remain a major strength underlying the country’s continued flourishing.
