Have globalization and liberalization “normalized” Israel's political economy?

Abstract

In his 1960 study The Israel Economy: The First Decade, the distinguished economist Don Patinkin complained bitterly that Israel's political leaders acted as if they could defy the laws of economics. The government consistently spent far more than it raised in taxes, just as the economy as a whole consumed more, especially in imports, than it could ever pay for. Patinkin believed that policymakers would be forced to adopt more market-conforming policies, but he was mistaken. So long as the leaders of the country could exploit Jewishness and geopolitics to mobilize loans and gifts from abroad, they did not need to heed the dictates of the market. Rationalized by its goals of building and defending the precarious new state and attracting and retaining Jewish immigrants, the government's profligacy had a remarkably long life. During roughly the first four decades of Israel's existence there was a durable and almost wall-to-wall policy consensus among policymakers in Israel regarding the indispensability of open, organized, and subsidized Jewish immigration; the need for the state to underwrite the economic security of all Jewish citizens and to close gaps between different Jewish ethnic groups; the necessity to meet Israel's defense imperatives irrespective of economic considerations; and the desirability of the state playing an active developmental role in the economy. Over the past 10-15 years these four consensual pillars, especially the last, have for the first time been confronted by a comprehensive and vigorously articulated alternative: the (neo) liberal view which glorifies individual acquisitiveness and views the state as an impediment to the workings of the market economy, a conviction hitherto voiced only by economists or by disaffected businessmen lacking the right connections. Both of Israel's two major political parties are now committed to reducing the economic