Inequality in Israel: In the End, Israel Produced its own 1%

Shlomo Swirski reviews the Zionist project from its inception to the present day and points to the roots of inequality in Israeli society and the production of the upper one percent

Towards the end of Yuri Slezkine’s brilliant book The Jewish Century, in which he follows the three main paths taken at the turn of the 19th century by the Jews of the Pale of Settlement[1] – emigrating to America, joining the Zionist project, and joining the Soviet project, Slezkine suggests that one century later, at the turn of the 20th century, the great majority of the descendants of those Jews would agree that those who chose to go to America had been the wisest.

I beg to disagree. Not about the fate of those who chose the Soviet project, whose collapse in the late 1980s led to the emigration of most of the Jewish population of Russia and the other ex-Soviet republics. Rather, about the presumed clear advantage enjoyed by those who chose America  over those who chose the Zionist project. True, American Jewry is probably the most successful Jewish diaspora community ever, in terms of its integration into the wider society, its cultural and religious freedom, and its relatively high standard of living. For most of the twentieth century, American Jews have been the “rich American uncle” of many a Jew – as well as of many non-Jews – around the world. Furthermore, American Jews have learned to use their privileged position to exercise significant political clout, which allowed them, among other things, to both defend and eventually extricate Jews from the ex-Soviet republics and to secure US support for Israel.

But the descendants of the Pale of Settlement Jews who opted for the Zionist project – at the time a tiny minority compared to those who chose the other two paths – have done quite well themselves. First and foremost, they were successful in bringing their project to fruition in the form of a sovereign state — a feat that few believed possible. That state has become a regional military and economic power, enjoying a geo-strategic alliance with the United States. Within that state, the descendants of those Pale of Settlement Jews stand firmly at the helm and occupy most of the top political, military, economic, cultural and scientific positions. As such, many of them now enjoy a standard of living that brings them close to their rich cousins in the US.

So which of the two streams of Pale of Settlement Jews was the wisest? That depends on what kind of value one attaches to the fact of a collectivity “owning” a state – an asset not measured in social and economic statistics. On an individual or family level, where statistics abound, it is probably true that most US Jews enjoy a higher standard of living than most of their Israeli cousins; in this sense, their forebearers may have been the wisest. Yet like their American cousins, the Israeli descendants of Pale of Settlement Jews are better off than most of their countrymen.

But who are their countrymen – those other Israelis? Mainly two groups that joined – if that is the proper term — the Zionist project under conditions of war, deportation and evacuation, conditions that have much to do with present-day inequality: Mizrahi Jews[2] and Palestinian citizens of Israel. The descendants of the Pale of Settlement Zionists are part of the Ashkenazi[3] ethnic group.

A first, quick glimpse at the privileged position of the Ashkenazi Jews can be gained from income statistics: in 2013, second generation Ashkenazi wage earners (Israelis whose father had come from Europe or America) earned about 33% above the average wage; second generation Mizrahi Jews earned about 10% above the average wage, while Palestinian Israelis earned 33% below the average wage.[4]


Pale of Settlement Jews were the majority of the troops that marched behind Theodore Herzl’s flag. They were undergoing pauperization and proletarianization. They were also experiencing marginalization in the midst of rising nationalism amongst the various ethnic groups sharing with them space under the Russian Empire. Nationalism – Jewish — seemed to some like the key to a better future. The only peculiarity was that it could not be accomplished in Europe, where Jews, though they had been part of Europe for more than a millennium, could claim no space of their own.

Zionism began as a diaspora-centered movement, but once settlement in Palestine commenced, securing the Zionist Yishuv‘s[5] survival and success became as important as saving Jews in the diaspora. Furthermore, diasporic Zionist activity was rather restricted for much of the period leading up to 1948, first because of WW1, then due to the closing of the gates for the Jews of the Soviet Union, then because of WW2. The result was that for most of the pre-1948 period, the Yishuv was left to its own devices and proceeded to develop political, military and economic structures that were appropriately called “a state in the making.” When Jewish immigrants began arriving en masse in independent Israel after 1948, they were coming not to a diffuse and open-ended entity that had been waiting for their arrival before embarking on the historical project of shaping a Jewish state and society, but rather to a polity with a well seasoned political class that was in firm control of capital flows, of land and infrastructures, of school and health services, and of a regular army.

How does capital develop? Not necessarily through the making of money. The country was bereft of natural resources. The economy was one of subsistence farming where most of the land was owned by several hundred Palestinian families. The major innovation of the 19th century was the cultivation of citrus for export. The Zionist arrivals from the impoverished Pale of Settlement brought no capital with them. Many of the cooperative and communal structures they created, like the Kibbutz, arose out of the greater likelihood of being the recipients of diasporic Zionist funds as collectives rather than as individuals, as much as out of socialist and egalitarian ideology. The wealthy European Jews did not come. In fact, they never would, contrary to Herzl’s belief that once poor Jews had laid the infrastructures, rich Jews would follow.[6] When wealthy Jews did finally make their appearance, they did so as a local, rather than imported product.

The British, who took over from the Ottomans after WW1, invested mainly in imperial infrastructures — roads, railways, ports, an airport, telephone and telegraph lines. These projects created a labor market in which Zionists and Palestinians contended over jobs. The main Zionist economic endeavors were farming and construction. Industry made its first major strides during WW2, supplying Allied troops. The Jewish standard of living was higher than that of most Palestinians, but far from Western standards. The help of the rich uncle in America was in high demand.

The roots of future Ashkenazi ascendancy are to be found not in the economy of Israel’s pre-state period but in the development of a strong political structure. First and foremost, as already mentioned, the formation of a “state in the making” headed by a highly effective political class. Capital is not just the fruit of production: it is also the fruit of appropriation, as noted by Shimshon Bichler and Yonatan Nitzan, following Thorstein Veblen.[7] Appropriation refers primarily to what one capitalist does to another, but not just: the Zionist political class accumulated political and economic capital by controlling the inflow of Zionist funds as well as the allocation of purchased land, of labor and of services.

The political class of the Yishuv also created cultural capital that was destined to play an important role in determining individual and communal opportunities after 1948. The Yishuv in particular and the Zionist movement in general saw themselves as part of European-Christian civilization; Arab and Muslim civilization, of which Mizrahi Jews were an organic part, were seen as pre-or-non modern and alien. The Zionist Yishuv adopted Hebrew over possible alternatives, most obviously Yiddish, the language of the Pale of Settlement Jews, but also Arabic, the language spoken by Palestinians and by most Jews from Arab countries. The curriculum of the Yishuv‘s schools reflected all those choices: languages (Hebrew, and English as the foreign language – rather than Arabic or French, spoken by many North African Jews); literature (Hebrew and European); history (Europocentric).

Last but certainly not least of the forms of non-money capital was the creation by the Yishuv of a military apparatus. Given the centrality of the conflict in every facet of Zionist life, [8] military command gave and still gives title to political command as well as to command of collective resources. The generation that fought in 1948, for example, produced many national leaders, best known among them former Chief of Staff Moshe Dayan and former Chief of Staff Yitzhak Rabin.[9]


The pre-1948 Palestinians – who circa WW1 had embarked on their own national project – accumulated less capital, both economic and non-economic, than the Zionists.[10] Their political and military institutions were slow in coalescing; in fact, in both areas the Palestinians depended heavily on the neighboring Arab states as well as on the British Mandate authorities.

How is a proletariat formed? One way is by a people losing their land in a war. Palestinian capital consisted mainly of land – and that is exactly what they lost in 1948. Israel gained 78% of the land of British Palestine while retaining only about 15% of the Palestinian people. After the war the Israeli state further confiscated about half the land remaining in the hands of that 15%.

The Palestinians who became citizens of Israel lost not only land but also their social, political and economic leadership, most of which found refuge in neighboring Arab countries. Nor could they lay claim to economic opportunities open in the new state of Israel, as for almost two decades after 1948 they were officially branded as suspicious aliens and were submitted to military administration. Bereft of land, leadership and full citizenship, the only avenue of subsistence open to them was as “hired hands,” the proverbial proletarian whose only possession is his physical labor power. Hardly a mutually beneficial meeting between employers and employees in the neutral arena of the free market, as economists would have it. As Karl Polanyi has phrased it, the achievement of a free market, and we can add, “free labor,” requires rather heavy intervention on the part of the state.[11] Instead, what we have here is a clear case of what historian Sven Beckert has recently aptly termed “war capitalism.”[12]


How is a proletariat formed? Another way is by a community running for safety and in the process becoming dependent on others.

For the Jews in Arab and Moslem countries – in 1948, some 800,000 out of a post-Holocaust world Jewry of about 11.5 million – Zion, as Amiel Alcalay pointed out, was part of a topography and civilizational space in which they “lived and traveled …from one end to the other, a world in which the Holy Land was just another stop on a familiar and well-traveled route.”[13] These Jews, unlike their coreligionists in Eastern Europe, who had traditionally been “a nation apart” from their surroundings, shared a “native space” with their neighbors. In Iraq, the Jewish community – one of the largest — had been natives of the land for more than two millennia, anteceding Islam. Interviewed by a Zionist newspaper in 1909, one of their grandees, Yekhezkel Sasoon, described them as “totally Arab” in their comportment, their customs, their speech and their language.”[14] To paraphrase historian Moshe Zimerman, if Pale of Settlement Jews were 90% Jewish and only 10% Russian or Polish, Arab Jews were 90% Arab and only 10% Jewish.[15] To them, as to all Jews, Zion was a central feature of collective remembrance and of the holy books, but an exodus of Jews from all Islamic lands and a re-gathering in what was at the turn of the 20th century the Ottoman district of South Syria was not perceived as an immediate, practical collective need. Neither was mass emigration to Western countries.

The Arab Jews benefitted from the collapse of the Ottoman empire and the intrusion of the British and French empires, as one of several minorities whose support was elicited by the new rulers. In Algeria, the French endowed local Jews with French citizenship. In Iraq, prominent Jewish businessmen established commercial networks ranging throughout the British Empire. For the urban business and educated strata, if there was a new Zion it was often London and Paris rather than the one sought by Pale of Settlement Zionists.

Zionism, for its part, showed little interest in Arab Jews. Two developments were to change that: first, the Jewish Holocaust in Europe, which destroyed the traditional sources of Zionist recruits: “[Israel],” declared David Ben Gurion in 1948, “lacks Jews… and as long as that lack is not fulfilled… there is no assurance for the survival of the state.”[16] The second was the Zionist/Palestinian conflict that aroused suspicions towards the local Jewish communities in Arab countries. The conflict culminated in the war of 1948, which made life for some Jewish communities in the Arab world highly precarious. Arab Jews became an enemy within. David Ben Gurion put it bluntly: the Arab Jewish community “is the only Jewish community in the world that may be a victim of Zionism.”[17] Now Zion became an immediately practical need. The new state of Israel launched a campaign to move Jews from around the Middle East and North Africa to Israel. Zionism turned overnight from victimizer to savior of Arab Jewish communities.

Within a few years’ time, a virtual mass evacuation took place – mostly to Israel. Most Jews took little with them; many had little to take to begin with. The rich, very much like the European Jewish rich, did not come; they opted for France or England. Jewish existence in Arab countries came to an end.[18] Israel became the largest concentration of Jews from Arab lands. Within Israel, they soon became a majority amongst Israeli Jews.

The mass evacuation was accompanied by a virtual collapse of communal structures. Arab Jews were now almost totally dependent on Israel. It was Israel that conducted negotiations, direct or indirect, with the governments involved and commanded the logistics of evacuation,[19] often challenging the established communal authorities, whose vision of the future did not necessarily include mass immigration to Palestine.[20]

Most Arab Jews arrived in Israel as emergency evacuees, shorn of their material possessions and of their centuries-old communal organizations. Tragically, they found themselves in a position analogous to that of the Palestinian refugees, even though they had not been driven out of their homes by force of arms. Tragically too, the new state took advantage of their coming in order to establish possession of lands and villages recently abandoned by Palestinian refugees.  Much like the Palestinians, they too became actors in a drama of war capitalism, only on the other side – as new immigrants given formerly Palestinian lands to cultivate and former Palestinian houses to live in.


How does accumulation begin? One way is by appropriating new capital assets.

As we saw, the 650,000-strong veteran Yishuv of 1948 did not possess much economic capital. But now, military triumph and statehood had brought with them two new capital assets: land and labor. The new lands were those conquered in 1948. The new laborers included both the 150,000 remaining Palestinians and the mass of Jewish immigrants who arrived in the first decade of statehood: about one million, more than half from Arab countries, less than half from post-Holocaust Europe. But then there was also a flow of financial aid to the new state: contributions from Jewish communities abroad, US government loans, and German Holocaust reparations. To be sure, the country was far from rich and the uncle in the US was still very much needed – in fact, that uncle constituted one more advantage many Ashkenazi veterans enjoyed over their new countrymen, Arab Jews and Palestinians.

Armed with these new capital assets, the Israeli state entered what today would be called its “developmentalist” stage. The first developmental target was expansion and empowerment of the state apparatus itself: many of the veteran Ashkenazim now became civil servants, teachers, policemen, commanders, and judges. Many others benefitted from state contracts. Sociologists Rosenfeld and Carmi labelled them all a “state-made middle-class.” [21]

The two major tasks of the newly empowered state were, first, to establish control over land, and second, to house the immigrants. Holocaust survivors, the first to arrive, were often accommodated in the center of the country, a fact which would soon turn into a relative advantage. Mizrahim[22] were more often settled in outlying areas. One outstanding example is that of the some 25 hastily set up so-called “development towns.” Erected in outlying areas with the purpose of establishing a claim to national proprietorship and lacking proper economic infrastructures, they suffered long years of crippling unemployment. They were “rescued” by a state-led project of rapid industrialization that began in the late 1950s. The new factories were mostly low-skill, low-wage textile or food processing plants. Residence in a “development town” and low-wage employment in low-tech textile or food industries became a central part of the Mizrahi narrative.

There are two other parts to the Mizrahi narrative. One is what I like to call welfarization: long periods of unemployment, low wages, and a large number of unemployables gave rise to a high rate of poverty. Discontent led to frequent “bread and jobs” demonstrations. The government’s standard response was to offer yet more low-wage, low-skill jobs — but not necessarily better pay. Over time it developed a welfare apparatus: first the degrading “dole,” then children’s allowances,[23] then income maintenance. Children’s allowances were at one point officially defined as aimed at bringing the family of workers earning a minimum wage above the level of the “dole”.[24] Throughout, welfare was tainted as a handout to Mizrahim: income maintenance, for example, was instituted by Prime Minister Menahem Begin as a show of gratitude to Mizrahi voters who deserted Labor and voted for him in 1977.

The last but not least part of the Mizrahi narrative is educational tracking. By the late 1950s, there were plenty of signs of widespread scholastic failure among Mizrahi children. Few were making it into high school and even fewer into university. Failure was hardly surprising in view of the fact that most were studying in hastily put together schools, with a high percentage of unqualified teachers, a new and unfamiliar curriculum, and a new language. Fearing electoral backlash, but convinced that scholastic failure reflected lower intellectual capabilities, political and educational leaders introduced remedies long applied to proletariats in western countries, foremost among them high school vocational tracks. In addition, special curricula were developed for “pupils in need of special nurture,” overtly defined as “the son or daughter of a father who is a Jew of African or Asian origin who had a low level of schooling and a large family.”[25] The road to hell is paved with good intentions: ta’un tipuach, the Hebrew word for such a pupil, ended up stigmatizing generations of Mizrahi pupils as having lower intellectual capacities.  Schools would play an important role in the re-production of the ethnic division of labor.


How is a poor proletariat formed? One way is by being kept below the horizon of the developmental state.

The Palestinian minority benefitted only from the crumbs of Israel’s state developmentalism. Secluded within their villages under military government, needing permits to exit their own Pale of Settlement, with many of their lands confiscated, they became dependent on agricultural and industrial employment in Jewish localities. They were systematically excluded from government economic development plans.[26] State employment was restricted to a bare minimum, mainly in such services as teaching. They had to wait until 1959 to be even admitted to the Histadrut, the federation of labor unions. Needless to say, service in the military, a major employer, was not a possibility. Welfare was slow in coming, and then it was rigged in favor of Mizrahim:  when in 1970 the government decided to raise children’s allowances, in consideration of Mizrahim who fought in the 1967 war but did not share in the subsequent prosperity, it conditioned receipt of the increments on service in the Israel Defense Forces.[27]


State-led developmentalism was highly successful, in conventional economic terms. From the mid-1950s until 1973, with the exception of a sharp recession in the mid-1960s, Israel experienced continuous and rapid economic growth.[28] The large investments – mostly by the state — in agriculture, construction, and industry greatly strengthened the fledgling corporate structure, in those years mostly state-or Histadrut-owned. Growth helped expand the managerial class, mostly veteran Ashkenazim. In 1975, 32.4% of all employed Ashkenazim were to be found in the category of managerial, academic and professional workers, compared to 11.8% of employed Mizrahim and 9.3% of employed Palestinians. In contrast, only 25.5 % of all employed Ashkenazim, but 42.1 % of employed Mizrahim and 55.3 % of employed Palestinians were categorized as skilled, semi-skilled and unskilled workers.[29]


Today, largely Mizrahi development towns, together with Palestinian Israeli villages, are routinely lumped together under the euphemistic concept “periphery.” Periphery, of course, is a concept that circumvents much more meaningful – but politically troubling — issues such as class, ethnos and nation. “Periphery” is non-controversial, as it places the emphasis on a technicality: distance from the “center.”

Economists even have a technical solution for such a technicality: rapid transport out of the periphery and into the center. But alas, the fact that one can reach the geographical center on a fast train does not necessarily make one part of the political-economic center.


Things should have been different. After all, the period we have been discussing, extending roughly until the 1967 war, was the one many refer to as the “socialist” chapter in Israel’s history: the party in power was “The Party of the Workers of Eretz Israel”; most workers belonged to the powerful Histadrut; and the collectivist Kibbutzim were at the forefront of picture-card Israel, the equivalent of today’s hi-tech start-ups.

But if, as some[30] argue, socialism still stood a real chance of implementation after 1948, it soon lost it. The Labor party was a nation-and-state builder as much as it was a force for socialism. For the Palestinians, Labor was the enemy of 1948 and the agency behind the military government imposed on them afterwards. For Mizrahim, Labor was the party in charge at the time of their peripherialization and proletarianization. The socialist Histadrut took years to unionize the Palestinians. In the eyes of the Mizrahim, it was not just a labor union but also an employer. Furthermore, as both a labor union and an employer it often stood shoulder to shoulder with the government when low paid Mizrahim protested in what both institutions labeled “wildcat strikes.” The Kibbutzim, closed communities, did not cater to candidates “not trained in European socialist values”; they certainly were not open to Palestinians.

When the social critics of present-day Israeli neo-liberalism speak nostalgically about the past, what they have in mind is not necessarily state-led socialism or Kibbutz-like collectivism but rather Israeli state developmentalism: that is, state rather than market control of capital flows; the “public option” in such areas as housing and pensions; a commitment to full employment; free public education; public health care that is mainly state-supported.

State-led development was not universalistic and certainly not egalitarian; rather, it was tracked and exclusionary. Yet, the hegemonic agent was a collective one, and that fact carried with it the hope of gradually achieving a more universal and inclusive development.


How does state-led developmentalism come to an end? One way is by a great military victory that changes a nation’s agenda.

The Six Day War was a major political-economic turning point. Victory proved Israel to be a major regional player. Following the war, the Israeli leadership decided to maintain that status, with the help of the United States. The result was a turn from nation building to regional power building.

Contrary to 1948 and 1956, after 1967, the defense budget was not cut back to peace time size and would remain high for years. Massive military infrastructures were built. The armed forces were expanded, as Israel at first held on to all the conquered territories. Most importantly, from the point of view of this paper, in the aftermath of the war, Israel embarked on a massive expansion of its weapons industries, a project that catapulted it for the first time into the world economic scene.

The weapons industries combined Israel’s military expertise with its Western-class network of universities and research institutes to gain a relative advantage in the global market. It is of course impossible to guess in retrospect which way the Israeli economy could have gone after 1967, but it is clear that, lacking oil or gas, the weapons industry offered it a good way out of typical Middle Eastern economies. If up to 1967 exports comprised mainly agricultural produce and polished diamonds, after 1967 industrial exports exceeded both, and by the 1970s, military industrial products constituted a quarter of Israel’s exports. This was accomplished with extensive state funding, siphoned mostly into publicly owned enterprises. But arms production also became a central element in the growth of some of Israel’s large private business groups. The Israeli business elite entered the global scene. Executives who ran what were in Israeli terms giant enterprises, former generals who moved from prestigious military careers into cutting arms deals with foreign heads of state, bankers who performed complex international transactions, researchers who took part in state of the art military projects — all of these, and more, represented the new turn of the Israeli economy.

The collapse of the Soviet Union and the consequent crisis in international weapons markets, accompanied by deep budgetary cuts introduced in the late 1980s, caused the Israeli military industrial complex first to contract then to become partially privatized.

Many former state employees now took advantage of their technological expertise to embark upon private hi tech ventures, in what economist Moshe Yustman called “a clear case of public assets being made available for commercial use by individuals without anything being given in return.”[31] Hi tech, mostly security-related soft- and hardware, would soon come to color Israel as a whole as a Start-Up Nation.[32] As accurate a description of Israel, I should add, as A Kibbutz Nation would have been back in the 1940s and 1950s; in fact, hi tech industries and services employ only about 10% of the Israeli work force. Most are Ashkenazi graduates of universities and of prestigious military intelligence units. Average hi tech wages are triple the median wage and double the average wage: a veritable aristocracy of labor. Moreover, hundreds of hi tech entrepreneurs became millionaires by selling their companies to big multinational corporations.

The descendants of Pale of Settlement Jews who opted for Zionism were now doing very well, thank you. Packages from the rich uncle in America became a distant memory. (Though to be sure, Israel as a country still highly cherishes the annual $ 3 billion military aid package from Uncle Sam, which frees the government of the necessity of basing the full defense budget on local taxes – on hi tech workers, among others).

High defense expenditures would remain a constant feature of Israel’s fiscal policy: the present rate of about 8% of GDP is much higher than that of most Western countries. Many Israelis, of course, benefit from these outlays, among them Mizrahi men who were able to join the middle class by serving in security and defense agencies as career soldiers, policemen, prison guards. Yet high defense outlays act as a constant hindrance to investment in better schools and social services (both of which employ many Mizrahi women) – in other words, in the very services that could enable more Israelis to join the flourishing hi tech industries. The power-building project came at a high cost to the still incomplete developmentalist nation-building project.


The 1967 victory did not bode well for the largely Mizrahi development towns. First, the new military-industrial complex, which was centered mainly in and around Tel Aviv, by-passed and left behind Israel’s first, low tech industrial revolution, which was centered in the development towns. More importantly, the development towns were by-passed and left behind by the Jewish settlements in the Palestinian territories, the single largest post-1967 governmental civilian project. While development towns were built as typical post-WW2 working-class neighborhoods, the settlements were built to the standards of the middle classes in the 1970s – single-story houses surrounded by green areas dotted with spacious public structures. Generous government funding allowed for high-standard education and health services. Geographical proximity to Israel’s central cities gave them entry to the best job markets, in contrast to the situation of the “peripheral” development towns. While the settlers, at first mainly the descendants of religious Ashkenazi Zionists, managed to position themselves as contenders for the Zionist throne, acting in unison as a powerful political lobby, the mostly Mizrahi leaders of the widely spread development towns, perceived as representatives of the poor and the weak, never managed to lay claim to the role of formulators of the national agenda.


How is inequality increased? One way is by removing the bottom from under the feet of the local workers by encouraging an unending flow of cheap, unorganized and unprotected foreign laborers.

In the wake of the 1967 war, Israel allowed Palestinians laborers from the newly occupied West Bank and Gaza Strip to work in Israel, as part of a policy of “enlightened occupation.” The door, once opened, would remain open for an unending stream of non-Israeli workers. The main effect would be to weaken the bargaining power of their Israeli counterparts. The Palestinian laborers and most of the foreign workers who came in their wake were employed in low skill jobs in agriculture and construction, which by the 1980s and 1990s were no longer leading growth industries. Salaries were high by Palestinian standards but low by Israeli standards. These workers received no protection from the Histadrut and hardly any from the Israeli state. Their jobs were totally insecure, as the government could shut the doors at any time. This is exactly what it did during the first Palestinian Intifada. But when Israel curtailed the entry of Palestinians, farmers and building contractors pressured the government to allow their replacement by migrant workers from around the world. Soon Thais were working the fields of collective and cooperative farms, Rumanians were working on construction sites, and Phillipino women were tending to elderly Israelis.

In the early 1990s, a large wave of Jewish immigrants arrived, a demographic gift from heaven for Israeli Jews: most – close to a million — from the former republics of the Soviet Union; a minority of about 100,000 from Ethiopia. Many of the former, especially the young and the well-educated, joined the ranks of the “aristocracy of labor”; many of the others went into low wage jobs such as standing guard at the entrance to public buildings – a job “created” by the Palestinian uprisings.

The constant influx of cheap labor gave rise to a new kind of employer, the manpower agency, always ready to provide large contingents of equally unqualified and low-cost laborers, for whatever menial job is in the offing.


How does inequality become entrenched? One way is by de-unionization of the labor force.

The Histadrut, which should have risen up in protest against the infux of un-organized workers, gradually lost its grip on the job market. At the lower end of the labor scale, Palestinian and other non-Israeli workers were too fluid a group to organize. At the high end, the hi tech industries were run on the American practice of non-union shops, with workers hired on individual contract. Union membership declined, from around 80% in the 1980s to 25% at the time of writing. Unions remain effective in only a small number of areas – mainly the civil service and the remaining government corporations.

Not only that, the Histadrut, once a major employer and credit provider, also lost most of its economic clout, when the government forced it in 1994 to separate from Israel’s largest Health Maintenance Organization, up to then its largest source of income, as HMO membership fees were passed on to the Histadrut. It also lost its pension funds, whose money, once used to finance Histadrut enterprises, among others, is now controlled by private insurance companies and serves to finance Israel’s private corporations.


How does capital grow? One way is by public assets being appropriated by private entrepreneurs – with generous help from the state.

In 1985, the Israeli government, faced with galloping inflation caused, among other things, by expansive military outlays, gave up the remaining pretensions to state-led developmentalism and opted for a Reaganite/Thacherite macro-economic model. That model called for reduction of the state apparatus and of its budget, for placing economic growth at the top of the national agenda, and for handing over responsibility for producing that growth to the business elite.

Within a few years, many government and Histadrut corporations, which had grown and prospered thanks to historical infusions of public funds and of “national” labor, were privatized, among them parts of the military industrial complex. Private investors and corporations were now able to grow to world-class dimensions. Over the next two decades, a relatively small number of family-owned business pyramids surfaced: according to a recent government report, 31 business groups control 2,500 Israeli companies.[33] The state, though no longer the proprietor, gave these business groups a generous start, acting as what sociologist Michael Shalev has called a welfare state for business – cheap and ample credit, low taxes, inexpensive and unorganized labor, lax regulation.[34]

A small layer of grand capitalists emerged – including a few Mizrahim — for the first time since the start of the Zionist project in Palestine. We will recall that the rich among European Jews did not join the Zionists in Palestine. Neither did the rich among the Jews of Arab lands. Today’s rich Israelis are thus entirely home-made.

One decade after 1985, Merrill Lynch began including Israel in its international list of millionaires and billionaires. The Boston Consulting Group and UBS followed suit. According to UBS, in 2013 Israel could boast 385 multi-millionaires that held between them US$75 billion, the equivalent of 10% of all financial assets in the country.[35]  

In turn, the new business elite created a highly remunerated managerial class. In 2012, the average cost of the CEOs of the top 100 corporations traded on the Tel Aviv Stock Exchange was 42 times the average wage and 87 times the minimum wage of Israelis that year.[36] Add to this the high tech millionaires, and you have an Israeli top 1%.

At the other end of the income scale, the proportion of families living below the poverty line almost doubled – from around a high in itself of 10% in the mid-1980s to a very high 20% in the span of two decades following 1985, due to both the worsening conditions in the labor market and to cuts in social security and assistance allowances.

When does inequality become a major political issue? When the middle class senses that it is losing out.

The rise of the 1% has impacted the middle and upper middle classes.  Like in most Western societies, the Israeli middle class had been the main benefactor of state-led developmentalism through state employment and state services. Now they were facing a gradual distortion of those services, caused by the infusion of private money into public services. The 1% uses its riches to ensure its children the best education, through out of pocket parental additions to public schools; to further ensure its children higher education in private high-tuition colleges; to ensure itself the best medical facilities and timely treatment through extra out of pocket payments to public doctors and institutions; to purchase high-end apartments in several dozen high-rise buildings in and around Tel Aviv. The middle class, raised in an era in which “everybody” (meaning mostly Ashkenazi residents of “good” neighborhoods in and around the big cities) had access to decent public schools, high-quality medical care, and affordable housing, now find themselves having to pay more and more in order to catch up to the standards set by the 1%. This is what economist Joseph Stiglitz called “behavioral trickle down” – the feeling that you must join a race you cannot win. Winning is quite impossible, given the wide gaps: upper middle class Israelis – say, hi tech workers who earn twice the average wage, can hardly compete with corporate CEOs or hi tech millionaires. Thus in the summer of 2011, half a million mostly Ashkenazi Tel Avivians, many of them fourth generation Pale of Settlement Zionists, took to the streets, under the banner of “We Want Social Justice.”

That does not necessarily mean, of course, that their great-great grandparents had made the second best choice, if for nothing other than the fact that some of the great-great grandchildren of Pale of Settlement immigrants to the United States were probably themselves in the streets around New York’s Wall Street, protesting against the concentration of capital in the hands of the American 1%. After all, as Piketty has shown, concentration of capital and power in the hands of a few is common to many countries. So is the diminishing capacity of the middle class to maintain its position across generations.


During the second Palestinian intifada (2001-2003), which was the main cause of Israel’s longest economic crisis, the government opted for a policy of fiscal austerity, designed to convey a message of fiscal stability in the face of political and military instability. The neo-liberalism of 1985 was reinforced by the cost of Palestinian resistance to the Israeli occupation. Budgets – especially for social services and social security – were severely cut and strict caps were placed on expenditures, with the aim of reducing national debt. Within a bit more than a decade, debt was reduced from more than 100% of GDP to less than 60% — the norm set by the European Union (but not strictly followed by many of its own senior members). In August 2018, Standard and Poor’s, citing Israel’s reduction in its national debt, raised Israel’s credit rating from A+ to AA-, the highest ever.

Thus, Israeli occupation of Palestinian lands can continue unperturbed, so long as the government sticks to a low debt policy.

Israel’s high poverty rate – hovering around 18%-19%, can also continue unperturbed, so long as a low national debt and high credit rating are maintained.


Published in Eliezer Ben-Rafael, Julius H. Schoeps, Yitzhak Sternberg and Olaf Glöckner (Eds.), Israel: The Major Debates. De Gruyter Oldenbourg. 2016.



[1]  A region of imperial Russia to which permanent residency by Jews was restricted. It included much of present-day LithuaniaBelarus, PolandMoldovaUkraine, and parts of western Russia.

[2] Mizrahi Jews: Jews hailing from Arab and Moslem lands. The Israel Central Bureau of Statistics does not use the category of “Mizrahi” but rather “Jews born in Asia or Africa” or, for the second generation, “Jews whose fathers was born in Asia or Africa.”

[3]Originally referring to Jewish residents of German lands (Ashkenaz), many of whom migrated to Eastern Europe in the late middle ages and formed there the single largest concentration of Jews world-wide. The Israel Central Bureau of Statistics does not use the category “Ashkenazi” but rather “Jews born in Europe or America” or, for the second generation, “Jews whose fathers were born in Europe or America”.

[4]  Swirski, Shlomo, Etty Konor-Attias and Emma Rapoport. 2015. Israel, A Social Report – 2014. Tel Aviv: The Adva Center.

[5] Hebrew for “the settlement,” the term used to refer to the Zionist community in Palestine up to 1948.

[6] Though some of them, most prominently the Rothschilds, made generous contributions.

[7]  Shimshon Bichler and Jonathan Nitzan. 2001. From War Profits to Peace Dividends: The Global Political Economy of Israel. Jerusalem: Carmel. P. 76. (In Hebrew)

[8] Ehrlich, Avishai. 1993. “A Society at War: the National Conflict and the Social Structure.” In Uri Ram (ed.), Israeli Society: Critical Aspects. Tel Aviv: Breirot.

[9]  It would take 35 years for the first Mizrahi chief of staff to be appointed, in 1983. Palestinian Israelis, with the exception of the Druze minority and a small number of volunteers, do not serve in the IDF.

[10] Metzer, Jacob, and Oded Kaplan. 1990. The Jewish and Arab Economies in Mandatory Palestine: Product, Employment and Growth. Jerusalem: the Maurice Falk Institute for Economic Research in Israel (In Hebrew), pp. 46 and 115.

[11] Polanyi, Karl. 1957. The Great Transformation. Boston: Beacon Press. p. 140.

[12] Beckert uses the term to explain the rise of a particular manifestation of capitalism, connecting slavery, the cultivation of cotton and the industrial revolution, and involving expropriation of indigenous peoples, imperial expansion, and the assertion of sovereignty over people and land by entrepreneurs. Beckert, Sven. 2014. Empire of Cotton: A Global History. New York: Alfred A. Knopf, p. xv.

[13]  Alcalay, Amiel. 1993. After Jews and Arabs: Remaking Levantine Culture. Minneapolis: University of Minnesota Press, pp. 20, 24.

[14] Kazaz, Nissim. 1991. The Jews in Iraq in the Twentieth Century. Jerusalem: The Ben Tzvi Institute for the Study of the Jewish Communities in the East (In Hebrew), p. 319, appendix A.

[15] Professor Zimerman referred to the contrast between German Jews and Polish and Russian Jews.

[16] Hacohen, Dvora. 1994. Immigrants in Turmoil: The Great Wave of Immigration to Israel and its Absorption, 1948-1953. Jerusalem: Yad Izhak Ben-Zvi. (In Hebrew), pp. 41-42.

[17] Hacohen, Dvora. 1994. Immigrants in Turmoil: The Great Wave of Immigration to Israel and its Absorption, 1948-1953. Jerusalem: Yad Izhak Ben-Zvi. (In Hebrew), pp. 212.

[18]  In some of the non-Arab Muslim countries that were not directly involved in the Palestinian conflict, such as Iran and Turkey, Jewish communities remained.

[19]  Tsur, Yaron. 1992. The Jews of North Africa in the 19th and 20th Centuries. Tel Aviv: The Open University. (In Hebrew). P. 117.

[20] Meir, Esther. 1993. Zionism and the Jews in Iraq, 1941-1950. Tel Aviv: Am Oved. (In Hebrew). P. 47.

[21] Carmi, Shulamit, and Henry Rosenfeld. 1979. “The Appropriation of Public Funds and the State Made Middle Class.” Mahbarot LeMehkar ULebikoret, Vol. 2 Haifa. (In Hebrew).

[22] A term I introduced in 1978, and now universally used, to refer to an ethno-class formed under the circumstances of life shared by most Jews who had come from Arab lands.

[23] They were referred to as “families with many children,” at that time mainly Mizrahim and Arabs. But Arabs were not eligible for the full benefit until the 1990s, under the Rabin government.

[24]  Sharon, Esther. 1988. “The Scheme of Children’s Allowances in Israel, 1959-1987. Where It Comes from and Where It Is Headed. Rivon LeKalkala, 134, 134. (In Hebrew). P. 207.

[25]  Algrably, Mordechai. 1974. “Criteria for Typification of the Social Composition of Schools and a Method for the Allocation of Special Nurturing Budgets Among Schools.” Megamot, Vol. 21, No. 2. (In Hebrew).

[26]  Lustick, Ian. 1980. Arabs in the Jewish State: Israel’s Control of a National Minority. Austin: Texas University Press. Ch. 5.

[27] Rosenhek, Zeev. 1995. The Origins and Development of a Dual Welfare State: The Arab Population in the Israeli Welfare State. Unpublished Ph. D. Dissertation. Jerusalem: The Hebrew University. p. 185.

[28]  Syrquin, Moshe. 1989. “Economic Growth and Structural Change: An International Comparison.” In Ben Porath, Yoram (Ed.), The Israeli Economy: Maturing through Crises. Tel Aviv: Am Oved. (In Hebrew). Shalev, Michael. 1992. Labour and the Political Economy in Israel. London: Oxford University Press. p. 238.

[29]  Israel Central Bureau of Statistics, Statistical Abstract 1976: table 12/17.

[30]  Rosenfeld and Carmi.

[31] Yustman, Moshe. “Changes in the Industrial Structure of the Israeli Economy.” In Ben Porath, Yoram (Ed), The Israeli Economy: Maturing Through Crises. Tel Aviv: Am Oved. (In Hebrew). P. 568

[32]  Senor, Dan, and Paul Singer. 2009. Start-up Nation: the Story of Israel’s Economic Miracle. New York: Twelve.

[33]  Ynet, December 11, 2014.

[34]For two excellent analyses see Ram, Uri. 2007. The Globalization of Israel. New York: Routledge; and Shafir, Gershon, and Yoav Peled. 2002. Being Israeli: The Dynamics of Multiple Citizenship. Cambridge: Cambridge University Press. (2002)

[35] UBS. 2013. World Ultra Wealth Report 2013.

[36]  Swirski, Shlomo, Etty Konor-Attias and Arianne Ophir. 2014. Israel: A Social Report. Tel Aviv: The Adva Center.