All Commentary
Sunday, April 1, 1990

Israel’s Grassroots Libertarian Revolution

Professor Lehman-Wilzig is Senior Lecturer in Political Studies at Bar-Ilan University in Israel During the cur rent academic year he is serving as the Distinguished Visiting Professor from Israel of the Lipinsky Institute for Judaic Studies at San Diego State University.

The Israeli government is freeing up the country’s over-bureaucratized and over-regulated economy. However, this is no revolution from on high; rather, it is the Israeli public that has forced the government’s hand. For the first time in that nation’s young history, the citizenry—rather than the leadership—is calling the shots and setting the pace. The lessons to be learned have implications far beyond Israel’s borders.

It is important to start off by understanding just how radical a break from the past is this recent libertarian phenomenon. From its inception in 1897, the Zionist movement has always taken a paternalistic approach toward nation-building. With the immigrant Jewish masses mostly impoverished, with few natural resources in Palestine itself, and with a general socialistic orientation naturally encouraging “governmental” (not private) initiative, virtually everything in pre-Israel was planned, financed, and developed by the powers-that-be. Indeed, paradoxically, the occasional pioneer who wished to go it alone invariably ended up establishing a kibbutz—the most collective form of socio-economic organization imaginable. In any case, Israel was not developed in the same fashion as the American West. The latter was marked by “rugged individualism”; the former by “ragged corporatism.”

Thus, even after the State of Israel was established, the “top-down” approach not only was encouraged by the authorities, but had become the accepted way of doing things by the Israeli public at large. Israel’s first prime minister David Ben-Gurion even proclaimed it to be national policy: Mamlakhtiut—“statism.” Instead of a pluralistic system emanating from the interests and predilections of the citizenry, Israel was to be built up through government unification and direction of as many economic, social, and cultural institutions as possible.

At first, this policy proved to be quite popular. Companies on the verge of bankruptcy? The government would save them. Housing in short supply? The government would build more. Entertainment lacking? The government would establish a (monopoly) television station. And so it went.

Until the early 1980s. Several reasons were behind the none-too-gradual shift away from such government paternalism. First, as Israel became more closely linked to the U.S. from an economic and especially a cultural perspective, Israelis began to view the American way of doing things as more modern and progressive than their own traditional approach. Indeed, in the late 1970s and early 1980s the chief economic guru and media star was none other than Milton Friedman, who visited Israel and whose ideas were eagerly sought after by government and public alike. (An indication of his continuing popularity is the latest joke making the rounds in Israel. The country is in the midst of a massive shift from the six-day to the five-day work week. As the apocryphal story goes, the government turned to him to advise it on the feasibility of such a change. His finding: “It would be a good idea to move the Israeli economy to a five-day work week—but do it slowly. First ensure that everyone works one day a week, then two . . . .”)

A second reason was that with the election victory of the economically liberal-minded Likud in 1977, the “establishment” was no longer perceived as being intrinsically paternalistic. Private initiative and personal volition had been given philosophical legitimacy for the first time in Israel, although it still would take some time for the government to put its money (really the public’s money) where its mouth was.

Finally, the population had by then become predominantly middle class, with far less need of all-embracing social welfare programs which were a huge burden on the personal pocketbook. The Israeli public had come of age: economically able to go it alone, and psychologically willing to stand on its own two feet.

But if the public’s newfound will developed into an increasingly irresistible force, the political establishment’s conservatism constituted an almost immovable object. In a country where the voters couldn’t easily punish their representatives electorally (the vote is for party lists, not for candidates), and security issues in any case dominated the election campaigns, how were the Israeli citizens to change the system? By hook or by crook—literally

Damming the Tide

Examples from several areas of socio-economic life should suffice to understand the general approach. The common thread here is the willingness of thousands—on occasion hundreds of thousands—to circumvent what they perceive to be unduly restrictive regulations, institutions, and laws. Faced with a “revolt of the masses,” the political establishment has been rushing of late to dam the tide, and when that has proved impossible, to channel the raging river of change.

1. Mass Media: After years of government monopoly in Israeli radio and television (the latter was established only in 1968), Israelis began to take matters into their own hands in the 1980s. Not only did VCR purchases skyrocket (by the middle of the decade Israel ranked second in the world—behind Saudi Arabia—in per capita VCR consumption), but a more “insidious” phenomenon began to appear: pirate cable television. Despite their being strictly prohibited by law and actively pursued by the authorities, such stations sprouted as mushrooms after the rain with an estimated quarter of a million subscribing households (in a nation of barely one million family units).

Giving in to the overwhelming market demand, the government finally threw in the towel and in 1988 passed Israel’s cable TV and regional radio law, which will considerably expand the mass media in that entertainment- and information-thirsty country, commencing in early 1990.

2. Health: The public “revolt” here has taken several routes. Traditionally, virtually everyone in Israel belonged to a health plan (akin to American HMOs), with 90 percent of the Israeli population having membership in the system run by the giant labor federation Histadrut. The major problem with the Histadrut health system was that, given its socialistic orientation, the patient could not select the doctor or hospital of choice; rather, patients were arbitrarily assigned their physicians by the plan’s bureaucracy.

As a result, the Histadrut system began to lose members in the 1980s at the rate of about 13,000 a year, not to mention a severe drop in new memberships taken out by the younger generation of Israelis. Most recently, the Histadrut has bowed to this increasing hemorrhage, and turned to the “free choice” plan offered by its small competitors. Whether this will stem the tide remains to be seen, but “forced choice” as a health policy is no longer viable in Israel.

More socially problematic is what has become known as “black medicine.” Under Israel’s quasi-socialistic and highly bureaucratized health system, there is often up to a yearns walt for elective surgery (and for some serious, but difficult, non-elective operations such as open heart and kidney). Increasingly, patients have turned to doctors for a “private consultation” after hours, and then have been moved to the head of the operating queue by that same doctor who “happens” to be the hospital’s department chairman.

Not that such maneuvering always begins with sinister intentions. Because of the low base salaries paid to Israel’s physicians, care and treatment in the public health facilities can be quite cursory and deficient. As a result, tens of thousands of Israelis have taken to bypassing (or supplementing) their official health plans with private visits to physicians in the latters’ after-hours. Once again, as a result of this grassroots “desertion,” the authorities have given ground, with a new system being worked out which would enable those willing to pay for the privilege to be treated in the public health facilities after hours.

3. Education: Perhaps the hottest social issue in Israel today is “gray education.” Public education has suffered massive budgetary cutbacks over the past five years, and many parents are very concerned and upset with the present state of affairs (elementary school children are given less than four hours of instruction a day). Consequently, parents by the thousands are organizing and paying for after-hours classes inside and outside the schools to supplement or enrich their children’s education. This has burgeoned into a quasi-private educational system, in direct opposition to the official policy of educational equality.

And therein lies the rub. Much of the educational establishment is against such a movement which threatens to enable some children to receive paid “enrichment” while others don’t. The more well-to-do parents, of course, don’t see it that way, but rather as giving their children the best education possible. If other parents can’t do this, then they should complain to the source of the educational deficiency: the government.

Complicating matters even further is the fact that such afternoon enrichment programs (in many cases not “enrichment” at all, but rather replacement of subjects completely jettisoned in the cutbacks), tend to be far more remunerative than the truly meager regular salaries of Israeli teachers. The result is that the best teachers (in greatest demand for the afternoon programs) leave the regular school system altogether, as they can make a better living concentrating their energies exclusively on such after-hours work.

The educational establishment’s antipathy to “gray education,” then, is double-edged—a matter of social philosophy and pedagogic self-preservation. On !he other side are parents who see it in terms of free choice for quality education, and teachers who seek an improved livelihood. While this struggle has not been settled yet, the latter seem to have the upper hand However, the egalitarian-minded establishment will not give up this one without a serious fight.

4. Finance: For unadulterated surrealism, nothing beats Israeli public financial policy. For starters, given the relatively high rates of inflation over the past decade (over 400 percent on an annualized basis in 1984), periodic devaluations became de rigueur. However, instead of the government deciding the timing of such devaluations, almost invariably it was the public (in anticipation of devaluation) who bought foreign currency-thereby forcing the authorities to devalue before the country’s foreign currency ran out. It need hardly be added that this didn’t help the situation at all, as the public already had protected itself from the oncoming devaluation through its foreign currency purchases. Thus, the next devaluation round was already set in motion, in a never-ending spiral of the government cat futilely chasing the public mouse.

Here, too, illegality reared its head. Trading in foreign currency is against the law in Israel unless done through the recognized banking system. Yet the public blithely ignores this; and not only is the “black currency” market well-developed, but due to public demand, the Israeli newspapers publish the “black dollar” rate on a daily basis. What the government legislateth, the public taketh away . . . .

On still another financial front, the public’s rational economic behavior has forced the government into a broad retreat. At one point in Israel’s history, income tax rates had reached a confiscatory (not to mention counterproductive) high of 80 percent. Due to massive tax evasion on the part of anyone who had the opportunity (the underground economy in Israel is estimated at 15 percent of GNP), the authorities have been forced to bring down the upper bracket to 48 percent, with promises of further reductions to stimulate economic growth.

The israeli Stock Market

One could continue almost endlessly. One more example in the economic realm, though, should fill out the general picture. When the Israeli stock market collapsed in 1983 as a result of price manipulation by the banks of their own stock (worth approximately one-half of the entire market), the public pulled out and has not returned since. Once burned, twice shy? Not really. Rather, the public hasn’t been willing to play in a game where the deck is heavily stacked against them.

Most of the shares in the Israeli market are nonvoting. This essentially means that those who control the relatively few voting shares (sometimes as low as a mere few percent of all outstanding company shares) decide on all matters of corporate policy—and it is no coincidence that many of these shares are tied to management in one form or another. Thus, here it is public inaction (staying out with arms folded) that has mused the government to shift course. At present, movement is afoot to turn all shares into voting shares (whether through stock market fiat or governmental legislation isn’t clear at this stage). Once more, the barons have retreated in the face of their sovereign: the public.

Several lessons may be learned from the Israeli case which are applicable in part to the revolution occurring through much of the Soviet and Eastern European Communist bloc.

First, it is not necessarily the most impoverished countries that may find themselves in the throes of public anti-paternalistic pressure. Indeed, if Israel is representative, then one can posit that the more advanced (economically) the socialist society, the greater the libertarian urge on the part of the increasingly “mature” citizenry. This is not merely a matter of economic serf-interest (greater personal control of more disposable income), but of psycho-political desire. Such societies invariably have raised their general educational level, and concomitantly there emerges the need for personal expression through, and beyond, economic gratification.

This in essence is Abraham Maslow’s scale of graduated gratification extrapolated to the public at large. Once a certain level of economic sufficiency is reached, personal self-expression becomes the goal of man. In that sense, collectivist societies are by their very nature self-destructive. The more they succeed (assuming that they manage to succeed at all) in raising their population’s material standard of living, the more that population feels a lack of psychological quality of life.

This would explain why East Germany and Hungary recently have come under such severe popular pressure to reform themselves politically. On the face of it, these are the two Communist countries which have done a relatively good job of satisfying their population’s material needs. Why, then, the internal political uproar? Precisely because economic “prosperity” leads to political maturity. Such a public cannot be treated any more as untutored servants of the state.

The obverse lesson for the Soviet Union is not so sanguine, at least for the short term. If it took Israeli society about three decades to mature and grow out of its paternalistic cocoon, then one cannot expect the Soviet people immediately to know how to exploit their newfound freedom—especially as their glasnost was provided from the top down, in paternalistic fashion if you will.

Liberty’s Carry-Over

Beyond this, it is clear that once the public begins to breathe the air of personal freedom, such liberty cannot be compartmentalized into a few specific areas of the government’s choosing. While the Israeli grassroots revolution may have started in the economic realm, the carry-over to education, health, and information/entertainment, was relatively swift and universal.

This is a lesson that the Communist Chinese leadership is beginning to understand, although its most recent response has been to try to turn back the clock in both the economic and political realms, instead of progressing on both fronts. But this Pandora’s box cannot be hermetically re-shut once opened. Mikhail Gorbachev, on the other hand, generally understood this relationship from the star; it is no coincidence that glasnost (political freedom) and perestroika (economic freedom) were introduced at about the same time. From this perspective, at least, the Soviets are liberalizing their system in the right fashion, as are the Poles and Hungarians.

Finally, as was the case with Israel’s pirate cable TV, “black medicine,” and gray education, there seems to be no avoiding a certain increase in quasi-criminal behavior, at least over the short term. There are two reasons for this.

First, in any radical changeover from a stultified, centralized system to an open, multi-choice one, institutional asymmetries will inevitably exist. Thus, while the expectation is of immediate freedom across the board, the reality of development in certain social realms will lag somewhat behind others. It is in these retarded areas where parts of the public may take things into their own hands to speed the process along in order to bring them up to the more developed areas in society. By definition, most of such “expediting” will involve anti- norma five, if not outright illegal activity.

Second, there always will be those who are incapable of handling such freedom in the way that it. was meant. Give some children $100 in a candy store, and they will most likely buy as much (or more) than they can carry. Remove overbearing governmental strictures “overnight,” and some adults will have trouble differentiating between freedom and license. This is not so much the price of undue liberty, but rather of overdue liberation. Freedom takes a little getting used to, but this minor problem is surely worth the ultimate goal of an unfettered life.

In the final analysis, then, the really important aspect of Israel’s dismantling of socialism—as well as similar processes in such countries as Poland and Hungary—is not that the well-educated policy-makers have become aware of their system% economic and philosophical bankruptcy, but rather that the less “sophisticated” citizenry are the source which pushed them to act. In such a situation, there is little chance of turning back the clock. There is all the chance in the world that the new system taking its place will be successful and stable, once the not-inconsiderable transitional difficulties are overcome.