From Agriculture to High-Tech
The evolution of Israel's economy.
As with many other aspects of modern Israel, understanding the history and roots of the Israeli economy requires a detour to ideas flourishing in the cradle of Zionism, central and eastern Europe in the late 19th century and the early years of the 20th century. There, budding Zionists planned for the economic future of a Jewish state.
Disapproving the Status Quo
At the time, the economy of what was then called Palestine consisted nearly entirely of traditional Arab village farming alongside a tiny community of Jews who subsisted on charitable donations from abroad. This latter state of affairs was appalling to young European Jews joining the Zionist movement, many of whom were convinced that the status of Jews could improve only when they chose to undertake "honest labor," especially agricultural work.
The Zionist leadership also included individuals who, under the influence of socialist and communist ideas in vogue in eastern Europe at the time, rebelled against the stereotype of Jews as urban merchants. For them, industrial and agricultural laborers were "working class heroes," and they strove to create a new class of laboring Jews as part of the Zionist effort.
This background found expression in Zionist settlement activity in Israel in the early 1900s, which was characterized by an emphasis on establishing agricultural communities and on "communal equality"--the foundations of the famous kibbutz movement.
Beyond the ideology of "working the land" that underpinned this agricultural orientation was the belief that the nearly total lack of natural resources in the Land of Israel left few options in this regard. At the same time, the seeds were laid for the creation of a powerful labor-union umbrella organization that strove to represent all the workers at the national level, the Histadrut. The first leader of the Histadrut was none other than David Ben-Gurion, who would later found the state of Israel and steer it as its first prime minister--an indication of the centrality of socialist ideas within early Zionism.
The Fleeing Bourgeois
A new element was injected into the rapidly growing Jewish economy of pre-state Israel in the 1930s, when a wave of anti-Semitism in Europe caused large numbers of established bourgeois Jews from countries such as Poland and Germany to flee to the shores of Palestine. For the most part, these were well-educated urban dwellers who transferred with them the urban and industrial culture to which they were accustomed in Europe. In this period cities greatly expanded, light-industrial enterprises sprouted, and a stock-exchange was founded in Tel Aviv.
By the time the State of Israel was declared in 1948, these elements were interwoven into a mixed national economy. Government policy was firmly labor and socialist oriented. This resulted in the creation of a multitude of state-granted private-sector monopolies alongside state-owned companies under the direct control of government ministries. The national budget, which included a large defense-spending component, accounted for a significant proportion of GDP.