From socialism to free market–the israeli economy, 1948–2003

This study describes the transition of the Israeli economy from a socialist to a free market economy. It is argued that the transition took place not because of ideological changes, but due to a pragmatic economic approach that policy makers had adopted. Indeed, the one and only attempt to move to a free market economy (1977), on the basis of economic ideology, did fail. In as much as there was an ideological debate between different schools of thought about the right economic regime, that debate was over in 1985. On the verge of economic collapse, brought about by high inflation rates, economic reality dictated an anti-inflation policy based on the reduction of the government involvement in the economy and a move to greater freedom of markets. The collapse of the former Soviet Union gave further support and legitimacy to this policy. Thus, at the beginning of the new millennium, the Israeli economy is moving towards less government involvement and a greater role for the private sector. The ability to adhere to this ideology depends on resuming economic growth, which will be the source for additional tax revenues and jobs. This will alleviate the growing tension between the desire to maintain a high level of social and welfare expenditures and the desire to reduce the level of government involvement in the economy.