The=20 Rockefeller Boys

Shimshon Bichler and Jonathan Nitzan

Jerusalem and=20 Montreal, January = 2004

Review=20 of Avi Ben Bassat (ed.)=20 (2002)=20 The Israeli Economy, 1985-1998. From Government Intervention to = Market=20 Economics (Cambridge,=20 Mass.=20 and London:=20 The MIT Press; Jerusalem:=20 The Maurice Falk Institute for Economic Research in=20 Israel).

This review was=20 commissioned in August 2003 by the Journal of Cold War = Studies.Following=20 our explicit inquiry, the journal confirmed that our text would be = published =93as=20 is.=94 With this assurance, we submitted the paper in January 2004. The = paper was=20 longer than the journal=92s standard review. We drew attention to the = extra length=20 and explained why it was necessary given the subject matter. The journal = accepted the review and scheduled its publication to the Fall of 2004.

But = then the=20 editor, Mark Kramer, had a change of heart. Having read our paper, he = must have=20 realized he had made a big mistake. This type of criticism had no place = in his=20 respectable journal. He began evasive actions. Without notice, our paper = was=20 postponed to the next issue, and then to the following one. We protested = the=20 censorship. Kramer assured us there was none. There was simply a long = backlog of=20 reviews, he said. Our paper would be published, and without editorial=20 intervention.

Finally, in=20 April 2005, the truth came out. We were notified that the paper could = not be=20 published as is.

It = was simply=20 too long.

We = could, if we=20 wanted to, cut it half. . . . Or, alternatively, we could = enlarge=20 it into a review essay and re-submit it to the journal=92s=20 referees. . . . Then they would re-consider=20 it. . . .

John D. Rockefeller knew a thing or two = about power.=20 His Standard Oil of New Jersey became a blueprint for corporate = centralization.=20 He pioneered new methods of stock rigging and financial mischief. He = destroyed=20 competition where ever he could and set new standards for industrial = sabotage=20 and union busting. He manipulated the tastes of =91rational consumers=92 = and made=20 =91policymakers=92 dance to his tune. He used violence to expropriate = from=20 indigenous Americans their resource-rich lands and religion to pacify = their=20 resistance. He harnessed the U.S. military to impose American =91free = trade=92 on the rest=20 of the world.

Raw power made Rockefeller and = his family=20 enormously rich. And yet, to the end of his life, John D. insisted that = his best=20 investment ever was the $45 million he donated to build the=20 University of Chicago.

Under Rockefeller=92s = tutelage,=20 Chicago became the bastion of =91neoclassical=92 = economics. Its=20 economic professors, nicknamed the =91Chicago Boys,=92 spread the gospel = of =91perfect=20 competition=92 and =91free trade.=92 They insisted that consumers were = =91sovereign=92 and=20 economic actors =91rational.=92 They called for the separation of = =91politics=92 from=20 =91economics.=92 They preached monetarism and demanded =91small = government=92 and =91sound=20 finance.=92 They made economics a mathematical =91science,=92 = impenetrable for the=20 laity. And they invented the =91production function=92 and the = =91marginal=20 productivity of capital=92 =96 an ingenious model that justified the = political rule=20 of capital while making capitalists such as Rockefeller perfectly = invisible.=20

Neoclassical ideology =96 or = =91neoliberalism,=92 as it is now known =96 = programmed the=20 technocrats from Santiago to = Moscow. It placated the populace = from=20 China to=20 South=20 Africa. It reduced =91risk=92 far better than any = other=20 organized religion. It helped open the world for business.

Although the neoclassicists assailed=20 Israel early on, initially their = success was=20 limited. During the 1950s, with the memory of the Great Depression still = fresh,=20 the promise of American =91free competition=92 seemed dubious. Local = planning=20 initiatives proved rather successful and the Israeli elites preferred to = stick=20 with the European model of =91government intervention=92 in a =91mixed=20 economy.=92

The neoclassical missionaries, = though,=20 were undeterred. In the 1950s, they established their first bridgehead = =96 the=20 Maurice Falk Institute for Economic Research, funded by an American = donor. The=20 first head of the Institute was Don Patinkin, a young=20 PhD from the University of Chicago. Patinkin put=20 the institute to good use, setting it up to train cadres of local neoclassicists, later known as the =91Patinkin Boys.=92

These cadres started their = assent in the=20 late 1950s. The Israeli elite, busy with its day-to-day activities, had = never=20 bothered to turn its practical experience into a systematic theory of = planning.=20 And as the Cold War gathered momentum, there was little intellectual = opposition=20 to stand in the way of =91free market=92 ideology. The Patinkin Boys moved quickly and soon enough = started to fill=20 the halls of academia and the offices of the civil service.

The first major output of the = Falk=20 Institute were two monographs on the Israeli economy: The Israeli = Economy in=20 the First Decade, written by Patinkin = himself=20 (1960b in Hebrew; = 1960a in=20 English), and = The Economic=20 Development of Israel, written by Halevi = and Klinov-Malul (1968). At the time, both books faced a serious = problem.=20 Until the late 1960s, Israeli economic development was stirred more or = less=20 exclusively by the government and labour-related organizations. And yet, = despite=20 this =91intervention=92 in the allocation of resources, the country=92s = economic=20 performance was among the best in the world. GDP and per capita income = grew at a=20 neck-breaking pace. Moreover =96 and in open defiance of conventional = growth=20 theory =96 the distribution of income remained relatively equal, with = the top=20 quintile earning roughly three times more than the bottom quintile. This = reality=20 forced the Falk authors to tread carefully. They agreed that economic=20 performance was impressive; but that performance, they suggested, would = have=20 been even more impressive if only markets had been = =91liberalized.=92=20

Israel

=92s =91socialist = tradition,=92 they argued,=20 created numerous =91distortions=92 whose removal was bound to lead to = far greater=20 =91efficiency.=92

The third book in the Falk = series, titled=20 The Israeli Economy: Maturing Through Crisis and edited by a = student of=20 Patinkin, was much more upbeat (Ben-Porath = 1986 in=20 English; 1989 in Hebrew). The=20 outlook for =91liberalization=92 had brightened considerably. = =91Israel,=92 wrote Ben=20 Porath, was =91in the midst of attempting to = overcome=20 severe economic distress shown by galloping inflation, stunted growth = and a=20 larger national debt=92 (1989:=20 1). The reasons = for the=20 distress were blamed on the =91global energy crisis and the rising = defence burden=20 following the Yom Kippur War=92 (1989: 7), but there was clearly a =91need for = structural=20 reforms and for changing the rules of the game. . . .=92 = (p.=20 1).

Another decade passed and the = battle was=20 finally won. At last, Israel was a =91reformed=92 country. = The subtitle of=20 the fourth Falk book =96 edited by Ben Bassat (2001 in Hebrew; 2002 in = English) =96 announced the victory: = From=20 Government Intervention to Market Economics. And indeed, much of the = text=20 reads like a victory album, Rockefeller style.

According to the authors,=20 Israel=92s economic history could be = divided into=20 two periods: before and after the 1985 Stabilization Program. During the = first=20 period, the economy apparently was mired in chaos. Besieged by a rigid=20 =91bureaucracy,=92 =91government intervention,=92 a =91labyrinth of = regulation=92 and=20 numerous =91distortions,=92 Israel was repeatedly thrown from = crisis to=20 inflation to recession. Then came the Stabilization Program, which, = together=20 with =91the downsizing of government, the structural reforms, and the = peace=20 process have helped to accelerate economic growth, particularly in the = business=20 sector=92 (2002: = 1). The heroes of the saga were = the=20 architects of the Stabilization Program =96 that is, the Patinkin Boys of the Falk Institute. Their = program, we are=20 told, brought a =91profound change in the economic thinking of = policymakers=92; it=20 not only =91restored stability in the economy and extricated it from the = crisis,=92=20 but also =91marked a turning point in the economic approach of the two = large=20 political parties=92 whose outlook finally embraced the virtues of = =91market=20 forces.=92 (p. 1).

Reading these lines, it is = hard to decide=20 whether to laugh or cry. The =91neoliberal=92 transformation of the = 1990s was part=20 of a global change in the nature of capital accumulation. In country = after=20 country this transformation involved the dismantling of the welfare = state, the=20 downsizing of public services and the decline of government investment. = In many=20 cases it included geopolitical realignment, =91peace processes=92 and = foreign=20 capital inflow sponsored by the Washington Consensus. And practically = everywhere=20 it was used for massive privatization at bargain prices, thinly veiled = as=20 =91structural reforms.=92 And yet, in = Israel the process was different. = Here, we are=20 told, it was a matter not of global capital accumulation, but of local=20 =91policymakers=92 who suddenly saw the light.

The authors also seem to count = on their=20 readers=92 short memory. =91The new economic approach,=92 declares Ben = Bassat =91has achieved a success worth = imitating=92 (p. 48). And=20 indeed, relative to the abyss of 1985, macroeconomic performance has = =91improved.=92=20 But then, if you put this =91success=92 in historical context, you begin = to wonder=20 whether the authors themselves have forgotten the facts. And the facts,=20 illustrated in the enclosed chart, tell a rather different story. The = data show=20 that during the =91socialist=92 1950s and 1960s, income per capita grew = at an=20 average annual rate of 5.7 percent; they further show that during the = 1970s and=20 1980s, after a political =91earthquake=92 had brought Likud to the government and =91liberalization=92 = to the economy,=20 the rate dropped to 2.3 percent; that in the 1990s, with =91neoliberalism=92 in full swing, per capita growth = dropped to=20 1.9 percent; and that by the early 2000s, with =91market forces=92 = finally in=20 control, per capita income fell by 0.2 percent annually. The = chart also=20 shows the path of unemployment, whose surge to an all-time high during = the 1990s=20 provides further evidence of the program=92s =91success.=92

Unfortunately, there is no free lunch. = Success is=20 always costly. And indeed, =91Growth and the rise in standard of = living,=92 we are=20 informed, =91have come at a price =96 greater inequality in income = distribution=92 (p.=20 4). Precisely who pays this =91collective=92 price =96 and who = may benefit=20 from it =96 are questions the authors never bother to pose. Based on = their=20 econometric research, though, they know enough to tell us that the = inequality=20 has grown partly because of . . . = =91excess=20 demand=92 for =91human capital=92 (Ch. 15 by Dahan). Another=20 revelation, backed by equally scientific regressions, is that the fall = in=20 government expenditure was influenced by lower military spending, which = in turn=20 was affected by . . . the =91decline of the intensity of the=20 Israeli-Arab conflict=92 (Ch. 2 by Strawczynski and=20 Zeira).

The book is full with such = insights.=20 Economists who read it may feel comfortable with its familiar jargon, = numerous=20 regressions and endless neoclassical platitudes. But they will learn = nothing of=20 what really happened in = Israel. Indeed, there is nothing new = in this=20 volume. Thousands of such trite monographs are published year after = year, in=20 country after country. Together, they provide the =91scientific=92 = backing for the=20 rule of capital and the smokescreen to hide the rulers themselves. =

Reading this particular book, = you=92ll learn=20 nothing on the conflictual nature of=20 Israel=92s capitalist development, = its ruling=20 class and its dominant capital groups (who, incidentally, sponsored its=20 publication). You=92ll remain ignorant of the enormous boost to = accumulation=20 provided by regional wars and domestic inflation during the 1970s and = 1980s.=20 You=92ll know nothing of the =91high-tech=92 redistribution of the = 1990s, in which=20 transnational firms and local operators made = fortunes=20 by eviscerating Israeli society. You=92ll=20 be blind to the global criminal networks centred in=20

Israel

and to the massive money laundering that = the=20 country=92s ruling class actively espouses. You=92ll hear scarcely a word about the = Palestinians,=20 the political economy of occupation and the cost of settlements. You = won=92t know=20 that under the guidance of the =91invisible hand=92 and its rightwing = government,=20 many Israelis now suffer from hunger and homelessness, conditions which = until=20 recently were reserved only for the Palestinians. And you certainly = won=92t=20 suspect that much of

Israel

is now owned by a small = oligarchy of=20 local-global =91investors.=92

But then, that is part of the = victory of=20 capital, and the victors always rewrite history. Rockefeller certainly = knew what=20 to invest in. His boys have done their job well.

Ben-Bassat, Avi,=20 ed. 2001. The Israeli economy,=20 1985-1998. From Government Intervention To Market Economics. Tel Aviv and Jerusalem: Am = Oved and the Maurice Falk Institute for Ecoomic Research.

Ben-Bassat, = Avi, ed. 2002. The Israeli = economy,=20 1985-1998. From Government Intervention To Market Economics. Cambridge, Mass.: = Cambridge Mass.:=20 The MIT Press.

Ben-Porath, = Yoram. 1986. The Israeli Economy: Maturing = Through=20 Crises. Cambridge, Mass.: Harvard University Press.

Ben-Porath, = Yoram. 1989. The Israeli Economy: Maturing = Through=20 Crises. Hebrew. Tel Aviv: Am Oved and Falk Institute.

Halevi, Nadav, and=20 Ruth Klinov-Malul. 1968. The Economic Development of = Israel. New=20 York and Jerusalem: Praeger.

Patinkin, Don. 1960a. The=20 Israel Economy. The First Decade. = Jerusalem: Falk=20 Project for Economic Research in Israel.

Patinkin, Don. 1960b. The=20 Israeli Economy in the First Decade. Hebrew.=20 Jerusalem: Falk Centre.