Israel’s Capitalist Election

Mati Wagner — March 2013

As the Israeli elections loomed in January, reporters and pundits, biased by their own ideas about Israel and Israelis, failed colossally. Reports and analyses in a wide range of publications and media outlets—from the New York Times and the New Yorker to theIndependent, the Daily Telegraph, and Sky News—made doomsday forecasts about “right-wing entrenchment,” lamented the end of the two-state solution, and even predicted that the dramatic strengthening of a hawkish, xenophobic right would mean the end of Israeli democracy.

Then, when the election results became known, the international media erred yet again, interpreting the surprising rise of the new Yesh Atid party as a victory for the left. In reality, the truly significant facts about the 2013 Israel elections were the predominance of domestic issues and the complete breakdown of the old dichotomy between right-wing hawks and left-wing doves that usually characterizes Israeli politics. Not since the 1965 elections, the last before the Six-Day War, was attention so completely focused on matters such as socioeconomic policies and draft-dodging by a rapidly growing ultra-Orthodox population. And because the vote was so heavily determined by internal issues, it revealed that a strong majority of citizens in a nation designed and built by socialists has moved decisively away from the dogmatic economic faith of its founders. Indeed, the heads of the three largest parties—Likud-Beytenu, Habayit Hayehudi (“Jewish Home”), and Yesh Atid (“There Is a Future”)—were outspoken in their support for smaller government and market capitalism.

Prime Minister Benjamin Netanyahu of Likud Beytenu is, for many Israelis, the deliverer of an American-style neoliberal capitalism. As finance minister under Ariel Sharon from 2003 to 2005, he implemented some of the most extensive economic reforms in Israeli history. Welfare transfers were cut, the pace of privatization was quickened, income taxes were lowered, and fiscal discipline was tightened. Netanyahu continues to advocate small government, low income taxes, fewer regulations, and less bureaucracy.

Two types of voters tend to support the sorts of economic policies championed by Netanyahu—the rich who want to protect their savings, and the poor but ambitious who want to take advantage of the freedoms capitalism has to offer. The second variety seemed to make up a large percentage of Likud’s voters. In 26 of 27 “development towns”—places like Lod, Beit She’an, and Sderot with low per capita income—Likud received a plurality of the votes.

In contrast, a higher-end constituency voted for the television personality Yair Lapid’s Yesh Atid, which rose from nowhere to become the second-largest party after Likud-Beytenu. In many ways, Yesh Atid is no less pro-capitalist than Likud. The party’s platform advocates weakening Israel’s strongest unions (longshoremen, airport workers, Israel Electric Company) and lowering customs taxes in order to increase competition and lower consumer prices. Lapid took care not to scare away upper-middle-class professionals such as corporate attorneys and accountants who have benefited from Israel’s impressive economic growth: When Yesh Atid’s platform calls for cheaper housing or lower bank fees, it also promises to protect banking interests.

Lapid’s “third way” packaging was sophisticated. While praising free markets for encouraging business initiative and innovation uninhibited by government bureaucracy, he also criticized “cold-hearted” capitalism, noting the importance of “balanced regulations” that protect society from the “greed and rapaciousness” of individuals and conglomerates that would, given the chance, gladly shirk their responsibility to society. At the same time, he reassured those in the higher income brackets that he would not run his social program by taking their money. He emphasized the importance of equal opportunity and access to high-quality education, not welfare transfers.

Lapid’s party won a plurality of votes in some of Israel’s affluent secular towns and neighborhoods surrounding Tel Aviv. And he did very well in middle-class towns as well. Yesh Atid received over a quarter of the votes in municipalities rated in the top fifth when it comes to factors such as per capita income, the number of new cars per family, and high school graduation rates. As the fact that it won only 16 percent of the vote nationally indicates, Yesh Atid performed disproportionately well with this key constituency. Indeed, in a survey of workers in the high-tech sector conducted before the election by the economic daily Globes, 35 percent said they would vote for Yesh Atid, by far the highest of any party.

In the same Globes survey, Naftali Bennett’s Habayit Hayehudi came in second with 26 percent of the vote. This flew in the face of pre-election commentary suggesting that Bennett, a former Netanyahu deputy, was only doing well because he was a fresh new face for the settler movement. In fact, Bennett had appeal in the high-tech world in part owing to his reputation as a software entrepreneur whose company, Cyota, a developer of anti-fraud security software for financial institutions, was sold in 2005 for $145 million.

Nor can Bennett be so easily characterized as just another peace-treaty rejectionist. His rise marks the sea change that has taken place in the last two decades among religious Zionists. After serving in Sayeret Matkal, the most elite combat unit in the Israel Defense Forces (once totally dominated by Israel’s secular elite, including Netanyahu and his storied brother, Yoni, killed in the daring Entebbe raid), Bennett made the transition to a successful private-sector career before entering politics. Many of Bennett’s supporters are the religious equivalent of Lapid’s: an educated, upwardly mobile constituency. This new generation of modern Orthodox Zionist Israelis is made up disproportionately of doctors, lawyers, engineers, or high-tech workers. (Many even work in the media.) Like Bennett, a high number of religious Zionist men served in the IDF’s elite units or graduated from officers’ training. Military service provided these young men with unparalleled leadership experience, important contacts and social networking, and staggering responsibilities not only for the lives of the soldiers serving under them but also for multimillion-dollar military equipment. All of this made for a smooth transition to the business sector—particularly in the realm of high-tech. Like Bennett, who lives in Ra’anana, a town north of Tel Aviv with a high percentage of religious professionals and software engineers, many of Habayit Hayehudi supporters live in bourgeois neighborhoods inside the 1967 borders.

The election results are proof that the most significant sociological phenomenon in recent Israeli history—the economic protests that began sweeping the nation in the summer of 2011 and mobilized record numbers of protesters—were largely misunderstood. Leaders of the protests articulated decidedly left-wing economic views, calling for larger welfare transfers and attacking Netanyahu’s policies as being tilted in favor of the rich. But the vast majority of Israelis who took to the streets were not demanding more government spending. Consumer rights were in the forefront. They demanded that major food producers cease colluding with the large supermarket chains, and complained about the tremendous bureaucratic obstacles making anything from starting a business to building a house a headache. The Israeli middle class was fed up with the market inefficiencies, red tape, and unfair competition that artificially jacked up the cost of everything from cottage cheese to housing. They were not lamenting the breakdown of the welfare state.

If anything, mainstream Israelis were making it clear they were tired of paying too many taxes to support a population that did not work, while they served in the military and performed reserve duty from which others were exempt. By popular demand, one of the most burning issues facing the new government is the tens of thousands of ultra-Orthodox who do not perform mandatory military service, are not schooled to integrate into the labor market, and inevitably end up becoming a drain on the rest of society. Thus the protests, and this election, found a way to connect the anger at big government with the anger at the special privileges granted to the haredi. Demonstrators resurrected Netanyahu’s analogy of “the skinny guy carrying the fat guy,” on which he ventilated in 2003 when he was finance minister. The “fat guy” represented the inefficient and wasteful public sector; the “skinny guy” was the productive, innovative private sector.

In this atmosphere, the resourceful new leader of the Labor party, Shelly Yachimovich, was doomed to fail—and she did, adding just two seats to the 13 garnered in the 2009 elections under Ehud Barak, despite polls showing Labor getting as many as 17 seats. Yachimovich sought to retain Labor’s position as the party of social welfare while tacking to the center on diplomatic issues. She declared that settlements are not a “sin or a crime” and that state funding of them should not be abandoned.

This conscious decision not to blame the country’s problems on the settlers or the settlements enraged many in Labor’s peace camp and may lead to her ouster, but the election results suggest she was on to something. Like Yachimovitch, Lapid sought to reassure voters he was not a leftist on security and statehood matters. He said he opposed the division of Jerusalem into two capitals, supported holding on to the large settlement blocs in the West Bank as part of a peace deal with the Palestinians, and chose to make his signal foreign-policy speech in the settlement of Ariel. Polls showed that between 40 and 50 percent of those who voted for Lapid defined themselves as “right-wing” on security matters. Yachimovitch was right to attempt to tap into this constituency. Her mistake was to advocate more spending for welfare.

This total victory for market capitalism is all the more striking considering Israel’s socialist roots. Labor Zionism, which dominated Israeli politics in the pre-state era and for the first decades after the creation of the Jewish state, was openly antagonistic to free trade and commerce. The Jewish state’s founding fathers, such as Russian Labor Zionist ideologue A.D. Gordon, believed manual labor—particularly agriculture—bound a people to its soil and to its national culture, while capitalism was wasteful, unproductive, parasitic, and the source of Jewish suffering in the Diaspora. The Marxist Ber Borochov, another Labor Zionist ideologue, believed that a productive national existence required the creation of a Jewish working class. The view that Zionism was a social revolution driven by the collective farmers of the kibbutzim and moshavim and that the state should be directly involved in construction, agriculture, and industry was adopted by both Chaim Weizmann, the most important early international leader, and David Ben-Gurion, the state’s most important early political leader.

Indeed, the impact of Israel’s socialist roots continued to be felt decades after the Jewish state ceased to be dominated by the Labor party. In 2003, while serving as finance minister, Netanyahu told the Israeli daily Ma’ariv that Ben Gurion “made the huge mistake of establishing a socialist state, and we have had to work for years to dismantle that faulty construction.”

However, the extent to which all walks of Israeli society adhered to socialist ideals has been both exaggerated and overrated. As historian Jerry Z. Muller pointed out in his book of essays, Capitalism and the Jews, “while the pre- and post-independence history of the State of Israel was ideologically stamped by socialist Zionism, the reality was more complex—and more capitalistic.” Two waves of immigration following the First World War brought thousands of entrepreneurs and professionals to the Jewish settlement in Palestine. First came Polish Jews, many of whom were owners of small businesses escaping the growing anti-Semitism of the early 1920s. They were followed in the next decade by German Jews fleeing the Nazis. These immigrants came with capital and skills they used to set up small factories in the cities.

As early as 1951, capitalist sentiments and a rejection of Ben-Gurion’s hardline socialism catapulted the General Zionist party—one of the parties later incorporated into Likud that ran on a platform of private enterprise and free markets—from seven to 20 Knesset seats in the election that year with the campaign slogan “Let us live in this land.” Even before it was joined by the Sephardim and Oriental Communities Party and the Yemenite Association, the General Zionist Party was the second largest after Ben-Gurion’s Mapai.

Another party, Herut, challenged Mapai’s political hegemony and eventually metamorphosed into Likud, which finally ousted the Labor Party (the successor to Mapai) after nearly 30 years of uninterrupted rule in 1977. From the first days of the state, Herut rejected Mapai’s socialist romanticization of the working class, valued the role of Jewish entrepreneurship, and argued that the future belonged to the bourgeoisie, not the proletariat. In a speech in Jerusalem in 1977, shortly after Likud won the elections and brought Herut leader Menachem Begin to the premiership, Nobel prize–winning economist Milton Friedman noted that “two Jewish traditions” seem to be at war in Israel. There was the new socialist tradition, characterized by belief in paternalistic and coercive government and rejection of capitalism and free markets. And there was a millennia-old tradition, developed out of the necessities of the Diaspora, of self-reliance and voluntary cooperation, of ingenuity in getting around government controls.

Acknowledging that there always were strong pro-capitalist forces within Israeli society, and in Jewish culture before Israel, can help us better understand the remarkable transformation of the Israeli economy, from a quasi-socialist, centrally controlled economy to a vibrant market economy driven by private enterprise. It also helps explain the 2013 election results. Long ago a majority of the Israeli public rejected the dovish position of the left on matters of diplomacy, security, and the settlements (though out of pragmatism most support some form of a two-state solution). The January 22 elections showed unequivocally that the left’s socioeconomic policies have been rejected as well.

Diaspora Jewry as a whole—including the Jewish refugees who arrived in Israel—is strongly predisposed to the capitalist ethos. Jews were acutely aware that wherever they were given a chance to compete on a level playing ground, such as in western and central Europe before the war and, of course, in America, they have excelled. What works for individuals should also work for an entire nation.

Israelis understand that in order for a country without natural resources to thrive in a hostile environment, it must tap into its human capital. Doing so requires competitive markets and smaller government, both of which free up Israelis to innovate and give them an incentive to initiate. A.D. Gordon was wrong to propose that agriculture or other forms of unproductive manual labor bind a people to its soil. Only dynamic growth can produce the competitive, productive economy needed to ensure that the formerly stateless Jewish people can flourish in the land of Israel.

A nation with a population of less than 8 million that is capable of getting more companies listed on the major New York stock exchanges than any other country in the world aside from the United States, Canada, and China—as Israel has—will triumph, provided the conditions that enable such astounding productivity remain in place. On January 22, Israelis went to the polls and supported political parties that will ensure that the triumph of the Jewish state’s economy continues.