Friday, August 05, 2011

Pining for Bolshevism

Pining for Bolshevism

It is difficult to explain to people living outside of Israel, and
especially to Americans, the extent to which Israelis truly believe in

Sometimes they call it socialism, but they basically mean communism.

This is not to say that they behave as communists in their private
lives. Quite the contrary, Israelis live as the ultimate ideal of
capitalism. They are enormously individualist. They are
exceptionally good at starting and managing businesses, and of
development and marketing innovations. Israel as a country has more
start-up businesses than all of Europe. It registers more patents
than any European country.

Yet those very same Israelis, who demonstrate every day their skills
in succeeding in markets, hate markets. The word "socialism" carries
enormously romantic and positive implications for Israelis.
Especially among educated(non-Russian-born) Israelis. The word
capitalism is something of an obscenity for most Israelis. I suspect
that someone arrested for assault could get himself off in court if he
claimed the victim had called him a capitalist, it being a form of
hate speech. The Israeli media invariably use the word capitalism in
conjunction with the word piggish. (ironically, the one exception is
the business editor of Haaretz, who supports market capitalism, while
the rest of the same newspaper years for communism.) The only
conceivable form of market economy in the minds of the Israeli
chattering class is "piggish capitalism." You would not believe the
portion of Israeli professors and intellectuals who use that
expression. The head of the Histadrut, Israel's largest organized
crime family, uses it, being a loyal believer in piggish communism.

In normal countries, pointing out that someone is a card-carrying
member of the communist party is usually more than enough to discredit
that person. Not in Israel. Carriers of communist party membership
cards do so with pride. Most of the members of the history department
at Tel Aviv University are such communists. SO are oodles of other

On the one hand, the operation of markets is what makes Israel a
successful viable country, one incidentally that experienced almost no
implosion at all during the global financial collapse of the past 4
years. But on the other hand, markets are things Israelis claim they
want suppressed. Literate Israelis insist in unison that markets are
what is wrong with the world, and suppressing markets is the answer to
Israel's problems. Markets are evil, rewarding selfishness.
Benevolent governmental bureaucrats controlling the economy are what
is needed.

Not every Israeli, mind you. Russian-Israelis, who today are maybe a
fifth of the population, have no patience for those preaching the
wonders of communism. And they are notably absent in the current
"social justice" rallies and marches, or what I have been calling the
Woodstock along the Yarkon Festival. Orthodox Jews rarely mouth the
slogans of nostalgia for Bolshevik central planning of markets,
although there are exceptions. (The commentator on the Torah portion
in Maariv cannot get enough of communism and insists that suppressing
piggish-capitalism is the highest form of Jewish ethics.)

Israeli academics are almost universally anti-capitalism. I am on the
list of a chat list of Israeli social science faculty members, and for
the past few weeks it has carried hundreds of postings yearning for
socialist controls and denouncing capitalism. The posteurs
universally fantasize about Israel adopting Scandinavian-style
"socialism." Putting aside some doubts as to how pleasant life really
is in Scandinavia (witness Norway recently), Scandinavian "socialism"
is actually not. It is essentially free markets mixed with very high
tax rates and a gargantuan welfare state providing cradle-to-grave
welfare services at state expense. In other words, Scandinavia has
always been far more capitalistic countries than Israel, certainly of
Israel was before the 1980s. In addition, Israel has always provided
Scandinavian-style welfare state services, but without the freeing of
markets and liberalization of production that characterized

Academic economists generally do not join the antlered herds in pining
for bolshevism, but there are exceptions. Israeli economists are
among the few who know what a market is, what a price is, what a wage
is. The protesters never know these things. But Israel has a long
history of academic prostitution and one can always find a few
academic economists willing to endorse the most idiotic "ideas" of
those who understand nothing about economics, if it earns them a
shekel or advances their careers. Hence the most passionate supporter
of RAISING the minimum wage is "economist" Avishai Braverman, the guy
who turned Ben Gurion University into Hamastan, and one can find
similar cases of street-walking economists endorsing rent controls,
nationalizations, and other fundamental axioms of economic bolshevism.

Most people are not aware of it but Israel began its existence as a
country with a system of bolshevik central control. In its first
years Ben Gurion implemented a system of massive nationalization and
near-universal price and wage controls. It differed little from the
economic structure created by Lenin. Ben Gurion got away with it for
a while because of the War of Independence and the national emergency.
Like in that old joke about how communism in the Sahara would produce
a shortage of sand, by the early 1950s everything in Israel was in
shortage, buying anything and everything involved endless Soviet-style
queues, and most products could only be obtained in the black markets.

To Ben Gurion's credit, he realized by the early 1950s that the system
of bolshevik controls was unworkable. Curiously, Lenin had also
understood this and took steps to dismantle the controls, except that
he died and was replaced by Stalin before serious reform took place in
the Soviet Union. Lenin called his plan for partial de-bolshevikation
of the economy the "New Economic Plan" or NEP, exactly the SAME name
adopted by Ben Gurion for HIS reforms in the early 1950s. (No

While most price controls were ended, other forms of economic
bolshevism were retained by Ben Gurion and his MAPAI party comrades.
Huge portions of Israeli industry were nationalized, and much of what
was left was semi-nationalized and grossly mismanaged by turning it
over to the Histadrut trade union federation.

Economic policy sought to suppress competition everywhere. It strived
to maximize the number of monopolies and cartels in the economy. The
government controlled enormous amounts of resources, which it handed
out as political favors, often to cronies and party oligarchs. Tax
rates were enormous and sometimes exceed 100%. Profits by enterprises
were derived mainly from government subsidies and handouts.
Government policy was protectionist and anti-competitive. The capital
market was suppressed and nationalized. The government's working
philosophy demanded that Israelis essentially turn all their income,
savings, and wealth over to the government, and then the government
bureaucracy would take care of the needs of the public and of

The result was a Third World economy, albeit one dominated by a
political system that actually involved elections and parliamentary
processes. Israel was pauperized by the bolshevism. It remained
poor and underdeveloped.

Things only began to change in a significant manner in the 1970s.
Israel was being coerced into liberalizing its economy and removing
some of the socialist controls because of Israel joining and signing
various international trade agreements. The treaty partners refused
to allow the Israeli government to continue its policies. The long
period of zero growth following the Yom Kippur War also woke some
people up to the necessity of having a functional economy.

In the 1950s and 1960s it was not unusual for people to lump Israeli
economic policies and conditions together with those in Egypt and
other Third World backwaters.

Things changed remarkably starting in the 1980s. Most of the
nationalized industry was privatized, largely because state
enterprises were losing so much money. Partly, this was due to the
change in public willingness to tolerate the controls. Partly it was
because of the growing number of people who had taken freshmen
economics and understood the idiocy of bolshevik controls. Partly, it
was because of the growth of high tech, which the government could not
control or understand. Partly, it was because of international trade
treaty pressures.

There are still plenty of bolshevik controls in place. Israel has a
single-payer health system with four tightly regulated HMO-style
providers. It works a lot better than you would expect, for some
extraneous reasons (Israel has a young population that eats well and
huge numbers of MDs). There are still oodles of monopolies and
cartels. Agriculture is still largely anti-competitive and
inefficient, dominated by government-erected cartels. Taxes are too
high. The government owns a large portion of the land in the country.
Some sectors are still distorted by protectionism, especially food.

The Woodstock on the Yarkon protesters are by and large leftist
secularist Israelis demanding a return to the bolshevik controls of
the 1950s. They pine for the shortages and the rationing of that era
because they figure that in a shortage THEY will be granted priority.

The central demand of the protesters is rent controls. This will end
up destroying the Israeli housing stock and pauperizing elderly owners
of rental property who purchased those units with the intention of
earning rental income in their old age. Like in New York and other
cities having rent controls, the controls will create shortages, where
the true cost of obtaining rental housing actually goes UP, not down.

The protesters pine for the Soviet steppes. They demand other forms
of price controls so that Israel can turn into a Brezhnev-era style of
country, where people spend their days waiting in lines for
commodities in perpetual and growing shortage. They want markets to
be suppressed, where squads of social justice commandos can decide who
gets to live in which apartment, who gets to consume those commodities
in shortage, and who earns what. They insist that wages be set based
on what the protesters think people deserve to earn. Since there is
not a single person in Israel who earns what he thinks he deserves to
earn, this amounts to a demand for a Soviet-style wage board that
fixes wages for all professions, starting with those who are on
strike, like the MDs. In other words, wages in the opinion of the
protesters do not have to clear markets and signal where shortages and
surpluses are. Wages should be arbitrary measures of "fairness."
Try to imagine just what happens when half the jobs in Israel attract
no applicants because the fair wages there are insufficient to draw
workers, while the other jobs have six applicants for each position
because the fair wages there are much too high to clear the market.
Try to imagine what life would be like if a Marxist sociologist or a
caring social worker were appointed as economic dictator to decide all
economic matters and decisions in Zion.

Every society on earth and every society in human history has people
living in hardship and in poverty. There are poor people in all
countries, including Scandinavia. Mankind has not discovered an
innovation that eliminates poverty and hardship.

Yet the caring dreamers about bolshevism along Rothschild Boulevard in
Tel Aviv (note the irony of the name) demand an instant magic pill
that will eliminate all hardship and inequality. And the failure of
the government to provide one is proof that the evil "tycoons" are in
charge and preventing the government from serving the people.
"People not profits" is the slogan of choice used by those who are too
stupid to understand that the only way to make producers serve the
people and produce things the people want is for them to make profits
doing so. Outlaw profits and you create mass starvation.

The tycoon fetish continues to dominate the protests. I have
suggested that Mikey Lerner even change the name of his idiotic
magazine from Tikkun to Tycoon. Many Israeli tycoons, at least
outside high-tech, were made tycoons because of sweetheart deals with
the political establishment, particularly back in the days of MAPAI

The other irony is that the only "reform" the protesters have
extracted from Netanyahu is the setting up of "Planning Speed-up
Commissions." And the most ironic part of this irony is that the
main effect of those commissions will be to fatten up the "tycoons."

Israel's municipal planning and regulation of construction is a fever
swamp of corruption and inefficiency. It takes two years to get a
license to put windows in your porch and you may have to bribe city
officials to get it. The endless bureaucratic pencil pushing and
bickering does indeed slow down construction, affecting housing prices
and availability. At the same time, these planning dinosaurs DO allow
a certain amount of public involvement and intervention, especially
when it comes to combating corrupt sweetheart dirty deals between
municipalities and construction contractor "tycoons." Corrupt
municipal officials are constantly attempting to get approval for
construction projects that will enrich contractor cronies, even when
these are illegal, harmful to the public interest, ugly, and in some
case built on public park lands and beaches. The officials attempt to
bend zoning laws and regulations to "help their buddies."

As a sop to the demonstrators, Netanyahu has proposed and the Knesset
just passed the creation of "Planning Speed-Up Commissions," to cut
through the red tape and bureaucracy. The problem with the idea is
simple: it will still take two years and possibly some bribes if you
want to put a window pane on your porch. But the oligarchs will be
able to use the Speed Up mechanism to push aside public opposition and
suppress sensible zoning and planning regulations. The oligarchs are
also being offered by Netanyahu public lands at below-market prices,
where Netanyahu insists this will lower housing prices. The reality,
as any freshman econ student can tell you, is that it will not lower
housing prices by a shekel, and instead will only inflate the profits
of the cronies getting in on the deal.

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