Many
observers of the Israeli scene have been perplexed by the country’s
apparent resilience to bad political news. The headlines of late seem
uniformly dreadful. While the country is still licking its wounds from
a botched, if not humiliating, war with Hezbollah, the Palestinian
territories again slide into turmoil, and the experts rumour yet
another conflict with Syria . The U.S. entanglement in Iraq and
Afghanistan is only getting deeper, and many speak of an imminent
attack on Iran with untold regional consequences. Israeli politicians
and public officials – from the president, through the prime minister,
to the chief of staff, to the justice minister – have been embroiled in
corruption and other scandals. The courageous capitalist media
routinely expose government officials as incompetent crooks and the
Israeli Parliament as an irrelevant institution.
And yet none of these headlines seem to impact the economy. It’s roaring.
Local
commentators have been trying to make sense of this apparent puzzle for
over a year now. Most point to the effect of liberal globalization. The
long fight for sound finance, they say, is finally bearing fruit. The
government was forced to rein in its spending, and the consequent
emergence of budget surpluses now helps free scarce resources for more
productive private use. In parallel, free trade and capital decontrols
attract global investors, while allowing Israeli capitalists to link up
with the rest of the world. Laissez faire has arrived in the
Holy Land
: the country’s political folly and its security roller coaster no longer matter for its ‘economy.’[1]
Foreign analysts offer other explanations. For Thomas Friedman of The New York Times, the secret lies in the Israeli genius.[2]
The imagination, innovation and flexibility of the country’s citizens,
bolstered by higher education and government support for
entrepreneurship, help Israel adjust and respond to an ever-changing
world. Prosperity, according to Friedman, comes from the head.
Social critic Naomi Klein snubs Friedman.[3]
Israel ’s soaring stock market and China-like growth rates, she argues,
are fuelled not by the country’s human capital, but by its mutating war
economy. Military calamities, terrorism and counterterrorism offer an
ideal environment for developing and testing weapons of oppression.
Israel has become a big laboratory for such weapons. It develops and
tests the hardware and software of violence – against its Arab
neighbours and against the Palestinian population – and then sells them
to the rest of the world. Economic prosperity thrives on political
crisis.
The Historical Context
These
explications, whether plausible or not, all fall into the same trap:
they believe the capitalist media. They rush to explain why the Israeli economy is roaring without ever stopping to ask whether it is roaring.
Granted,
the latter question is not as exiting as the former. But since everyone
seems to take the ‘boom’ for granted, we thought it might it be a good
idea to check the facts. Just to be on the safe side.
So, is the Israeli economy roaring?
Clearly,
the answer cannot be decided on the basis of last year’s performance or
the most recent quarter. Israel and the region have been in turmoil for
decades, so economic performance, too, must be put in historical
context. This is what we do in Figure 1.
The
chart focuses on GDP per capita, expressed in constant prices and
rebased to purchasing power parity. This measure is constructed in
several steps. First, the statisticians estimate, for every year, the
country’s gross domestic product, or GDP, expressed in prices
prevailing in some base year. This estimate – which economists call
‘real’ GDP – supposedly represents the aggregate ‘quantity’ of newly
produced goods and services (in contrast to ‘nominal’ GDP, which
represents both the prices and quantities of production).
Next,
the statisticians rebase the country’s ‘real’ GDP so it conforms to an
international standard of purchasing power parity (PPP). Since
different countries produce and consume different ‘baskets’ of goods
and services, their ‘real’ GDP levels are not readily comparable. The
purpose of the PPP conversion is to enable such comparison. To achieve
this conversion, the statisticians make the hypothetical assumption
that all countries produce the same international basket. They then impute to each country the level of ‘real’ GDP it could achieve if it were to produce not its own goods and services, but those included in the international basket.
Finally,
the statisticians divide the country’s ‘real’ GDP in PPP terms by the
size of its population. The result is GDP per capita in constant prices
expressed in purchasing power parity. Economists use this latter
measure to assess a country’s average productivity and average standard
of living – both over time and in comparison with other countries.
Before turning to the data, we should note that these conventional
measurements of ‘productivity’ and the ‘standard of living’ are highly
problematic, both conceptually and empirically. And the same is true
for the common emphasis on ‘aggregates’ and ‘averages’ – emphasis that
serves to ignore and conceal distribution and the underlying structure
of the political economy. We nonetheless stick here to standard
practices so that we can question the conventional creed on its own
terms.
Figure 1 compares the per capita performance of
Israel
with three countries:
China
,
India
and the
United States
. We do so by plotting three series, each of which expresses the ratio between
Israel
’s per capita GDP and the per capita GDP of one of these three countries.
The overall picture points to the mid 1970s as a clear watershed. During its so-called ‘socialist’ period,
Israel
outperformed. After the 1977 rise of Likud and the arrival of ‘liberalism’,
Israel
lagged.
The two lower series, plotted against the left-hand scale, track
Israel
’s performance relative to
China
and
India
. We can see that
Israel
’s per capita GDP was roughly 6 times
China
’s in the early 1950s, and that this ratio doubled, to about 12, by the mid 1970s.
From that point onward, though, the process inverted.
China
's per capita GDP soared,
Israel
’s lingered, and the ratio between them dropped precipitately. In 2005,
Israel
’s per capita GDP was only 3 times bigger than
China
’s, representing a four-fold relative decline since the mid 1970s.
A similar development, albeit less dramatic, is evident from the comparison with
India
. Here, too,
Israel
outperformed till the mid 1970s, after which the process went into reverse.
Seen
from this long term perspective, Israel ’s recent ‘boom’ – assuming
there is one – is a blip on a long term downtrend. Despite its three
decades of liberalisation, enterprising genius and military testing,
Israel hasn’t been able to deliver anything close to ‘China-like,’ or
even ‘India-like,’ growth rates.
Of course, one could reasonably contest this comparison. Obviously, it is misleading to contrast
Israel
– a mature capitalist society – with ‘emerging markets’ such as
China
and
India
.
But, then,
Israel
hasn’t done that well relative to mature capitalist countries either. The top series in Figure 1 shows the ratio between
Israel
’s per capita GDP and that of the
United States
, plotted against the right-hand scale.
Like with
China
and
India
, here too
Israel
outperformed till the mid 1970s and underperformed thereafter. Its per capita GDP fell from a high of 62 per cent of the
United States
’ in 1975, to 57 per cent in 2005.
Where Have All the Capitalists Gone?
So
there is nothing very miraculous about the Israeli economy. But, then,
this preoccupation with the ‘Israeli economy’ is itself misleading.
Measures
of national growth rates, GDP per capita, unemployment and the like may
be of great importance for most Israelis. But they are irrelevant for
Israeli capitalists.
There
are two main reasons for this assertion. First, and more generally,
capitalists are interested not in the growth of ‘material’ output and
the so-called ‘real’ capital stock, but in the expansion of their
financial assets. And as strange as it may sound, the ‘real’ world of
economic performance and the ‘nominal’ world of finance often are
unrelated and sometimes even move in opposite directions.[4]
Second,
and specifically for our purpose here, is the issue of identity.
Economic measures do not matter for Israeli capitalists simply because
there are very few ‘Israeli’ capitalists left.
Since
the early 1990s, the opening up of Israel , both outward and inward,
has created a massive flow of capital going in both directions. Global
investors, transnational corporations, Russian oligarchs and money
launders have all flocked into Israel . They bought up anything of
value – bonds and stocks, entire companies and prime real estate, sport
teams and local politicians. In parallel, domestic capitalists have
diversified abroad: they took the proceeds of their local divestments
and invested them outside Israel .
The
net result of this bidirectional process has been the disappearance not
only of the ‘Israeli’ capitalist class, but also of ‘Israeli’ companies.
Nowadays, all the large capitalists who happen to live in
Israel
(at least part of their time) have global investments that often eclipse their holdings in
Israel
proper. And practically all the leading corporations located in
Israel
are transnational – in operations, ownership, or both.
In
other words, the issue is not that Israeli accumulation has become
indifferent to Israeli politics, but rather that Israeli accumulation
has become less and less ‘Israeli.’
The
consequence of this transnationalization of ownership is illustrated in
Figure 2. The chart correlates the annual rates of growth of the Tel
Aviv Stock Exchange (TASE) and of the NASDAQ (with underlying monthly
data denominated in $US). Each point in the series represents the
correlation over the previous five years, with values ranging from a
minimum of –1 (indicating that the rates of growth of the two stock
markets move exactly in opposite directions), through a
mid-point of 0 (denoting that the two markets are unrelated), to a
maximum of +1 (when rates of growth move exactly in the same direction).
The
trend depicted in the chart is unambiguous. During the 1980s, the two
markets were more or less independent. The correlation between them was
low and often negative. But over time, and particularly since the early
1990s, the transnationalizaton of ‘Israeli’ capital and capitalists has
made the correlation tighter and tighter.
When we first plotted this relationship in 2001, the correlation coefficient approached 0.7. By 2006, it reached 0.92.[5]
In non-technical language, this latter number suggests that, over the
2001-2006 period, 92 per cent of the variations in the TASE could be
‘explained’ by variations in the NASDAQ (it would be difficult to argue
the opposite). And, indeed, since the two asset classes share similar
owners, have similar sources of earnings, and float in similar pools of
liquidity, there is really no reason why they shouldn’t move together.
Thus,
if the Israeli stock market is currently booming, it is not because of
or despite the ‘political situation.’ It booms for the same reason the
NASDAQ does. And if and when the TASE takes a nose dive, again, don’t
look for local or regional explanations. Just check the NASDAQ.
Of
course, Israeli politics continues to matter in many different ways. It
matters to the companies listed in Tel-Aviv insofar as it guarantees
that the stock market can open every morning, and that their Israeli
operations can function without hindrances. Domestic politics also
matters insofar as it affects Middle East developments, and hence
global accumulation, the NASDAQ and, therefore. . . the TASE.
But formal politics matters not because it is public. It matters precisely because it is anti public.
As long as the country’s patriotic ‘politicians’ and ‘public officials’
remain obedient to capital in the name of democracy, and as long as the
cost of bribing them remains reasonably low, the resulting boom of
private accumulation will remain mysteriously ‘delinked’ from the
fracturing of public life and the disintegration of autonomy and
democracy.
Jerusalem and Montreal, June 2007
http://www.bnarchives.net/
Notes
[1] Nechemia Strassler, Buy Me Gaidamak, Hebrew. Ha'aretz, June 13, 2007.
[2]
Thomas Friedman
,
Israel
Discovers Oil, The New York Times, June 10, 2007.
[3] Naomi Klein, How War was Turned into a Brand, Guardian, June 16, 2007.
[4] See our recent Hebrew monograph, The Gods Failed, the Priest Lied, May 2007, and the more general discussion in our Elementary Particles of the Capitalist Mode of Power, October 2006.
[5] For the early estimates, see Jonathan Nitzan and Shimshon Bichler, The Global Political Economy of Israel,
London
: Pluto Press, 2002, Figure 6.6, p. 355.