Israel's Grassroots Libertarian Revolution; S. Lehman-Wilzig

It is importantto start offby understandingjust howradicala breakfromthe pastis thisrecentlib ertarianphenomenon.Fromits inceptionin 1897, the Zionistmovementhas alwaystaken a pater nalisticapproachtowardnation-building.Withthe immigrantJewish masses mostly impoverished, with few natural resourcesin Palestineitself,and with a general socialistic orientation naturally encouraging"governmental"(not private)initia tive,virtuallyeverythinginpre-Israelwasplanned, financed,and developed by the powers-that-be. Indeed,paradoxically,the occasionalpioneerwho wishedto go it alone invariablyended up estab lishing a kibbutz-the most collective form of socio-economicorganizationimaginable.In any case,Israelwas not developedin the samefashion as the AmericanWest. The latter was marked by "rugged individualism";the former by "ragged corporatism." Thus, even after the State of Israel was estab lished, the "top-down" approach not only was Professor Lehman-Wi/zig is Senior Lecturer in Political Studies at Bar-Ilan University in Israel. During the cur rent academic year he is serving as the Distinguished Visiting Professor from Israel of the Lipinsky Institute for Judaic Studies at San Diego State University.

encouragedbytheauthorities,buthadbecomethe acceptedway of doingthingsby the Israelipublic at large. Israel'sfirst prime ministerDavid Ben Gurion even proclaimedit to be national policy: Mamlakhtiut-"statism." Instead of a pluralistic systememanatingfrom the interestsand predilec tions of the citizenry,Israel was to be built up through governmentunificationand directionof as manyeconomic,social,and culturalinstitutions as possible. At first, this policyprovedto be quite popular. Companieson the vergeof bankruptcy?The gov ernment would save them. Housingin short sup ply? The governmentwould build more. Enter tainment lacking? The government would establisha (monopoly)televisionstation.And so it went. Until the early 1980s. Several reasons were behindthe none-too-gradualshiftawayfromsuch governmentpaternalism.First, as Israel became morecloselylinkedto the U.S. from an economic and especially a cultural perspective, Israelis beganto viewthe Americanwayofdoingthingsas more modernand progressivethan their own tra ditional approach. Indeed, in the late 1970s and early19808thechiefeconomicguruandmediastar wasnoneotherthanMiltonFriedman,whovisited Israel and whose ideaswere eagerlysoughtafter by governmentand publicalike.(An indicationof his continuingpopularityis the latestjoke making the roundsin Israel.The countryis in the midstof a massiveshift from the six-dayto the five-day workweek.As the apocryphalstorygoes,the gov ernmentturnedtohimto adviseitonthefeasibility of sucha change.His finding:"It wouldbe a good idea to move the Israeli economy to a five-day work week-but do it slowly. First ensure that everyone works one day a week, then two. . . .") A second reason was that with the election vic tory of the economically liberal-minded Likud in 1977,the "establishment" was no longer perceived as being intrinsically paternalistic. Private initia tive and personal volition had been given philo sophicallegitimacy for the first time in Israel, although it still would take some time for the gov ernment to put its money (really the public's mon ey) where its mouth was.

Finally,the population had by then become pre dominantly middle class, with far less need of all embracing social welfare programs which were a huge burden on the personal pocketbook. The Israeli public had come of age: economically able to go it alone, and psychologicallywillingto stand on its own two feet. But if the public's newfound willdeveloped into an increasingly irresistible force, the political establishment's conservatism constituted an almost immovable object. In a country where the voters couldn't easily punish their representatives electorally (the vote is for party lists,not for candi dates), and security issues in any case dominated the election campaigns, how were the Israeli citi zens to change the system? By hook or by crook-literally Dammingthe TIde Examples from several areas of socio-economic life should suffice to understand the general approach. The common thread here is the willing ness of thousands-on occasion hundreds of thou sands-to circumvent what they perceive to be unduly restrictive regulations, institutions, and laws. Faced with a "revolt of the masses," the political establishment has been rushing of late to dam the tide, and when that has proved impossi ble, to channel the raging river ofchange.

1. Mass Media: After years of government monopoly in Israeli radio and television (the latter was established only in 1968), Israelis began to take matters into their own hands in the 1980s.Not only did VCR purchases skyrocket (by the middle of the decade Israel ranked second in the world-behind Saudi Arabia-in per capita VCR consumption), but a more "insidious" phe nomenon began to appear: pirate cable television. Despite their being strictly prohibited by law and 145 actively pursued by the authorities, such stations sprouted as mushrooms after the rain with an esti mated quarter of a million subscribing households (in a nation of barely one million family units). Giving in to the overwhelming market demand, the government finally threw in the towel and in 1988 passed Israel's cable TV and regional radio law, which will considerably expand the mass media in that entertainment-and information thirsty country, commencing in early 1990.

2. Health: The public "revolt" here has taken several routes. Traditionally, virtually everyone in Israel belonged to a health plan (akin to American HMOs), with 90 percent of the Israeli population having membership in the system run by the giant labor federation Histadrut. The major problem with the Histadrut health system was that, givenits socialistic orientation, the patient could not select the doctor or hospital of choice; rather, patients were arbitrarily assigned their physicians by the plan's bureaucracy. As a result, the Histadrut system began to lose members in the 1980sat the rate of about 13,000a year, not to mention a severe drop in new member ships taken out by the younger generation of Israelis. Most recently, the Histadrut has bowed to this increasing hemorrhage, and turned to the "free choice" plan offered by itssmall competitors. Whether this willstem the tide remains to be seen, but "forced choice" as a health policy is no longer viable in Israel.

More socially problematic is what has become known as "black medicine." Under Israel's quasi socialistic and highly bureaucratized health sys tem, there is often up to a year's wait for elective surgery (and for some serious, but difficult, non elective operations such as open heart and kid ney). Increasingly,patients have turned to doctors for a "private consultation" after hours, and then have been moved to the head of the operating queue by that same doctor who "happens" to be the hospital's department chairman. Not that such maneuvering always begins with sinister intentions. Because of the lowbase salaries paid to Israel's physicians, care and treatment in the public health facilitiescan be quite cursory and deficient. As a result, tens of thousands of Israelis have taken to bypassing (or supplementing) their official health plans with private visits to physi cians in the latters' after-hours. Once again, as a result of this grassroots "desertion," the authori146 THE FREEMAN • APRIL 1990 ties have given ground, with a new system being worked out which would enable those willing to pay for the privilege to be treated in the public health facilities after hours.

3. Education:Perhaps the hottest social issue in Israel today is "gray education." Public education has suffered massive budgetary cutbacks over the past five years, and many parents are very con cerned and upset with the present state of affairs (elementary school children are given less than four hours of instruction a day). Consequently, parents by the thousands are organizing and pay ing for after-hours classes inside and outside the schools to supplement or enrich their children's education. This has burgeoned into a quasi-private educational system, in direct opposition to the offi cial policy of educational equality. And therein liesthe rub. Much of the education al establishment is against such a movement which threatens to enable some children to receive paid "enrichment" while others don't. The more well to-do parents, of course, don't see it that way, but rather as giving their children the best education possible. If other parents can't do this, then they should complain to the source of the educational deficiency: the government.

Complicating matters even further is the fact that such afternoon enrichment programs (in many cases not "enrichment" at all, but rather replacement of subjects completely jettisoned in the cutbacks), tend to be far more remunerative than the truly meager regular salaries of Israeli teachers. The result is that the best teachers (in greatest demand for the afternoon programs) leave the regular school system altogether, as they can make a better living concentrating their ener gies exclusivelyon such after-hours work. The educational establishment's antipathy to "gray education," then, is double-edged-a matter of social philosophy and pedagogic self-preserva tion. On the other side are parents who see it in terms of free choice for quality education, and teachers who seek an improved livelihood. While this struggle has not been settled yet, the latter seem to have the upper hand. However, the egali tarian-minded establishment will not give up this one without a serious fight.

4.·Finance:For unadulterated surrealism, noth ing beats Israeli public financial policy. For starters, given the relatively high rates of inflation over the past decade (over 400percent on an annualized basis in 1984), periodic devaluations became de rigueur.However, instead of the gov ernment deciding the timing of such devaluations, almost invariably it was the public (in antici pation of devaluation) who bought foreign curren cy-thereby forcing the authorities to devalue before the country's foreign currency ran out. It need hardly be added that this didn't help the situ ation at all, as the public already had protected itself from the oncoming devaluation through its foreign currency purchases. Thus, the next deval uation round was already set in motion, in a never ending spiral of the government cat futilely chas ing the public mouse. Here, too, illegality reared its head. Trading in foreign currency is against the law in Israel unless done through the recognized banking sys tem. Yet the public blithely ignores this, and not only is the "black currency" market well-devel oped, but due to public demand, the Israeli news papers publish the "black dollar" rate on a daily basis. What the government legislateth, the public taketh away. . . .

On still another financial front, the public's rational economic behavior has forced the govern ment into a broad retreat. At one point in Israel's history,income tax rates had reached a confiscato ry (not to mention counterproductive) high of 80 percent. Due to massive tax evasion on the part of anyone who had the opportunity (the under ground economy in Israel is estimated at 15 per cent of GNP), the authorities have been forced to bring down the upper bracket to 48 percent, with promises of further reductions to stimulate eco nomic growth. The IsraeliStockMarket One could continue almost endlessly.One more example in the economic realm, though, should fill out the general picture. When the Israeli stock market collapsed in 1983as a result of price manip ulation by the banks of their own stock (worth approximately one-half of the entire market), the public pulled out and has not returned since. Once burned, twice shy? Not really. Rather, the public hasn't been willing to play in a game where the deck is heavily·stacked against them.

Most of the shares in the Israeli market are non voting. This essentially means that those who con trol the relatively few voting shares (sometimes as ISRAEL'S GRASSROOTS LIBERTARIAN REVOLUTION 147 low as a mere few percent of all outstanding com pany shares) decide on all matters of corporate policyand it is no coincidence that many of these shares are tied to management in one form or another. Thus, here it is public inaction (staying out with arms folded) that has caused the govern ment to shift course. At present, movement is afoot to turn all shares into voting shares (whether through stock market fiat or governmentallegisla tion isn't clear at this stage). Once more, the barons have retreated in the face of their sovereign: the public. Several lessons may be learned from the Israeli case which are applicable in part to the revolution occurring through much of the Soviet and Eastern European Communist bloc.

First, it is not necessarily the most impoverished countries that may find themselves in the throes of public anti-paternalistic pressure. Indeed, if Israel is representative, then one can posit that the more advanced (economically) the socialist society, the greater the libertarian urge on the part of the increasingly "mature" citizenry.This is not merely a matter of economic self-interest (greater person al control of more disposable income), but of psycho-political desire. Such societies invariably have raised their general educational level, and concomitantly there emerges the need for person al expression through, and beyond, economic grat ification. This in essence is Abraham Maslow's scale of graduated gratification extrapolated to the public at large. Once a certain level of economic suffi ciency is reached, personal self-expression becomes the goal of man. In that sense, collec tivist societies are by their very nature self destructive. The more they succeed (assuming that they manage to succeed at all) in raising their population's material standard of living, the more that population feels a lack of psychological qual ity of life.

This would explain why East Germany and Hungary recently have come under such severe popular pressure to reform themselves politically. On the face of it, these are the two Communist countries which have done a relatively good job of satisfying their population's material needs. Why, then, the internal political uproar? Precisely because economic "prosperity" leads to political maturity. Such a public cannot be treated any more as untutored servants of the state. The obverse lesson for the Soviet Union is not so sanguine, at least for the short term. If it took Israeli society about three decades to mature and grow out of its paternalistic cocoon, then one can not expect the Soviet people immediately to know how to exploit their newfound freedom-especial ly as their glasnost was provided from the top down, in paternalistic fashion if you will. Liberty's.Carry-Over Beyond this, it is clear that once the public begins to breathe the air of personal freedom, such liberty cannot be compartmentalized into a few specific areas of the government's choosing. While the Israeli grassroots revolution may have started in the economic realm, the carry-over to educa tion, health, and information/entertainment, was relatively swift and universal.

This is a lesson that the Communist Chinese leadership is beginning to understand, although its most recent response has been to try to turn back the clock in both the economic and political realms, instead of progressing on both fronts. But this Pandora's box cannot be hermetically re-shut once opened. Mikhail Gorbachev, on the other hand, generally understood this relationship from the start; it is no coincidence that glasnost (political freedom) and perestroika (economic freedom) were introduced at about the same time. From this perspective, at least, the Soviets are liberalizing their system in the right fashion, as are the Poles and Hungarians. Finally, as was the case with Israel's pirate cable T~ "black medicine," and gray education, there seems to be no avoiding a certain increase in quasi criminal behavior, at least over the short term. There are two reasons for this. First, in any radical changeover from a stultified, centralized system to an open, multi-choice one, institutional asymmetries will inevitably exist.

Thus, while the expectation is of immediate free dom across the board, the reality of development in certain social realms will lag somewhat behind others. It is in these retarded areas where parts of the public may take things into their own hands to speed the process along in order to bring them up to the more developed areas in society. By defini tion, most of such "expediting" will involve anti normative, if not outright illegal activity. Second, there always willbe those who are inca148 THE FREEMAN. APRIL 1990 pable of handling such freedom in the way that it was meant. Give some children $100 in a candy store, and they will most likely buy as much (or more) than they can carry. Remove overbearing governmental strictures "overnight," and some adults will have trouble differentiating between freedom and license.This is not so much the price of undue liberty,but rather of overdue liberation.

Freedom takes a little getting used to, but this minor problem is surelyworth the ultimate goal of an unfettered life. In the final analysis,then, the really important aspect of Israel'sdismantlingof socialismas well as similar processes in such countries as Poland and Hungary-is not that the well-educated policymakers have become aware of their sys tem's economicand philosophicalbankruptcy,but rather that the less "sophisticated" citizenry are the source whichpushed them to act. In such a sit uation' there is little chance of turning back the clock.There is all the chance in the world that the new system taking its place will be successfuland stable, once the not-inconsiderable transitional difficultiesare overcome. D 1989-90EssayContest Wmners "Education for a Free Society" sponsored by The Foundation for Economic Education COLLEGE DIVISION First Prize ($1500): Sofia G. Bump, George Mason University, Fairfax, Virginia, "Why State Schools?"

Second Prize ($1000): Eric Christian Pearson, University of Wisconsin-Stevens Point, "Education and the Free Market" Third Prize ($500): Gregory Mulhauser, Willamette University, Salem, Oregon, "Silver Anniversary" Honorable Mention: Brian L. De Spain, Boston University, Boston, Massachusetts, "Individual Choice and Education"; Jeff Miller, Wittenberg University, Springfield, Ohio, "Free Education: The Reestablishing of Responsibility" HIGH SCHOOL DIVISION First Prize ($1500 Scholarship): Miranda S. Doyle, Live Oaks High School, Morgan Hill, California, "The Need For a Private Educational System" Second Prize ($1000 Scholarship): Jennifer Kelley, Sammamish High School, Bellevue, Washington, "Education and Individual Freedom" Third Prize ($500 Scholarship): Andrew Trask, Milton Academy, Milton, Massachusetts, "Liberalism and the Liberal Arts" Honorable Mention: Howard S. Hogan, Ridgefield High School (Connecticut), "Tomorrow, Educational Freedom"; Brenda Michele Koby, Beaverton High School (Oregon), "Choice and Accountability"