Plessner provides a general introduction to Israeli “political economy,” though the term “politicized economy” fits better. He holds that the socialist ideology that has dominated modern Zionism might have been helpful in terms of economic development during the country’s first twenty-five years but then produced decades of stagnation. In other words, holding to an anachronistic socialist ideology is at the root of Israeli economic tribulation. Israeli economic policy has long been designed to stifle competition, protect inefficient sectors, allocate resources based on political negotiation, lobbying, and political power—what I call Israel’s Reign of Pork—the suppression of market forces, maximizing the size and scope of the public sector, endlessly bailing out inefficient Histadrut enterprises, and maximizing tax rates and the size of the budget.
Plessner makes the interesting observation that central planning might work reasonably well in the early stages of development, when priorities in investment are fairly unambiguous and obvious, but then things fall apart once things get moving, as the planners try to command-and-control an ever-more-complex society. Interesting: but the fact that Israel’s telecommunications infrastructure remained at Third-World levels well into the 1980s suggests that central planners tend to produce a dog’s breakfast even in the early stages of development.
Despite the demands of a survey text (which makes the discussion of many topics somewhat superficial), Plessner manages to squeeze a large number of topics into his reasonably-sized study. Most other books on the Israeli economy are only macroeconomic, whereas Plessner’s is properly balanced between macroeconomic and microeconomic issues. I believe—and Plessner seems to concur—that most of Israel’s structural problems are primarily microeconomic. He surveys areas in which Israeli governmental policy worked near-Biblical wonders in terms of producing inefficiency.
Plessner himself is a figure of some controversy, having served as deputy governor at Israel’s central bank and close advisor to Finance Minister Yoram Aridor during a disastrous period in the early 1980s when Israeli inflation skyrocketed to Latin American dimensions and the stock market was dominated by an Albanian-style pyramid scheme—explaining why the last part of the book is a largely apologetic discussion of the Aridor era. Plessner, it turns out, remains a True Believer in the Aridor Doctrine of fighting inflation through the mis-pricing of exchange rates and printing money; this section will be hard to digest for those who still recall that pained chapter in Israel’s economic history. Hence, like the movie Apocalypse Now, the trick to enjoying this book is to leave a half hour before the end (in this case, that means skipping the last two chapters); the rest of the book is worth the ticket.
