BY AHMED NIMER
RAMALLAH — Figures from the Manufacturers Association of Israel confirm that the country's economy is in its deepest recession since 1953. Since the fourth quarter of 2000, 22,000 industrial workers have been laid off, industrial output has fallen by 10%, and per capita GDP has declined by 3%.
These setbacks come on the back of massive losses resulting from the Palestinian intifada. The Bank of Israel estimates that if the intifada continues until the end of the year, the Israeli economy will contract by a further 3.5-5%, on top of the economic damage in 2001.
Little coverage is given by the mainstream media to the crisis in Israel's economy but an understanding of this is critical in uncovering the aims of the Israeli ruling class towards Palestinians living in the West Bank and Gaza Strip as well as appreciating the often confusing Israeli political landscape.
Many apologists for Israel argued that until recently it was a "socialist" state. They find evidence for this in the leading economic role of the state and the control of large sections of the economy by the Histadrut labour organisation. For much of Israel's history, the Histadrut owned up to 20% of the country's industry and employed a quarter of the work force. In addition, more than 90% of the land was state-owned and an extensive welfare system provided education, health and other social services.
However, the predominance of the state and the Histadrut in the country's economic life was the inevitable result of Israel's colonial-settler origin and the need for a process of state-led industrialisation to create an Israeli capitalist class.
Capitalists
At the time of the founding of the Israeli state in 1948, two different sectors of the Jewish bourgeoisie were active within the Zionist movement — the Jewish capitalists who dominated the citrus industry in Palestine and the Jewish capitalists who lived outside Palestine, mainly in Europe and the United States.
The local Jewish capitalists were a weak and disorganised force within the Zionist settlement. It was not possible for them to play the leading role in expelling the Palestinian Arabs from the land and providing employment for Jewish settlers since their economic interests pointed towards the utilisation of cheap Arab labour on their citrus farms.
As long as the local Jewish bourgeoisie remained weak, the Zionist state had to play the dominant role in promoting capitalist economic development. It was the key instrument through which capital was concentrated from abroad — from world Jewry (indirectly a form of support from the United States given the tax-free status of contributions to Israel), reparations from Germany, and US government financial aid — and directed toward favoured groups of Israeli capitalists.
By 1973, the Israeli economy was dominated by five large conglomerates — Koor, Clal, Bank Hapoalim, Bank Leumi and Israel Discount Bank Holdings (IDB) — controlled by a mix of private capital, Histadrut funds and political organisations associated with the Zionist movement.
Following the 1973 Arab-Israeli war, the Israeli economy entered a period of stagflation (low growth rates and high inflation), which was highly beneficial to the big five conglomerates.Between 1973 and 1985, the key years of stagflation, growth in the economy as a whole dropped to around 3% per year (from average annual rates of 10% until 1972), while the profits of the big five conglomerates increased from 0.5% of GDP in 1973 to nearly 2.3% of GDP in 1985.
During these same years, the Israeli economy turned increasingly towards military production. Again, this policy favoured the top five conglomerates, since they were given lucrative military contracts by the government, funded by US military aid that ran into the billions of dollars each year.
Three decades following its establishment, Israel was faced with unprecedented inflation levels. From the beginning of the 1980s, hyperinflation set in with prices spiralling upward at more than 100% each year. During this period, the economic growth rate declined to an average of 1.6% per year.
In July 1985, an economic stabilisation plan (ESP) was adopted by the National Unity government which had been in power since September 1984.
The ESP was a turning point for the Israeli economy because it marked the beginning of a new period in which the capitalist class would take direct control of the key sectors of the economy, breaking with the old system in which the state had sheltered and promoted capital accumulation within the big state-capitalist conglomerates.
At the centre of the process inaugurated by the ESP was an increasingly global orientation of Israeli capital. Israeli companies began to invest in US stock markets and enter into joint partnerships with European and US corporations. This global emphasis of the new Israeli capitalist class had a number of significant implications in the political, economic and cultural spheres.
On the political level, it meant that Israeli capitalism sought to improve its political relations with the neighbouring Arab states, in order end the their boycott of Israeli goods. Symbolically, Omri Padan, a founder of the Peace Now movement, today owns the McDonald's franchise in Israel.
Israeli firms have been able to subcontract through factories in Egypt and Jordan at a much cheaper labour cost than inside Israel, resulting in a shift in the Israeli economy away from low technology production.
Perhaps more significant than the regional opportunities that political agreements with the Arab states promised Israeli capitalism, were the international ramifications of "peace". Middle East markets are limited in size and purchasing power. "Normalising" its relationship with the Arab world, however, enabled Israeli capital to venture abroad into previously closed markets.
Currently, just 23 holding companies dominate the majority of Israel's industrial and financial sectors. Many of these companies have interlocking relationships, meaning actual control lies in a much smaller number of hands. These 23 holding companies had revenues of more than US$22 billion in 2000 and thus produced more than 20% of Israel's GDP for that year.
This figure actually underestimates these companies' weight in the Israeli economy, because it doesn't include the revenues from firms owned by the holding companies. One analyst has estimated that the top 11 holding companies control 66% of Israel's gross national product.
The post-1993 "Oslo peace process" was the logical extension of these economic changes on the political level. It aimed to "solve" the Palestinian question by giving Palestinians a form of self-rule in isolated cantons, while the Israeli economy would continue to dominate and control its Palestinian neighbour.
The mid-1990s was filled with optimistic pronouncements by US, European and Israeli business and political leaders that the Middle East was entering a "golden era of peace" that would raise the living standards of the population to European levels. The Gaza Strip was to become the new Singapore and the current Israeli foreign minister, Shimon Peres, coined the term "The New Middle East" in a 1993 book of the same name.
Reality turned out to be the mirror-image of the pundits' hopeful dreams. In the West Bank and Gaza Strip living standards fell dramatically throughout the years following the initiation of the "peace process". From 1994 to 2000 there was a three-fold increase in unemployment among Palestinians in these areas and a 21% decline in the Palestinian GDP.
Instead of self-determination, Palestinians witnessed increased Israeli land expropriation, military checkpoints and settlement building. Frustration turned to active resistance with the beginning of the second intifada in September 2000.
Last year, the Israeli economy contracted for the first time in 48 years. Unemployment has also reached a record level of 10%, and for the first time Israel began the year without a state budget due to the inability of parties in the Knesset to reach an agreement over budget cuts.
The aggregate figures on the Israeli economy disguise the extreme polarisation of wealth/poverty among different strata within Israeli society. The income of Ashkenazi Jews (Jews from Europe and North America) is the highest, well above that of Mizrahi Jews (Jews from Arab countries) or Palestinian Arabs.
In 1999, the wage of an Ashkenazi worker was, on average, 1.5 times that of a Mizrahi worker, and twice as much that of an Palestinian Arab worker. Every second Palestinian child (with Israeli citizenship) lives in poverty as opposed to 17.2% of Jewish-Israeli children.
While the crisis in the Israeli economy is not a direct result of the intifada, but of the global recession, it has been accentuated by it.
In the Israeli case however, the economic crisis threatens to undermine the legitimacy not just of the present government but of the Zionist state as a whole.
The ideological hold that Zionism has over the Israeli working class is largely based upon the relative privileges granted to significant layers of workers, particularly those that were employed in the big state-owned industries. These industries are now being privatised at a rapid rate and support for the traditional Labour Zionist movement is falling as the wages and conditions of workers in these industries are being squeezed.
Between 1985 and 1995, the Histadrut labour federation experienced the steepest decline in membership of any trade union in the world. In the Histadrut elections held on May 8, 2002, the Labour Party — which controlled the Histadrut for nearly 70 years — received only 13.4% of the vote.
The Labour Zionist movement — through the Histadrut and the Israeli Labour Party — was responsible for building up the capitalist class in Israel. But it has also been responsible for initiating the neo-liberal version of capitalism that today characterises the Israeli economy.
While the Likud party, currently headed by Ariel Sharon, shares the neo-liberal economic policies of the Labour Party, its social base is among ultra-religious and Mizrahi Jews — social groups marked by poverty resulting from the economic policies of successive Israeli governments.
Today, the aims of the Israeli capitalist class are two-fold. The first is to bring about the submission of Palestinians in the West Bank and Gaza Strip to the creation of the bantustans that the Oslo process was designed to deliver with Palestinian consent. The second aim is to complete the restructuring of Israel's economy through privatisation and cuts to social services.
Both these aims face serious obstacles. The Palestinian population's will to resist Israel's apartheid regime has not been destroyed by the Sharon government's recent brutal war. Israeli workers are also resisting the government's attacks on their living standards. At the beginning of 2002 there were a series of widespread strikes and demonstrations against proposed budget cutbacks, the largest such protests ever witnessed in Israel's history.
It is ironic that the 1985 economic stabilisation plan implemented in Israel was based upon a similar plan introduced in Argentina in the same year. Indeed, many Israeli commentators feel that the widening social gaps, massive poverty levels and rising unemployment that led to the large-scale mobilisations in Argentina during 2001 will be emulated in Israel in the near future.
The response of Israel's rulers has been predictable. The old mantra of "security reasons" is used to both deny Palestinians their freedom and convince Israeli workers of the "necessity" of privatisation and cuts to social benefits. In both cases it is the poorest that suffer.
The missing link in the struggle against Israeli capitalism, however, is the existence within the Israeli working class of any significant political force that struggles against both Israeli capitalism and the brutalities committed by the Israeli state in the Occupied Territories.
From Green Left Weekly, June 19, 2002.
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