Review of the Book:"The Israeli Economy," Steven Plaut

The Israeli Economy from the Foundation of the State through the 21st Century
Paul Rivlin
Cambridge: Cambridge University Press, 2010. 288 pp. $90 ($31.99, paper)
Reviewed by Steven Plaut
University of Haifa
Middle East Quarterly
Summer 2011
Rivlin, a senior research fellow at the Moshe Dayan Center for Middle Eastern and African Studies, provides an introduction to Israeli economic history for those unfamiliar with the subject. His book covers both the economy and society of the pre-state and post-independence periods with emphasis on its early years. Separate chapters are focused on Israel and the Palestinians, on Israeli Arabs, and on socioeconomic inequality in the Jewish state.

Rivlin is a prolific writer who has done interesting work on economic history, but economic policy analysis is not his forte. Hence the volume is weak when it comes to asking and answering why certain financial policies were pursued. Additionally, Rivlin's ideological biases occasionally creep through, such as in his chapters on Palestinians or Israeli Arabs. For example, he fails to mention how Israel's large cash, underground economy helps explain the higher unemployment rate among Arabs who often work without reporting income.

The book has other weaknesses. Much of its prose is "talking statistics" where tables of numbers are presented, and the author talks his reader through them. But Rivlin should give readers credit that they can understand a simple table or graph and concentrate instead on the implications of the statistics. It is also weak in analyzing the more interesting economic policy challenges and problems, both micro and macro, that Israel's economy faces and has faced. For instance, there is no discussion of the long-standing Israeli policy of exchange rate distortion and of capital market semi-nationalization. Also missing is a look at the "pro-trust" policy that once produced a proliferation of monopolies and cartels, the later privatization campaigns, nor of the implications of the very high levels of concentration of ownership of capital and nationalization. Early attempts at subordinating the Israeli economy to rigid central planning are mentioned only in passing as is Israeli protectionism and the accompanying inefficiencies that resulted from that set of policies. Balance of payments issues are raised only superficially, and this is unfortunate because Israel's growth was made possible thanks to imaginative utilization of foreign direct investment and importation of capital.

Rivlin relies too heavily on sociologists while ignoring most serious economic histories of Israel, such as those by Assaf Razin, Efraim Sadka, and Nadav Halevi. Despite this, he misses significant sociological insights that would help explain important economic issues. His discussion of income inequality misses the point that much of it is a reflection of differences in age and schooling. He frequently tosses out the term "discrimination" when he really means heterogeneity and tries too hard to explain income differences that have nothing to do with discrimination.

Readers interested in Israel's economic history will need to supplement Rivlin's effort with other materials.

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