The Political Economy of Israel

From Ideology to Stagnation

By Yakir Plessner

Subjects: Comparative Politics
Series: SUNY series in Israeli Studies
Paperback : 9780791417423, 328 pages, December 1993
Hardcover : 9780791417416, 328 pages, December 1993

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Table of contents



1. The Roar That Became a Whisper

The Bumpy Road of Political Economy

Early Growth in Israel

Growth Does Not Mean Efficiency

Other Factors


2. Obstacles to Growth: The Abducted Capital Market

The Absence of a Free Capital Market

The Basic Features of the Financial System

The Background

The Interest Rate Law

The Process of Domination

3. The Capital Market: The Origins

First Steps

The Foundation Fund (Keren Hayesod)

Land Ownership

The Private Sector Flourishes

Rhetoric vs. Facts

Early Statehood


4. Obstacles to Growth: The Economic Culture

The Economic Culture

The Wedge Between Effort and Reward

The Government as the Economy's Creator

The Relief from Responsibilities

5. The Economic Culture: The Origins

The Basic Ideology

The Origins of the Contrived Economy

Farm Primacy

The Housing Sector

The Advent of Rent Control

Unions and Wages

6. Obstacles to Growth: The Would-Be Business Sector

The Business Sector—A Tour

The Wedge

The Moral Hazard

A Market in Chains

7. The Would-Be Private Sector: The Origins

Early Farming Days

The Ideological Background

The Conquest of Labor

The First Failures of the Histadrut Economy

The Class Struggle—Unions and Wages

The Credit Crunch

The Adaptation of the Private Sector

Early Statehood


8. Obstacles to Growth: The Almighty Weakling

A Summary of Government Activities

The Illusion of Strong Government

The Emasculation of Israel's Government

9. The Inflationary Prescription: Institutions and Policies

The Cost-of-Living Allowance

The Impossibility of Monetary Policy

The Oil Crisis and the New Economic Policy

The 1977 Mahapach —Economic Reform


10. Inflation! The Obstacles Gang Up

Phase 1: The Early Stages

Phase 2:1978

What Caused Israel's Inflation?

The Cost of Inflation

The First Attempts to Stem Inflation

The Manipulation of Bank Shares

A New Approach to Inflation—"Dollarization"

The Bank Shares Debacle

Old Habits Die Hard


11. Stabilization and Missed Opportunities

Stabilization: The Program and Its Impact

The Road Ahead





This book constitutes the first attempt at a comprehensive description, history, and analysis of Israel's economy. Plessner examines events of the past two decades and advances the hypothesis that problems within the Israeli economy can be explained by the extent of its departure from the institutions and rules that govern predominantly market economies. He argues that Israel is unusual in that it affords an opportunity to analyze a socialized economy embedded in a democratic society. Individual chapters describe Israel's economic growth and stagnation, the government's domination of capital and credit markets, and the absence of a truly independent private sector. The concluding chapter evaluates the stabilization program of the 1980s and its aftermath and provides a prognosis for the future. Told within the framework of the story of Zionism and the creation of the Jewish state, this book answers the question of why the Israeli economy finds itself today in the same state in which it has languished since 1973.

Yakir Plessner is Senior Lecturer in Economics at The Hebrew University of Jerusalem and Fellow at The Jerusalem Center for Public Affairs. He was formerly Deputy Governor of the Bank of Israel and economic advisor to the Minister of Finance.


"The book tells an interesting story about the workings of the Israeli economy. The author presents and interprets a rich array of historical material. At the same time, he shows a solid knowledge of economic theory as well as economic practice. Unlike other books about Israel, this volume captures the interplay between social, economic, and historical factors that permit one to have a broad understanding of Israel's economy." — Robert Lerman, The American University