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Fourth International, October 1949


Notes on the Israeli Economy

By A Palestinian Trotskyist [1]


From Fourth International, Vol.10 No.9, October 1949, pp.283-287.
Transcription: Daniel Gaido.
Mark-up: Einde O’Callaghan for ETOL.


The first impression received from a study of the economy of Israel is the lack of statistical data. This is officially explained as a “security” measure although this can hardly be the real reason. The release of such data would do little more than highlight already well-known facts concerning the complete dependence of the new state on imperialism – to which it owes its existence – as well as the importance of the fund collections (Magbioth), especially in the US. They fear the effects of publicity which would also shed light on the great chaos in the over-expanded government apparatus.

One of the great misconceptions about Israel concerns the rise and expansion of industry. Although the most recent information dates from October 1948, it can be assumed that no important changes have occurred since then. The only branches of industry showing any growth due to war production were metals and electric power. The index figures for metal were 103.5 in January 1948 and 106.2 in October (1947-100). For electric power the figures for the same period were 105.1 and 100.6. Index figures were lower in all other branches, the general average in January being 87.3 and 80.5 in October.

It is true that this constitutes a great advance over the low point of 67.8 in July but if we take into account the large influx of immigrants then an entirely opposite picture emerges from this increase in population. Finally, there has been the military mobilization of large sections of the working population. This factor explains the reason for the decline in the number of industrially employed, but on the other hand the existence of extensive unemployment explains the fear of demobilization which prevails among the troops. Industrial progress is virtually non-existent.

Investment by foreign Jews is the great hope for industrial development and a special department has been created by the Jewish Agency for this purpose. But of all those seeking information about investment possibilities and terms, only 32% have decided to invest and only a small part of these have taken concrete steps in this direction (First Report of the Zionist Action Committee, May 14, 1949).

Situation in Agriculture

Agriculture showed progress as compared to industry. But agriculture suffers from a shortage of manpower as few new immigrants are prepared to become farmers, or to become farm laborers on the kibbutzim (cooperative settlements). Yet the economic policy of the government is directed toward the largest possible agricultural development and, in contrast with more advanced countries, the percentage of agricultural labor being demobilized from the army is much larger than that of industrial workers.

In spite of government plans, local production and consumption of agricultural products declined in June 1948. It was 90% of June 1947 and 60-70% for milk, eggs and vegetables in the spring of 1949; local production for cereals is still smaller and continues to decline with the growth of immigration despite a rise in production. An important cause of this is the liquidation of Arab agriculture. Of total imports, agricultural products accounted for 31.1% from July to December 1947; 38.7% from July to December 1948 and 40% in January-February 1949.

Colonization Plans

One of the heads of the colonization department of the Jewish Agency, Mr. Eshkol, declared in a speech that the two problems facing the JA in the realization of their plans in this field were finances and willing pioneers. Seven million pounds were made available in 1949 by the JA for new settlements and its immigration department has worked out a plan for the colonization of these agricultural settlements. This consists first of establishing transient camps in rural areas with the object of keeping the new immigrants on the land. And second, in the formation of so-called “labor groups” (Machals, etc.) for the purpose of establishing settlements in the border districts and in the Negeb.

The policy has yielded meager results. The new settlements consist mainly of those who had been organized as cadre groups and Palmach, groups (army commando units) and were waiting for such openings for years. Most of the new immigrants leave the settlements after a brief period and others refuse to enter them at all. The same Eshkol, answering a group of critics, of the Mapam organization (a centrist Zionist workers’ party with leanings toward Stalinism), declared that conscription was the only way to build these new settlements just as it had been for the army.

The relative rise in agricultural production was made possible by the theft of the property of the expelled Arab fellahin and by the assistance of fund collections throughout the world. At this writing, 35 million dollars of the American loan are still available to Israel for use in agriculture but can only be invested on terms stipulated by the lender. Agricultural production has increased and with the help of mechanization will continue to develop. But the fantastic rate of immigration leads to new efforts at autarchy, thus depressing the standard of living.

The establishment of “austerity” conditions is one of the most important aims of the newly created Economic Planning Board, whose members, Hoofien, Naftali and Shapiro, are directors of the Anglo-Palestine Bank and the Workers Bank. Their program can be summarized as a limitation on the. import of essential goods to the disadvantage of the poorer sections of the population. This is also the essence of the “Zeno,” plan of supply minister, Dr. Dov Joseph. After, ordering the complete cessation of imports of eggs, which cannot be replaced by domestic production, native producers were advised to cut production because of their reliance on imported chicken feed which had to be paid for in foreign currency.

Reality is more and more exposing the utopianism and the blindness of the Mapam ideology of Chalutzvith (Pioneering). Dreaming of the expansion of the “socialist” islands (kibbutzim) these “socialists” base their hopes on the kibbutzim becoming the decisive institutions for the integration of mass immigration and the “fighting” organs for the “socialist” construction of Israel.

Conditions of the Immigrants

In this connection, it is interesting to observe the manner in which the immigrants have been received and sheltered. Almost 60,000 live under terrible conditions in transient camps which are financed by the JA. Chaos prevails; very few work, there is no care for the seriously ill, the mentally ill and the orphans receive no attention. The JA proceeds planlessly while the finances at its disposal are dwindling. Everybody is asking: “Where will all this lead?” and criticism of mass immigration becomes more and more open.

The “Joint” (Joint Distribution Committee) is responsible for the Jews up to the time of immigration to, Israel, while the JA assumes the responsibility for their transportation to and reception in the country. “Joint” offered to take part in the social welfare system and to take over the transient camps in order to relieve the financial and personnel strain on the JA. But the Zionists rejected this proposal. They feared that this would increase the influence of the “Joint” in the United Jewish Appeal despite the beneficial effects the proposed arrangement would have had for the immigrants as well as for the JA. They also feared that an increase in the influence of the “Joint” would intensify the competition between the two swollen bureaucracies – the government and the JA – and they feared that the “Joint” would become too influential in Israeli politics. The American Zionist Organization has long been jealous of the “Joint” and wants to prevent an extension of its influence.

But the Jewish Agency cannot handle the financing of this project alone. Funds collected for this purpose are inadequate. The Zionist Action Committee, which deter-mines the policies of JA, made the following decision on May 15: “The Zionist Action Committee deems the participation of the Israeli Government in the matter of reception of immigrants to be a necessity and requests its leadership to begin negotiations with the Israeli Government for that purpose.”

This proposal will have the effect of placing an additional burden on the people of Israel through the imposition of new taxes. Mass immigration is senseless, and bureaucratic inefficiency and conceit put the finishing touches on the confusion. That is the way everything is done in Israel whose economy is now nearing a catastrophe.

Imports and Exports

The import and export of goods and the plans for the import of capital are a far cry from reality and one of the tragi-comic aspects of Israeli economy. A month ago the former head of the State Department of Trade, Hollander, outlined a program at a press conference for the promotion of exports and the development of industry and for the restriction of internal consumption of exportable goods. He also expressed the hope for a yearly capital investment of some 200 million pounds by foreign Jews.

Data on exports were recently issued for the first time by David Horowitz, acting as deputy for Finance Minister Eliezer Kaplan. In the second half of 1948, two-thirds of all exports consisted of citrus fruit and diamonds. The citrus export plan for 1948-49 was set at 1½ million crates less than the exports of 1947-48 (not including Arab produce). But even this goal could not be attained.

In 1938, there were 135 thousand dunam (a dunam is approximately one-fourth acre) under cultivation by Jews. This figure dropped to 110 thousand dunam in 1947 and an additional 10,000 dunam were abandoned or destroyed in 1948. This sector of the economy, which accounts for 45.3% of Israeli exports, is in a critical condition. Inflation has so increased the price of citrus fruit that England, the main customer, as well as the rest of Europe, is not willing to pay the asking price. As a result, Israel is obliged to make concessions and although all the facts are not known, it is certain that this reduced price does not cover production and transportation costs.

Between July and December 1948, diamond exports accounted for 17.3% of total exports. This industry is in a state of complete collapse, with the market for cut and polished diamonds constantly shrinking. The remaining 37.4% of exports consists of alcoholic beverages, dentures, woollen fabrics, processed furs, metal scrap, raw wool, religious objects, etc.

Foreign Investments

The estimated 200 million pounds annually, set by Hollander for capital investment by foreign Jews (including money from collections), is nothing but wishful thinking. Up to February 1949, 61 foreign Jewish capitalists made inquiries at the JA about investment possibilities. (Half of them were from South Africa and South America.) “They come, they look, they leave,” says Ben-Sosan, in Haaretz, describing their reactions after having made their on-the-spot investigations. They feel that prices are too high and the export market is entirely too unreliable. Besides, they want a guarantee to be able to re-export their capital, if need be. A willing South American investor declared: “If I sell all my merchandise, I could double the size of my big South American business, but if I invest the same money in Israel, I would only be able to open a small workshop.”

The Israeli government has made special provisions for investment in its fiscal system. But that didn’t improve matters. Since February, the enthusiasm of foreign investors has disappeared and with it one of the main pillars of Israeli economic policy. The 32 foreign Jews, who promised to invest in the six-month period, beginning with April, 1949, were not prepared to invest more than 1,617,000 pounds, but even this has not yet transpired.

A similar situation exists in the import field. Unbelievable as it may seem, there is a tendency toward autarchy, which results in depressing the living standards of the masses. Although imports have declined in comparison with imports by the Jewish sector of Palestine in 1937, they are now five times greater than exports. The excess of imports for 1949 was estimated at 400 million pounds. Food accounted for 40.1% of imports in January-February 1949. These figures relate only to civilian needs. The army does its own procuring and does not publish any figures.

Profiteering in Trade

The facts speak for themselves. Despite a highly complex system of controls, no real control exists. Importers made tremendous profits during the war year 1948. The difference in price between what the importer pays at the port of entry and what is paid by the consumer runs to between 150 and 200 per cent. Toward the end of 1948, cheese was imported from Turkey for 220 mils per kilogram, but the food controller se the price for consumers at 645 mils per kilogram.

In the spring of 1949, the cost of potatoes in the harbor was 13 pounds per ton; to the consumer it was 40 pounds per ton. 14 pounds of the difference between the consumer price and the import price went to importers, wholesalers and retailers; their “take” raised the price by 107% and the remainder was accounted for by duties and taxes, an additional burden which was carried by the masses.

The new so-called “Zena” economy proposes to save foreign currency by a maximum reduction in the imports of foodstuffs and mass consumer goods. The food ration is being qualitatively and quantitatively reduced. The Minister of Supply is already beginning to use the calory idiom.

Israel cannot live by its own means. Overseas fund collections provide for the army and its equipment, for the immigrants and their subsistence. But as previously stated, the young state is burdened with a big bureaucracy. Since fund collections are inadequate, they are provided for by taxes and duties. The bourgeoisie knows how to take care of itself, but the masses are impoverished.

Shocken, a leading figure in the so-called “progressives” and one of the richest men in Israel, declared publicly: If we lose in the elections, there are still other means available; as we have already demonstrated by our struggle against the proposed laws for a property tax and a forced loan.

Nevertheless, the government has the impudence to declare that a “progressive” tax system prevails. If this is what Shocken means by his “progressiveness,” then he is right.

Direct and Indirect Taxes

It would be interesting to make a list of the differences of consumer prices in Israel and the cost of these goods abroad, since these items make up a very important part of internal consumption. Unfortunately, this is impossible because of lack of statistical data. But enough is known to prove that in addition to the big profits of importers and middlemen, the government’s tariff policy is a heavy drain on the masses. From July to September 1948, 46% of the total state budget was covered by revenues from duties. From January to March 1949, these’ revenues, according to official figures, accounted for only 25% of the total state income, but it was in reality much higher. The government has now introduced a new tax, which is actually a duty, but is listed under a different category. It is an indirect tax for imparted mass consumer goods: white flour, industrial sugar, butter, coffee, frozen meats, glucose, eggs and powdered milk. The sum total of revenues derived from this tax has not been made public. But the masses paid the tariff.

In an article in Haaretz, May 11, 1949, Ben-Sosan cites some figures, from which can be deduced the fact that the cost of potatoes imported by the government in the spring of 1949 went up 38% c.i.f. and for herring by 49%. These examples, he says, are typical. Another point illustrating how the burden is placed on the masses is the following: the official rate of exchange for the dollar is 250 mils, but the importers, who pay in dollars, must purchase them from the state at the rate of 333 mils per dollar. The importers recover this difference in the selling price and the state enriches itself thereby by an amount which doesn’t appear in the budget but is taken out of the pockets of the consumer.

In July-September 1948, income, duty and indirect taxes accounted for 87% of the state budget and 75% in January-March 1949. The decline is accounted for by budget speculation. Unfortunately, it is impossible to ascertain the distribution of income from income tax reports, since it is even admitted by the bourgeois paper, Haaretz, that the industrialists, importers and merchants have many ways of evading taxation and the workers therefore pay the lion’s share of income taxes out of their wages.

An example of how the government takes advantage of every opportunity to tax the workers is illustrated in the following instance, which appears to be entirely unique: The dock workers in Haifa are required to show identification papers which must be renewed every month, in order to gain access to the harbor. This system prevailed under English rule and was purely a police measure and not a source of income. Under the state of Israel, however, the charge for renewal of these passes was 160 mils and has recently been raised to 250 mils.

In addition to this, there is the city tax system which was taken over from the mandate government. These taxes are very high and are constantly increased. They are not based on income but according the number of rooms per apartment, which means that the poorest of the poor are required to pay only slightly less than the rich. Another method of discriminating against the masses was revealed in the press conference held by Minister Dr. Joseph on the subject of the new austerity law. According to him, savings resulting from the new austerity law limiting consumption will be siphoned off by forced savings and other means.

High Cost of Bureaucracy

State expenditures are divided among the following items: health, pensions to disabled veterans, subsidies to hold down bread prices, social welfare, education, culture and sports, all of which account for 23% of the total budget. This figure also includes administrative expenses for these departments. Up to now, Israel’s war and the flood of immigration are not the reason for the small proportion assigned to social expenditures since these big items have been primarily covered by fund collections abroad. The lion’s share is consumed by the enormous government bureaucracy and the swollen diplomatic corps. Now that a part of expenditures for immigration will have to be carried in the state budget, the relative and absolute appropriations for social expenditures will probably decline drastically.

To round out the picture of the economic pressure under which the workers live, it should be pointed out that there are also taxes for Histadruth and Zionist institutions, which amount to about 10% of wages.

Standard of Living

The problems which are dealt with here do not give an all-sided picture of Israeli economy. Above all, what is lacking is a detailed account of wages and profits. We limit ourselves at this time to a few facts. With the exception of a small privileged group, workers’ wages are low. Even if nominal wages are high in relation to British and American wages, real wages are at a minimum because of high prices and taxes. Besides this, there are many unemployed and part-time workers. Every work day lost, no matter how high wages appear to be, is disastrous in the budget of a working-class family because of the high level of prices. The number of unemployed mounts daily; new immigrants and demobilized soldiers cannot find work.

The cost of living index, which is computed by a government institution, does not give a true picture of the rise in prices. But even this falsified index shows that only part of the rise in prices has been offset by wage increases.

Rent constitutes a large item in the cost of living for the poor. The rent-fixing committees created by the British, which had the power of law to fix rents, no longer exist for all practical purposes. The practice of extracting high bonuses for renting dwelling units is general. The inexperienced new immigrants are robbed by the authorities and the landlords.

A Utopian Project

The masses are very apprehensive about their economic future. Their skepticism is great but they try to console themselves with the illusion that Jewish resourcefulness will solve all problems. But subjective ability or lack of ability is not a decisive factor. The present and future of the proud dwarf state of Israel, which, according to Ben-Gurion, will be the home for 10 million Jews, are being determined by the objective political and economic situation in the Middle East and in the whole world.

The nation is completely dependent on the interests of the imperialist powers and on fund collections. The collapse of the economic structure is an acute threat. Living standards of the masses will tend more and more to align themselves with conditions in other colonial countries. Unquestionably, there will be ups and downs in economic development. But the realization of the grandiose plans for a highly developed industrial and agricultural economy in Israel is both impossible and completely utopian.

A Program for the Middle East

The Middle East has been kept in a condition of economic and cultural backwardness and disunity by imperialist policy and by feudal-capitalist interests. It can only realize its tremendous potentialities by political and economic unification, which is the only way out for Israel. Even a superficial view of the situation makes this clear: There is crude oil in Iraq which is transported by pipe line through Jordan to refineries in the Lebanon and Palestine. There are rich, but untapped oil resources in other sections. The Dead Sea, on the Israel-Jordan border, contains fabulous quantities of chemicals and other minerals, which can be extracted without great labor or costly equipment. The Haifa harbor in Palestine is extremely important for the Arab hinterland which has no outlet to the Mediterranean. Palestine is a vital geographic link between the northern and southern parts of the Middle East, its railroads and highways connecting three continents.

The advanced Arab culture known in the Middle Ages grew out of the development of agriculture between the Euphrates and Tigris Rivers, a society which was destroyed by imperialism and not replaced. Central administration and regulation of rivers would make possible a modern development of the Mesopotamian “paradise.” This is essential for the whole Middle East.

These are only a few examples and only life itself will reveal how great is this potential. A revolutionary policy based on a break-up of the present structure of the Middle East, on the removal of its political borders, its social system and on the elimination of imperialist slavery, is the prerequisite for the economic and political welfare of the Middle East.

May 1949



1. This article was written by Gabriel Baer.

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