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(December 11, 2022 / JNS) The notion of national security doctrine is usually associated with the foreign policy of hegemonic powers, especially the United States. Several US presidents have either proclaimed the doctrine or named one after them. The doctrine is usually understood to encompass economic, geopolitical, and even social goals, as well as the policies to achieve those goals.
Although we tend to associate the notion of doctrine with hegemonic powers, we can also attribute them to small and medium-sized states. Their doctrines are not so much about changing the world order, but about responding to changes in local and regional circumstances and global trends. In the case of Israel, it would be safe to say that the country’s first prime minister, David Ben-Gurion, had a national economic-security doctrine. As the leader of the Israeli labor movement, president of the Jewish Agency and prime minister, he played a key role in shaping Israel’s economic-security strategy during its formative years, the outlines of which I will discuss below.
Since the early 2000s, a new national economic-security doctrine has been consolidated by center-right elements in the Israeli political system. Benjamin Netanyahu, first as finance minister and then as prime minister, played a key role in shaping what I describe as the shift from Ben-Gurion’s doctrine of financial dependence to a model of financial independence, which allows for a more independent foreign policy.
Reliance on foreign capital according to the Ben-Gurion doctrine
Looking at Israel’s economic history, there was one phenomenon that constantly occupied the leadership: the need for foreign capital. Since the creation of the Zionist settlement in Palestine in the 1880s, the issue of financing the national project has been as critical as territorial issues. Initially, funds were delivered to sporadic Jewish settlements as custodial philanthropy.
In the first half of the 20th century, the World Zionist Organization and the Jewish Agency for Palestine channeled capital from world Jewry into the Palestinian Jewish community, particularly the labor movement. During the first two decades after the establishment of the state in 1948, although the United States and the Jewish diaspora provided foreign capital, reparations from West Germany were the main source of financing. All in all, the state-building process was largely dependent on the financial support of the liberal-democratic Western powers.
Israel’s reliance on foreign – Western – sources of capital was part of Ben-Gurion’s economic-security doctrine, which was consolidated as early as the 1930s. Ben-Gurion believed that the fate of the Jewish state in Palestine would be determined by demographics. However, the creation of a Jewish majority in Palestine required rapid industrialization rather than gradual economic growth. Rapid industrialization could not be achieved without foreign capital. Thus Israel’s dependence on Western capital—whether from Germany, the United States, or the Jewish diaspora—was a key pillar of the Ben-Gurion Doctrine. Over time, this principle became part of Israel’s national identity.
Reliance on foreign capital has made Israel – like many other small emerging economies – a vulnerable territorial entity. Addiction was often framed as an asset and sometimes as a liability. During the 1970s, Israel went through a rapid armament process, financed by US economic and military aid. During this period, Israel built up its military and became a regional power at the cost of deepening dependence on the United States and growing external debt.
Israel’s vulnerability manifested itself a few years later, when changing circumstances in the Middle East led the United States to rein in and condition its aid to Israel. After several years of growing crisis, Israel faced an existential debt crisis in 1985: it was no longer able to finance its foreign debt. Eventually, Israel received an aid package from the United States, but only after the government approved and implemented a tough stabilization plan, which included cuts to the defense budget.
The stabilization plan showed the fundamental trade-off facing many small economies. In the 1990s, there was a narrow and short-lived window of opportunity to avoid this trade-off. It was assumed that if the Middle East became more stable, there would be an inflow of capital, an outflow of exports and a reduction in defense spending. In such circumstances the tension between autonomy and sovereignty would subside.
This vision of a new Middle East implied that Israel would no longer be an isolated liberal democracy in the Middle East, but rather would be at the epicenter of a new regional market. The Israeli economy would benefit from access to new global markets, including Arab countries. To ensure a smooth transition, Israel would receive full US economic and political support.
Israel felt this vision during Rabin’s government. The center-left government privatized state-owned enterprises and liberalized trade, but also increased investment in health, education and infrastructure, especially in the country’s geographic periphery, where new immigrants are settled, and in Israel’s Arab communities. During Rabin’s government, the level of inequality in Israel fell and real wages rose.
The peace process was a necessary precondition for the success of this strategy. This opened up new markets for Israeli products and made Israel a potential investment target for expanding global financial markets. In addition, the peace process was in line with American interests in the region, and Israel was richly rewarded and supported. Rabin’s government has brought Israel as close to the European social democratic model as it has ever been.
For a moment, the nineties were the dawn of a new era. Israel seems to have been able to overcome the fundamental policy dilemma of small states that they must choose between economic autonomy and external sovereignty. Rabin’s government represented the potential end of the Ben-Gurion doctrine, which prioritized economic autonomy at the cost of dependency.
A new doctrine
The outbreak of the Second Intifada in September 2000 turned the game upside down. The failure of the Camp David summit that year marked the end of the peace economy. Right-wing governments in the post-Intifada period faced a new dilemma: How to restore economic growth without a peace process? This dilemma was the source of the new economic-security doctrine.
In the early 2000s, the Israeli economy was in recession, caused by the outbreak of the Second Intifada, the collapse of the global market known as the “dot.com crisis” and the terrorist attacks of 9/11. Ariel Sharon’s government, led by Finance Minister Benjamin Netanyahu, implemented an austerity policy. In April 2003, a month after his appointment as finance minister, Netanyahu announced an economic recovery plan, which included budget cuts, reductions in the government deficit, and severe cuts in social spending and benefits. He also reduced government subsidies to the private sector.
For Netanyahu, the growth of the private sector was a means of improving Israel’s economic power in a globalized world. While Rabin’s government saw privatization and liberalization as part of the peace dividend, for Netanyahu—and for right-wing governments in the period after the Second Intifada—privatization and liberalization were processes designed to improve Israel’s capacity to withstand external political pressure and pursue an independent foreign policy.
Some economists welcomed Netanyahu’s reforms, while others — particularly at the Bank of Israel — thought they were responsible for rising rates of poverty and inequality and for underinvestment in infrastructure.
At the end of 2003, Israel’s current account turned positive and was growing, indicating that foreign currencies were flowing into the economy. This change, which went unnoticed by the Israeli public, was nothing less than a transformative moment, a revolution in Israel’s economic history. As I explained above, the Ben-Gurion doctrine assumed dependence on foreign capital. This dependence, I argue, was a key element of national vision and identity: the dependence of the nation-building project on foreign aid. Becoming a “surplus land” meant that Israel became less vulnerable than it had been before.
The Bank of Israel was hoarding some foreign currency. Its foreign exchange reserves, which have risen sharply since 2007, are currently among the highest in the world relative to gross domestic product. At the same time, despite the stalling of the peace process with the Palestinian Authority, Israel’s risk premium on government bonds remained low and matched the risk premium of some countries in Europe.
From a foreign policy perspective, the disruption of the peace process and the strengthening of the economy have led Israel to take a unilateral approach to the conflict. This approach included the withdrawal from Gaza in 2004.
What I call the Netanyahu Doctrine is based on a geographic, institutional, and even mental separation between Israel as a globalized economy and Israel as a state occupying territory and engaged in a territorial conflict. Elsewhere I have called this doctrine “hawkish neoliberalism,” a doctrine based on the premise that free markets must be harnessed to serve a national purpose.
Is Netanyahu’s doctrine sustainable?
The biggest blind spot of Netanyahu’s doctrine is its domestic social cost. In the 2000s, rates of inequality and poverty increased. Investments in education, public health, development and infrastructure have declined. From the perspective of Netanyahu and his camp, the domestic costs were a fair price for maintaining Israel’s position in the international sphere.
Following the 2008 global financial crisis and the social justice protests in Israel in the summer of 2011, the Israeli economy was partially rebalanced to restore some social spending. However, Israel still lags behind in terms of public investment among OECD countries.
The future of the Netanyahu doctrine also depends on the course of Israel-US relations, as Israel remains significantly dependent on the United States. Israel’s ability to establish independent relations with China and Russia is limited by US concerns about technology transfer. It could be that after Russia’s war in Ukraine, a revitalized West led by the United States will pressure Israel to change its foreign policy, despite its increased financial independence.
Arie Krampf, associate professor at the Tel Aviv-Yafo Academic College, has served as a visiting professor in the Department of Government at Harvard University, and as a researcher at the Free University of Berlin and the Max Planck Institute for the History of Science. His latest book is Israel’s Road to Neoliberalism: State, Continuity and Change (Rutledge, 2018).
This article was first published by The Jerusalem Strategic Tribune.
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