PART ONE: Decades of Anomaly
IT WAS ISRAEL, not the PLO, that five years ago initiated the
talks at Oslo. This fact seems to have escaped Palestinian leaders, who
have behaved all along as if the Zionists do them a favor by deigning to
negotiate. The fact remains, however, that after decades of refusal, Israel
came to the table first. There must have been a reason. In past issues
of Challenge we have emphasized that the Gulf War split the Arab
world. The PLO, having supported Iraq, was cut off from the sources of
its funding. After winning the elections of 1992, Yitzhak Rabin and Shimon
Peres understood how weak Yasser Arafat had become. At last they could
get the kind of accord they wanted: open-ended, in stages and with no guarantees
from them on vital issues (settlements, land and water, the status of Jerusalem,
Palestinian statehood, the return of refugees). Yet the PLO, from the outset,
would give them the main thing they desired: by signing an agreement, it
would break the long-standing taboo on Arab relations with the Jewish state.
Rabin and Peres understood: If Israel does not normalize its relations
with the Arab world and globalize its economy, it will not keep up with
the West. For the Likud, on the contrary, economic imperatives
have never counted for much not for Menachem Begin, who fueled inflation
to nearly 400%, not for Yitzhak Shamir, who stalled at Madrid in 1991,
thumbing his nose at $10 billion in American loan guarantees, and not for
Benjamin Netanyahu, who is stalling today while the economy flounders.
The Likud views Israel, it would seem, as an extension of the Allied landing
at Normandy, with an indisputable claim to unending supplies from the rear.
This is not to imply that Israel's economic imperative, as understood
by Labor, bodes well for the Palestinians or the Arab states. On the contrary.
Where the First World borders the Third, "normalization" translates to
domination, "globalization" to exploitation. That fact makes it crucial,
however, to understand the depth of Israel's need. The ongoing conflict
with the Arabs has warped its economy. We shall look first at the history
of the distortions, then at the Oslo initiative as an attempt to correct
them. The pre-state era: Early Zionist colonization required vast
mobilization of resources in order to establish a Jewish economy in Palestine.
Two organizations focused the effort: the Jewish National Fund (JNF), which
bought land and closed it to the Arabs, and the Histadrut, an umbrella
labor union, which created an exclusively Jewish labor market and took
control of major enterprises. The Histadrut became a conglomerate "encompassing,
at its height, agricultural, industrial, construction, marketing, transportation
and financial concerns, as well as a whole network of social service organizations,"
including the main health fund. (1)
Stage One: 1948-1967
During the war of 1948, Israel expelled most of the Palestinians in
the areas it took (at least 639,000 became refugees), seizing a hundred
thousand homes and two million acres of arable land, more than four times
the amount it had ante bellum.(2) At the same time it was
taking in about 400,000 Jewish immigrants from Arab countries. These would
come to be known as the Mizrahim (Easterners): Jews who were
born, or whose parents were born, in Asia or Africa. Lacking local capital,
Israel had to achieve a high degree of economic self-sufficiency. The government
and the Histadrut, which brought in loans, grants and contributions from
overseas, insisted on a major role in determining where the money went.
The Histadrut ensured the hegemony of its political adjunct, Mapai (chief
forebear of today's Labor Party), composed of veteran
Ashkenazi
"pioneers". (Ashkenazim may be defined analogously to the Mizrahim, except
that their origins are in Europe or America.) The involvement of government
in the economy was thus built in, giving rise to the mistaken notion that
Labor Zionism was a form of Socialism.
Through the first decades it was an economy by transfusion. Israel got
its capital from American contributions, mainly private but also governmental,
as well as German reparations. It invested this in growth-related infrastructure:
irrigation, electricity, railroads, ports, a shipping line, and mines in
the Negev. By 1967 it was producing 85% of its food needs. In response
to the demands of the new immigrants and protected by import restrictions
industrial output quintupled. Local raw materials, (e.g. minerals, cotton,
and citrus, provided the basis for exports. Another line of exports was
based on skill, including electronics and precision instruments. Israeli
firms also imported diamonds and furs, which they finished and sent out
again. Between 1952 and 1965, the per capita GNP rose, on average, 6.3%
annually, to $1135, ranking Israel midway among the world's thirty richest
states. Thus the combination of unprecedented capital infusion from abroad
and investment in infrastructure enabled the economy to "take off". Yet
the "per capita" figure is misleading. In 1948, Israel had been a largely
egalitarian society. By 1961, after the massive immigration of the Mizrahim,
it was divided into classes: Ashkenazim on top, then Mizrahim, then Arabs.
The bottom fifth of the population was earning 5% of the national income,
while the top fifth got almost half. (Figures from Sachar,
pp. 528-32.)
The 150,000-200,000 Palestinians who remained within Israel's borders
after 1948 had the smallest part in the "take-off". Considered a potential
fifth-column, they were kept under military rule until 1966. Israel confiscated
nearly 40% of their land: 75,000 acres (on top of the two million acres
it had taken in the 1948 war). The kibbutzim and moshavim grabbed all they
could handle. Much remained, however, and by 1954 some 5000 Arab families
had persuaded the authorities to lease them 25,000 acres. The rest was
turned into woodland. (The pines and cypresses were planted to keep the
former owners from coming back, but they also proved a money-maker: "Plant
a tree in Israel!") By 1967 the Arab population had doubled, while the
proportion of Arab workers tilling the soil had dropped from 70% to 35%.
(It would continue to decline, diving to below 10% in the eighties.) Since
no industrial development was permitted in their villages, workers of the
new Arab generation had to get military permits and seek menial jobs in
the booming Jewish towns. (Figures from Sachar, pp. 387-88, 533.) By the
end of this period, three flies had appeared in Israel's ointment because
of the conflict. First, the Arab boycott isolated the new state, hindered
the shipment of goods, and prevented commercial relations between Israeli
firms and many foreign companies.
Second, the constant readiness for war proved inflationary. Apart from
direct military expenses (which multiplied sixteen times over), reserve
service lowered output, and much money went into non-productive border
settlements. Third, the government subsidized foodstuffs, gasoline, and
transportation and maintained the high standard of living despite low productivity.
In fact, it was bribing the population to continue living
in a state of conflict, to do reserve service (forty days per year), and
above all not to emigrate (though hundreds of thousands did). (3)
Because of these warps, by 1965 foreign currency reserves had dwindled
and inflation was rising. Fearing that exports would be priced out of the
world market, the government cut spending and restricted credit, prompting
a recession. Unemployment rose, and GNP growth dropped to 1%.
Stage Two, 1967-1973:
Israel's victory in 1967 established it as a regional super-power. Its
viability was now proved beyond doubt, and the US began to view the "brave
little democracy" both as a strategic asset in the Cold War and as a bulwark
against Soviet-supported national-liberation movements (for example, Gamal
Abd al Nasser's Egypt, the Baath party in Syria, and the PLO). A regional
arms race was on. Although military imports grew, new foreign currency
reserves - largely the result of contributions and investments by Diaspora
Jews - kept pace. After France imposed an arms embargo, the local weapons
industry took off. On this basis, the country would eventually become a
major supplier to repressive regimes and counterrevolutionary movements.
Research and development in weapons would also provide the basis for the
growth of high-tech, Israel's only long-term economic hope. Investments
in infrastructure were now paying off. After Egypts President Nasser blocked
the Suez canal, the Negev desert became a conduit for cargo from Eilat
on the Red Sea to the Mediterranean. A pipeline carried Iranian oil along
the same route. Tourism boomed. Immigrants poured in almost half from
Western countries. Financial contributions and investments seeded independent
enterprises (independent, that is, of the Histadrut), out of which would
emerge a new class of non-protectionist entrepreneurs.
In addition, Israel had conquered the West Bank and Gaza, which would
soon become its single largest market after the United States.
It flooded them with subsidized goods while imposing restrictions on Palestinian
producers. By 1972 its "exports" to the Occupied Territories amounted to
three times more than its imports from them. It forbade the development
of industry there, while allowing Israeli entrepreneurs to subcontract
orders in textiles, furniture, rubber and shoes to Palestinian workshops.
(See Challenge # 50, "Special Report: Gaza.") Not only did
Israel's boom wipe out its own unemployment, but as new jobs opened up
in electronics, arms and transportation, the Jewish labor force was able
to rise a notch, leaving room at the bottom for Arabs. First came the so-called
"1948 Arabs," namely those with citizenship. They could get jobs in industries
that were not security-related for example, construction, hotels, tourism,
and textiles. The last industry is a case in point. Major textile factories
moved their main branches from the Tel Aviv area to Jewish cities in the
north to be close to the pool of cheap Arab female labor. Before the land
confiscations, most Arab women had been part of a family economic unit
working the soil. With the loss of the land they were left in the lurch,
because cultural restrictions kept them from accepting employment outside
the family. It is considered acceptable, however, for a woman to work for
a wage between school and marriage, supplementing family income. About
15% of Arab women do so, more than half in textiles. (4)
No factory went up in an Arab town. Either sweatshops arose, doing piecework,
or middlemen bussed the young women to and from Jewish factories, taking
fat cuts from their pay. In both cases, salaries remained below the minimum
wage, and conditions were brutal. Barbara Svirsky has called this phenomenon
"internal colonialism". The exploitation of young Arab women was permitted
by a tacit agreement between the Histadrut and local entrepreneurs, who
began to emerge as a major force in Arab society. At the bottom of the
ladder, room opened for Palestinian workers from the Territories. Lacking
a political initiative for ending the Occupation, Israel knew it would
have to provide them with jobs or risk explosion. By making the Palestinians
economically dependent, it could ensure tranquillity for a time. The gates
swung open, and for twenty years the West Bank and Gaza served not only
as Israel's Number Two export market, but also as its Number One market
for cheap, commuting manual labor.
Amid these heady, boisterous times, warning signs appeared. Private
consumption added to the overall excess of imports over exports. The deficit
rose. All this time the Histadrut continued to act both as chief trade
union and chief employer. The once-powerful organ was on its way to becoming
a flaccid dinosaur. Its huge companies (such as Solel Boneh in construction,
Koor in manufacturing, Klal in insurance, and Bank Hapoalim) could run
at a loss and depend on the government to bail them out. At all levels
and in a wide range of professions, its wards received tenure, many became
unproductive or redundant, and per capita output fell. At the same time,
the regime continued to subsidize basic goods and finance a generous welfare
state. Inflation and deficit climbed in tandem. The victory of 1967 had
merely put off the problems endemic to an unwieldy economy, under siege,
dependent on constant foreign infusions.
Stage Three, 1973-1977:
During and after the 1973 war, the Arab countries discovered the power
of oil, bringing Western Europe to its knees and getting the African nations
into line against the Zionist occupation of Arab land. The war had cost
Israel $7 billion. Then the Gulf states re-armed Syria and Egypt. A year
later Israel was putting $3.6 billion into the military: 33% of its GNP.
(Two years later the proportion would be 47%.) World oil prices were rising
(they increased twentyfold during the seventies). The country had to take
huge loans and deepen its deficit. Inflation jumped to 40%. It would have
been even higher, were it not for cheap Arab labor. By the mid-seventies,
Arabs with Israeli citizenship, as well as West Bankers and Gazans, made
up almost a quarter of the country's factory labor, half the construction
workers, and half of those in service industries such as hotels, garages,
and sanitation. (Figures in Sachar, 807.) After the debacle of the 1973
war, Prime Minister Golda Meir was forced to resign, and a new generation
took over. PM Yitzhak Rabin initiated a period of austerity, raising taxes,
cutting subsidies, and devaluing the currency. Such measures proved hard
to maintain, however, after revelations of high-level corruption. In 1977
a financial scandal toppled Rabin and brought on new elections. By this
time both the Arabs in Israel and the Mizrahim were disgusted with Labor.
The Arabs, by our calculation, were stripped of all but 5% of their original
land. In protest against the confiscations, many switched their allegiance
from Labor Party "patrons" to the Communists. The Mizrahim, for their part,
understood that Labor had closed ranks to keep them from moving upward.
In order to improve their position, they would first have to get power.
Menahem Begin promised them this, and in 1977 their votes brought him and
the Likud to the top.
Stage Four, 1977-1987:
When the right-wing took over, most of Israel's budget was going into
non-productive channels: the military, interest on the national debt, and
social welfare. Almost 40% of the work force was employed in the government,
6% in agriculture, 24% in industry, and the rest in business, finance,
transportation and tourism. The companies owned by the government or the
Histadrut were bloated with make-work and redundancy. The country remained
addicted to infusions from abroad. These weaknesses went so deep as to
be almost structural. Although Egypt broke ranks with the rest of the Arab
world in 1977 at Camp David, the Middle East arms race was not reversed.
The Histadrut thwarted change in the structure of the workforce. The government
tried to sell off some of its companies, but they were in such bad shape
that it could only get rid of one, a mortgage bank. Nor could Begin cut
deeply into food or gasoline subsidies, for this would hurt the Mizrahim
who had put him in office. Instead, the regime extended the years of free
education, diverted funds to religious institutions, subsidized public
housing, lowered import fees, intensified the building of settlements in
the West Bank and Gaza ($1.5 billion per year for seven years in public
funds alone) and printed money. Then it went to war in Lebanon (about $5
billion) and printed more money.
By 1984 the rate of annual inflation had settled into triple digits.
The foreign debt had doubled to $23 billion. Fearing an end to international
loans with subsequent restrictions people started selling bank shares
(the banks had propped them up artificially for years) in order to buy
dollars. The result was panic and collapse. Thousands lost their savings.
The government stepped in though too late for most using $9.1 billion
of taxpayers' money to buy controlling shares in the four largest banks.
Foreign reserves dropped below the $3 billion red line.
The Turning Point:
The danger of utter chaos was so clear and present that, in the elections
of 1983, Labor got its foot in the door. It formed a national unity government
with the Likud, and Peres took the helm for two years. Together with Likud
Finance Minister Yitzhak Moda'i, he managed to gain public acceptance for
an Economic Stabilization Plan. This included a big budget cut, especially
in subsidies for basic goods; a 19% devaluation; a temporary drop in real
wages (the Histadrut complied); a time-limited price freeze (the manufacturers
complied); monetary restraint and extremely high interest rates. The US
chipped in $1.5 billion on top of the $3 billion it was already giving.
Peres also pulled the army out of most of Lebanon, cutting military costs.
He slowed the money drain to West Bank settlements. Inflation sank to 2%
monthly, and the deficit dropped to a point where foreign aid could again
close the gap. (5)
Peres also addressed the economy's deeper, quasi-structural weaknesses.
The country had no future, he understood, if it remained an anomalous Western
transplant rejected by its surroundings, stunted by the Arab boycott, and
dependent on continuous foreign infusions. It was this understanding that
would eventually lead him to Oslo. In the eighties, however, he looked
toward Jordan. If Israel could reach an agreement with the Hashemite kingdom,
by which the latter would return to the West Bank on a cooperative basis,
then the Palestinian question could be diluted. The way would then open
for an end to the Arab boycott and for Israel's acceptance into the area
of its nearest, most natural markets. That was the long-term goal. In the
meantime, the economy had to be made rational and efficient. A 1975 agreement
with Europe's Common Market, providing for reciprocal tariff reductions,
had already proved a bane, accounting for $15 billion in deficit. Yet Peres
expanded the accord to include more products. He went on to forge a free-trade
pact with the US. Clearly, Israel's industries would not be able to compete
if worker output did not improve. His answer was to dismantle, prune and/or
sell ("privatize") forty corporations belonging to the government and the
Histadrut, including the huge industrial conglomerate, Koor, which was
$1.3 billion in debt. Given tight, expensive money, firms had to rationalize.
From 1985 till 1989, industrial output shot upward without increases in
staff instead, unemployment rose from 6-9%.
The only long-term hope lay in exports, and in the eighties that meant
weapons. They accounted for a quarter of all overseas sales, keeping a
quarter of the workforce in jobs. Satisfied customers included Taiwan,
the Philippines, Indonesia, South Africa (Israel's partner in developing
nuclear bombs), the junta in Guatemala, the Honduran dictatorship, El Salvador's
army, Chile's Pinochet, and through an Iranian link the Contras in
Nicaragua. Such "dirty work" often overlapped with US interests in places
where Washington had to show clean hands. Thus Israel not only made money,
but also fulfilled its role as America's strategic ally. Yet weapons could
not be the answer forever. What then? Here was a tiny country with few
natural resources in hostile surroundings, surely a recipe for failure
unless... unless it could specialize in a type of export that did not
require such resources. And fortunately for little Israel, it happened
to be perched on the edge of a new era, the "Information Revolution". Its
people had a reputation for scientific and technical ingenuity. American
giants like Mennen Medical, Control Data, and Motorola undertook joint
ventures with private Israeli companies, supported by low-interest loans.
By 1985 there were more than a hundred such projects, and seed money was
becoming available for many more. Shimon Peres and his disciples saw high
tech as the salvation of the Jewish State.
PART TWO:
Israel Goes Global
Stage Five: 1987 - 1996
IN THE SPRING of 1987, Shimon Peres got his long-sought agreement with
King Hussein. Jordan was to return to the West Bank on a cooperative basis,
thus diluting the Palestinian question and opening the way for an end to
the Arab boycott. By this time, however, rotation had occurred within Israel's
national unity government. Yitzhak Shamir was now the prime minister, and
he refused to cede an inch to Jordan. Six months later the Palestinians
of the West Bank and Gaza revolted. Out of the many effects of the intifada,
we may single out, for our purposes, three. First, King Hussein bowed to
the PLO and made a public announcement, formally separating his kingdom
from the West Bank. The bottom dropped out of the "Jordanian option". If
Israel was to end the Arab boycott, it would have to find another route.
Second, since 1967 Israel had been able to compensate somewhat for its
isolation, because the West Bank and Gaza had provided it with a captive
market for its products, as well as cheap labor. In addition, the open
bridges to Jordan had served as a back door for circumventing, in part,
the boycott. The intifada signaled an end to this comfortable situation.
The Palestinians themselves boycotted Israeli products. Massive strikes,
involving more than 60,000 laborers, paralyzed Israeli construction and
agriculture, as well as factories and workshops. The country lost $650
million in exports during the first year of the intifada alone.(6)
Third, the uprising revealed the occupation in its ugliness and brutality,
not only to the rest of the world but also to Israelis themselves. Israel
found itself isolated and divided internally. Around this time (1988 -
1990), the Soviet Union came apart. A huge new wave of Jewish immigration
began to unfurl. This boded well for the Zionist state it could put off
the demographic showdown with the Arabs provided the country could absorb
the newcomers. That would require, however, another infusion. (Labor, by
this time, had left the government.) Shamir asked the US for $10 billion
in the form of loan guarantees, which would enable Israel to borrow money
at an interest rate connected to the American credit rating, not its own.
US President George Bush conditioned approval on a settlement freeze. When
Shamir refused, Bush held back.
He was still holding back after the Gulf War. The US, at last, seemed
in sole charge of the world. Its Secretary of State James Baker saw a "window
of opportunity" for solving the Israeli-Arab conflict, which always threatened
to interrupt, once again, the smooth flow of oil to the West. (Baker's
"window" amounted to a scheme for ending at last the Arab peoples' aspirations
for independent development, and in particular the Palestinian aspirations
for statehood.) The PLO was on the skids, the Arab world, divided. As for
Israel, the Soviet immigrants were still pouring in (200,000 in 1990 alone),
and the country needed those loan guarantees. The US convened the Madrid
Conference and forced Shamir to sit down with the Arabs at last, even non-PLO
Palestinians. Shamir agreed, just as he had earlier acceded to the US request
not to respond to Iraqi missiles. His plan, however, was to drag the talks
out for ten years, meanwhile settling half a million Jews in the West Bank.
Yet the tactic failed. His coalition allies on the extreme right feared
another Camp David; they left the coalition, and he had to call early elections.
During the ensuing election campaign (1992), the right wing was divided
and perplexed. Labor won by a narrow margin.
Faced with the choice, the Likud's "Greater Israel" or the loan guarantees,
Israeli voters opted for the lifeline to Washington. The tail, for a change,
had not wagged the dog. The whole affair was a reminder of how fragile
and dependent the economy remained. The Peres Stabilization Plan had by
this time succeeded in several respects. The sale of state-owned enterprises
(privatization) was making strides. Investment has shifted toward small,
independent high-tech companies on the cutting edge. By 1990 almost 60%
of industrial-export value derived from computer software, medical equipment,
solar energy, irrigation technology, and agrochemical products. The Gross
Domestic Product began rising about 6% each year, reaching $74 billion
in 1994. The military burden had been trimmed to 10% of the GDP.(7)
Yet the end of the Cold War brought crisis to the military industry: in
the seventies Israel had employed 14,000 workers in 36 army- related factories;
by 1995 the number had shrunk to 5,000 in seven plants (See Challenge
# 33 "Israel's Economy Marches Out to Conquer the World.") The public sector
remained bloated, deficits grew, and inflation continued in double digits.
The Western economies, meanwhile, had all gone global. As an isolated
outpost in the Middle East, the Jewish state seemed in danger of becoming
a liability, or worse, merely superfluous. The economic imperative was
therefore plainer than ever. Unless it solved its conflict with the Arabs
over what were, on a global scale, a few plots of land in the remote West
Bank, the capitalist economy of the American-run Global Village would remain
shut to Israeli high-tech. In Head to Head, a book that preceded the Oslo
agreement by just a few months, American economist Lester Thurow charted
the path Israel ought to take: "Those not producing oil in the region should
be making goods and services for those who sell oil. Israel should bring
technology, middle-waged industries and organizational abilities to the
table. But none of that can happen unless and until the political and military
disputes between Israel and the Arab world are settled". (8)
Above all, the Arab boycott would have to end. Likewise, Israel would need
access to its economic hinterland. The Territories would have to become
reliable again. Beyond them lay countries like India and China as potential
markets for Israeli technology and arms, only awaiting a green light from
the Arabs. The alternative to some kind of treaty, however, was stunted
growth. With its nuclear bombs, an isolated Jewish state could hold on,
no doubt as the backwater of a globalized West, dependent on the kindness
of strangers. It could hold on, that is, as long as it could pump up the
standard of living in order to bribe its people to stay. If the pump went
dry, what then? This is the vision that brought Israel first to the table
at Oslo.
The PLO did not comprehend the economic imperative behind Israel's journey.
It perceived the Zionist state as a giant, mighty and invulnerable. It
gave Rabin and Peres all they wanted, receiving what they no longer had
use for with no promises down the road. By 1994, six Gulf states, including
Saudia Arabia, announced that they would no longer penalize companies that
did business with the Zionist state. The peace treaty with Jordan was signed
in October. A few days later, at the Casablanca economic conference, a
huge Israeli delegation met with representatives from fifteen Arab lands.
The boycott seemed a thing of the past. Multinationals such as Bayer, Volkswagen,
Tissan, and Simmens appointed Israeli representatives. Foreign investment
and tourism shot up. The basis was laid for opening factories in Egypt
and Jordan. Israel began to reclaim the economic role that the land had
possessed in earlier epochs: that of a bridge joining Africa, Asia, and
Europe.
We shall not enter here into the factors that brought the Likud back
to power in 1996. (See, for example, Challenge # 47, p. 14). When
Netanyahu came to power, he knew he would have to abide by the Oslo accords,
but he was determined to lower the level of Palestinian expectations. He
talked tough, refusing to give without first getting security. The relation
with Arafat he saw as one of master and vassal. For his part, Arafat too
drew back, mobilizing whatever forces he could in order to isolate and
undermine Netanyahu. For two years the Oslo process was stuck. Stuck too
has been the process of Israel's acceptance in the region or "normalization".
No country that opened relations has broken them off, nor expelled diplomats,
yet there is a general sense of marking time. Twelve joint ventures have
gotten underway in Jordan, but others have stalled. The peace with Egypt
has again turned cold. Tourism remains down. Only foreign investments appear
to have escaped the curse for the moment, but these reflect high-interest
rates, which have helped spin the country into recession. The GDP grew
by only 2% in 1997 (0% per capita), and unemployment has shot up from 6.3
% to more than 10% today. Yet with or without Netanyahu, this recession
was bound to come. In the pre-Bibi years of 7% annual growth, deficits
had bulged, privatization had practically ground to a halt, inflation had
continued. Meanwhile, Israel has been undergoing a basic and deliberate
structural change, away from labor-intensive industries (like food, textiles,
shoes) and over to high tech. If the peace process, so-called, had stayed
on track, the country would no doubt have done better, but there still
would have been a leveling off.
Inflation has dropped under Netanyahu and privatization has taken off
as never before. Last year the government sold the controlling shares of
the banks it had bought in 1983, as well as Yozma Venture Capital (which
had seeded a thousand high-tech enterprises), Israel Chemicals, Bezek (the
phone company), and others. The plan of Shimon Peres the imperative behind
his journey to Oslo was to globalize Israel's high tech, which offers
the only long-term chance for economic viability. This plan is on track.
Having agreed five years ago not to boycott Western firms that trade with
Israel, the Gulf States could hardly raise the barriers again. Israeli
companies now freely do business abroad. While the GDP grew only 2% in
1997, industrial exports (excluding diamonds) climbed by 10.1%. A full
third of such exports were high-tech goods. "Communications, control, and
medical equipment led the way with 23% growth." (IYA 1998, p. 196.) Software
exports increased 25% to $500 million. "Israel ranked second in the world,
after the US, in high-tech start-up activity." (Ibid., p. 179.)
The key problems remain
High tech is the wave of the future for those who have a future. The
dichotomy between high tech and low is reflected in growing socioeconomic
gaps. The Ashkenazim keep doing better than the Mizrahim, who keep doing
better than the Arabs inside Israel, who keep doing better than the Palestinians
of the West Bank and Gaza. (See Challenge # 48, pp. 16-19.) These gaps
keep expanding because of the children. Arab children in Israel, for example,
start out with less family wealth, meager education, bad equipment, crowded
housing, the poorest locations, and if they manage to surmount all that,
they then face job discrimination. Apart from the usual forms of overt
and covert discrimination, all security-related jobs are officially closed
to them. Since high-tech is always security-related, the Arabs will not
be allowed to ride on the wave of Israel's future. At the bottom we find
the Palestinians of the West Bank and Gaza. In the spring of 1993, Rabin
imposed a blockade (also called "closure" or "quarantine"). Apart from
immediate (and questionable) security considerations, this policy turned
out to fit very well Labor's notion of Oslo, which was intended to bring
about separation between the two peoples. The blockade kept Palestinian
workers out (120,000 of them) as well as goods except by special permit.
The measure has proved disastrous for the people in the Territories. Oslo
has not helped: the standard of living has plunged since the agreement
was signed.
Rabin's blockade caught Israel itself unprepared. Who would replace
the manual laborers, indispensable in construction and agriculture? Under
pressure from contractors and farmers, the former Labor government went
global in this respect too, contracting with "manpower" companies. Within
one year the structure of the labor market changed. Israeli employers discovered
an even more dependent and desperate worker, who would put up with subhuman
conditions for $500 a month. Today there are at least 200,000 gastarbeiter
(over 10% of the labor force) no one knows how many more. More than half
are illegal. For the Palestinians this means that even if some do receive
work permits (UNSCO mentions 35,000, while an equal number sneak around
the checkpoints) they can hardly find a job. When they do, it is because
they are willing to work for less than a foreign worker. Despite the recession,
despite the stalled peace process, Oslo has secured for Israel a niche
in the West. And yet ! And yet the West is in crisis. The hallmark of
globalization, namely, the free flow of short-term capital without the
impediment of national boundaries, has turned out to be a curse, bringing
down the hothouse economies of Southeast Asia. The infusion of Capitalism
has proved to be the ruin of Russia. Japan, Europe, Latin America, and
the US itself are threatened. Amid this crisis, Israel holds on for the
moment, but its chief economic weaknesses remain: First, the cost of the
military: Having established a nuclear capability, and having spurned,
since 1967, opportunities for an acceptable two-state solution, Israel
now finds itself up against developing nuclear threats from Iran and Iraq.
The price is enormous. The latest breed of American jet fighters, for example
capable of reaching those far-off enemies goes for $80 million apiece.
Deterrence depends on second-strike capacity, and that can only mean, in
Israel's case, a fleet of nuclear submarines. The Zionist state simply
does not have the money to stay in a nuclear arms race and, at the same
time, maintain the capacity for a land war. In an age of missiles, Oslo
is too little too late. (See the article on Israel's military in Challenge
# 53, upcoming.)
Second, as a result of the rising price of arms, Israel remains dependent
on infusions from the US government and American Jews. Their gifts have
saved it from overreliance on short-term foreign investments and loans
(the recent bane of countries like Indonesia, Mexico, and Brazil). If the
global crisis continues, however, the American largesse may no longer suffice.
The deficit will grow, it will be hard to attract foreign investment, exports
will falter, foreign markets dry up. In such a scenario, the main economic
achievement of Oslo for Israel namely, relief from the worst effects
of the Arab boycott will have turned out to be a mere flash in the pan.
Third, the old weakness of redundant employment and low productivity is
being replaced by mere unemployment and no place to go. The low-tech industries
(textiles, footwear, food) sicken and die. Thanks to liberal import policies,
an overvalued shekel, and relatively high wages, foreign goods beat these
industries out on the local shelves. (Even the contract for IDF uniforms
has gone to the US Army.) The once vital textile firms now farm out production
to Jordan, Egypt, and Turkey lands where wages and benefits amount to
a small fraction of the going rate here.
* * *
The Labor Party based its journey to Oslo on two assumptions: (1) Given
the unique international situation, it could put an end to Palestinian
resistance (without having to go to the root of the problem) through a
functional arrangement by which the Palestinians would take charge of their
people, while Israel would remain the economic overlord. (2) It could then
make a high-tech niche for itself in the West. The plan didn't quite work
out. Rabin and Peres chose Arafat as the one who could deliver the goods,
but by making him sign such an abject surrender, they deprived him of the
prestige he needed in order to deliver. The Oslo accords have created,
instead, new reasons to revolt, one being the corruption in the Palestinian
Authority. Commercially, indeed, Israel was able to broaden its path to
the markets of the world, only to find itself ensnared in a global mess.n
Endnotes:
(1) Yoav Peled, "From Zionism to Capitalism,"
Middle
East Report), May-June/July-August 1995, pp. 14-15.]
Return
to text.
(2) Unless otherwise noted, all statistics
cited in this report for the years until 1993 have been culled from Howard
M. Sachar,
A History of Israel: From the Rise of Zionism to Our Time),
New York: Alfred A. Knopf, 1996.
(3) The threat of emigration has always played a major part in the framing
of policy. In the past Zionist mythology notwithstanding the Jews were
not forced) to leave the land. (Archaeology attests a significant
Jewish presence well into the Middle Ages.) They left because of poor economic
conditions.
(4) Barbara Svirsky, Israeli Women on the Assembly Line,)
Haifa: Brerot, 1987 (Hebrew), p. 77.
(5) For the economic crisis of the early eighties, see Sachar, op. cit.,
pp. 934-36. See also Israel Yearbook & Almanac 1996,)
Jerusalem, IBRT, 1996 (E-mail: info@iyba.virtual.co.il),
pp. 157-58. Henceforth cited as IYA (plus year). Return
to text.
(6) Sachar, op. cit., p. 965. Return
to text.
(7) Sachar, op. cit., p. 945. IYA 1995,
Jerusalem, IBRT, 1995 Return to text.
(8) Lester Thurow, Head To Head,
New York, Warner Books, 1992-93, pp. 216-7. Return to
text.
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