The Changing Political Economy of Israel

In the first years of Israel's existence, the economic system was highly politicized, and political parties controlled most of the resource allocation. With time, this structure has gradually changed. The changes have not been sweeping or revolutionary but the result of several processes: a gradual transition of ideological beliefs, the impact of the United States as a role model, an increasing globalization of the economy, and the perception of most citizens that the issue of the immediate danger of annihilation has become less pressing. Several events may be seen as watersheds in the transition of the political economy of Israel. This article emphasizes mainly four: (1) the refusal in 1980 of the then minister of finance, Yigal Horowitz, to renew the agreement with the Histadrut on bonds; (2) the New Economic Policy of 1985 and its impact on the economy in general and on agricultural settlements in particular; (3) the capital market reforms; and (4) the sweeping victory of Haim Ramon in the Histadrut elections of May 1994 and the resulting changes in the power of that organization.