Social democracy in Israel
Democratic socialism and the labor movement had significant success in Israel in the country’s first decades.
I want to start out and say, this is NOT a commentary on the Israel-Palestine conflict, the validity of Zionism as an ideology or conflicts between Arabs and Jews. This is just stating the history and is about admiring the froward march of socialism as an economic and political philosophy in Israel. Zionism being popular with the Israeli socialist movement does NOT discredit Israeli socialism or its accomplishments.
In Russia, a significant Jewish socialist movement had developed through the General Jewish Labor Bund, which was a constituent of the Russian Social Democratic Labour Party. The Bund embraced secular principles over Zionism. At the 2nd congress of the RSDLP, famous for Vladimir Lenin’s confrontation with Julius Martov (depicted neatly in this episode of the Fall of the Eagles), both the Mensheviks and Bolsheviks agreed that the Bund was too nationalistic despite a rejection of Zionism. The Bund left the Social Democrats.
The movement was further fractured when Poale Zion was founded in response to the Bund’s beliefs, as an organization of Jewish Marxists who embraced Zionism rather than rejecting it .
The socialist movement in Palestine began first in organized form with the founding of Hapoel Hatzair in 1905, a socialist-Zionist organization that eschewed Marxism and embraced manual labor in agriculture as the path towards liberation of the Jewish working class. It was founded by Jewish immigrants. That same year, Poale Zion formed a branch of their movement in Palestine.
The Palestinian branch of Poale Zion was more moderate than the communist-leaning branches elsewhere in the world and unified with labor movement groups in 1919 to form Ahdut HaAvoda (AHA). The AHA in turn allied itself with the Hapoel Hatzair to create a more social democratic effort. The two groups decided that they needed to a unified labor movement.
In 1920 the two socialist groups founded the General Federation of Labor, also known as the Histadrut. The labor unions of Israel were influenced by socialist ideology and declared their goals as such, to be the creation of a new order:
‘’It is the aim of the United Federation of all the workers and laborers of Palestine who live by the sweat of their brows without exploiting the toil of others, to promote land settlement, to involve itself in all economic and cultural issues affecting labor in Palestine, and to build a Jewish workers’ society there.’’
By 1927, the trade union confederation was home to 75% of the Jewish workforce in Palestine.
On January 5th, 1930, Israel’s social democratic party was founded as a union of the Ahdut HaAvoda and Hapoel Hatzir parties. The Workers’ Party of the Land of Israel, otherwise known as Mapai. Mapai was a member of the Labour and Socialist International alongside the other social democratic parties of the time.
Mapai became the largest party in the Israeli Knesset in the 1949 elections, winning 35.7% of the vote alongside the 14.7% of its sister party, Mapam, which had its roots in Poale Zion. David Ben-Gurion became the prime minister of the country.
Mapai and its successor the Labor Party would dominate the country’s politics until 1977 and the economic policies of the new nation followed a socialist line.
Legislation was passed creating a comprehensive welfare state including old-age pensions, payments to widows and single mothers (survivors), accident insurance, maternity leave and means-tested disability benefits. This was under the nation’s social security agency called the ‘’Bituah Leumi’’ or ‘’National Insurance Institute.’’ It was established in 1954 through the National Insurance Act. Think of this as the Israeli equivalent of the Social Security Act.
Maternity benefits replaced 75% of wages for a period of 12 weeks and the same goes for accident insurance. Contributions for social security programs were set at approximately 2.75% of wages in the final bill.
Between 1951 and 1976, new progressive labor legislation was passed, including restrictions on work-hours, paid leave legislation, prohibitions on child labor, laws protecting women against discrimination in the workforce, laws against wage theft, workplace safety and protections for workplace organization.
A significantly progressive tax system with the explicit aim of redistributing incomes (according to the finance minister) was established, with the lowest rate being 25% and a top marginal rate of 60 or 66%. An estate tax was enacted in 1950.
A public housing construction program (not dissimilar from the ones socialists propose today) was initiated, with 326,000 housing units being constructed during the 1950s. The socialists also introduced housing subsidies. By 1959, 23% of all housing units (or 82% according to another source) in Israel were publicly-owned. The construction industry in Israel was mostly nationalized or co-operative and 93% of land was in public ownership, so the benefits of new construction was not captured by capitalists.
*See at the bottom of page on housing units data
The economy was extensively owned both publicly and by workers and approximately 85% of the workforce was unionized upon the nation’s founding.
Most major industries and important forms of capital including minerals extraction, chemicals and oils, water and electricity, transportation and communications, ports, machinery and electronics, construction, ‘’transport equipment’’ (as in trucks, cranes, trailers etc.), military / aerospace manufacturing, gas retail and most of the nation’s land were in public ownership.
Israel also possessed significant public ownership outside of those categories of key industries, with an average 47.3% share in ‘’other’’ areas while key industries were at least 88.2% publicly-owned.
Other industries were directly owned by labor unions (in a similar fashion to the Meidner Plan in Sweden). The ownership of the Histradut trade union confederation included 38% of banking, 18% of insurance, approximately one third of shares in the water industry alongside the state and 25% of manufacturing. For instance, the labor unions owned an enterprise known as Koor Industries (among others) which composed 10% of GDP on its own! Koor possessed assets in electronics, glass making and communications equipment.
Agriculture was predominantly in worker ownership, with 74% of agricultural output being controlled by worker co-operatives. Co-operatives were also responsible for many retailing activities and stores, 8% of the construction industry and 90% of bus transport.
Trade unions and the state were the two largest employers in the country. Private industry was few and far between, squeezed between the ownership of the state and of workers (both through co-operatives and labor unions)
Much of the economy was planned rather than being determined by capitalistic market forces, with controls on imports and exports, investment and capital markets. Official economic planning began in 1952–1953. The economy grew significantly. This planning was due to both a combination of socialist ideology dominating the politics of the young nation and developmental needs, although they fed into one another fairly seamlessly.
Most European economies during the 19th century industrialized through a relatively laissez-faire method thanks to classical liberalism being the dominant ideology, with the state in most cases only imposing modest tariffs worth 20% and developing infrastructure. The Great Depression discredited economic liberalism all over the world, as a result socialist-inspired economic planning became compatible with developmental economics after the 1930s.
Most notably, Israeli socialism was distinguished by its ‘’utopian socialist’’ Kibbutz communities, an inspiration of one Bernie Sanders!
Many were established during the late 1940s, and although it was a grassroots effort among the working-classes of Israel, the effort had robust government support during the social democratic era which contributed to their near tripling.
Kibbutz were and are essentially communes. Resources are shared, all income generated by the collective goes to each member equally and family budgets are assigned according to need. All members have a say in the decisions of the Kibbutz through participatory democracy. Children were often raised collectively rather than through a traditional ‘’nuclear’’ family structure. The communities provided essential services, mutual aide and support to all their members. Worker and consumer co-operatives were the predominant form of business, especially agricultural production and marketing.
The number of Kibbutz grew from 1 in 1910, to 82 in 1940, to 214 by 1950. The number of such egalitarian communities peaked in 1990 at 270.
The peak of social democracy
Overall, the economy grew approximately 11 percent per year between 1952 and 1965. Consumption also grew 221%.
The Workers’ Party of the Land of Israel merged with several other parties and was reconstituted as the Israeli Labor Party in 1968, after a dispute that split the original party concerning proportional representation.
During the 1970s social spending grew significantly under the new Labor government and efforts were made to universalize more of the welfare state and increase its scope. Old-age pensions were increased. Unemployment insurance was adopted in 1970. A universal disability insurance program was adopted replacing the previous means-tested benefit in 1974. Child benefits were adopted in 1975. Vacation pay was established in 1976.
The unravelling of social democracy
Perhaps it can be said some of the socialist economic polices went too far or opened the way for economic mismanagement by the end of Mapai / Israeli Labor Party’s period of political dominance.
The Labor government and the Bank of Israel made the fatal mistake of printing money to fund growing public expenditure (although some of this was due to the Yom Kippur War) and a universal welfare state (a strategy known as ‘’monetization of the budget deficit’’), alongside the present oil crisis that had begun in 1973, setting off an inflationary spiral. This contrasted to the policies of other social democratic parties which emphasized high levels of taxation.
The right-wing conservative party known as Likud ran on an agenda of economic liberalism and the market economy during the 1970s, offering an alternative to the socialism of the Labor Party.
This gave an opening to the right-wing when they won unprecedented electoral victories in 1977, which was exploited to scale back the welfare state, decrease the power of trade unions and dismantle economic planning.
From the founding of the country, the social programs had gradually developed into a universalist social-democratic welfare state. The new liberal economic philosophy that the right-wing brought into power in 1977 emphasized competition, markets, a reduced role for trade unions and more limited state interference. A new emphasis was placed on privatization, benefit retrenchment and means-testing. As a result, the social democratic welfare state was transformed into a more liberal one:
While public spending grew from 28% of GDP in 1960 to 80% of GDP by 1976, it was decreased to approximately 40% of GDP by 2019. The welfare state was retrenched, for instance, reforms were enacted in the 1990s making it harder to receive unemployment benefits.
State-owned enterprises were also privatized, economic planning was dismantled, labor market regulation, collective bargaining and employment protection was loosened, capital controls were abolished and financial markets deregulated, income taxes fell, public support for Kibbutzim was cut and the Histadrut labor federation was gradually purged from ownership of industry (and with the support of the union’s new neoliberal leadership).
Even many conservatives today have cited Israel as evidence of the inevitable failure of socialism (which I strongly disagree with), although this is misleading because printing money to finance public expenditure is not the definition of socialism. Perhaps you can argue that socialist ideology leads to mismanagement of the kind Israel experienced in the second half of the 1970s, but this flies in the face of other social democratic parties which combined appropriate taxation policies with a well-managed welfare state based on left-wing principles, rather than monetizing deficits.
Conclusion
Socialism was the predominant political philosophy during the first 29 years of Israel’s history, and also had strong roots in the Jewish community as far back as the Jewish Labor Bund and the Russian Social Democratic Labour Party. Thanks to the strong grip on power that Mapai and the Labor Party held until 1977, most major areas of the economy were in public ownership, controlled by trade unions or organized as co-operatives. The economy was largely planned. A significant welfare state was developed, taxes were progressive and redistributive and public housing construction was strong. Workers’ possessed extensive legally enshrined rights. Well over 60% of the workforce was unionized, even by the end of the social democratic period. The inflation of the 1970s and economic mismanagement gave the right an opportunity to dismantle social democracy, the Israeli economy is now significantly more liberal.
From a socialist perspective, the monetization of deficits and 80% of GDP public spending was certainly excessive. I also don’t believe collectivist innovation to be impossible, or that all ‘’high-tech’’ computer companies are impossible as publicly-owned or trade union-owned entities. In fact, a ‘’socialistic’’ entrepreneurship on part of the Histadrut was a major reason it controlled so many companies, it had founded on its own many productive enterprises. Such an initiative could have been possible, especially if it meant that trade unions could avert their own decline, but of course practical constraints on socialism existed because by the time Israel was implementing neoliberal reforms the USSR was dissolving. Socialism, regardless of inward analysis or trying to improve from past mistakes, was done for.
EDIT: There is a mistake on the housing units data. It was actually 326,000 units constructed by 1959, I misread the chart. I originally said 1.21 million which is wrong. Forgive me for the error, I was up at 4 in the morning typing this one out.
