Neoliberalism as a state project changing the political economy of israel

He specializes in Israeli politics, the history of the Zionist Labor Movement, Israel ’s political economy, and the sociology of the Israeli–Palestinian Conflict.. He is a political socio

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We owe a great debt to the contributors to this volume for their patiencewith our rather heavy-handed editorial style They drafted and redrafted withgood humor, and were always ready to help out in any way they could Wespecifically wish to thank Zeev (Andy) Rosenhek who, as chair of theSociology, Political Science, and Communication Department at the OpenUniversity, arranged for the group to have an initial get-together in an inspir-ing setting at Zikhron Yaakov in February 2014; Lev Grinberg for generouslyinviting John Campbell to cooperate with us and arranging his visit; andDaniel Maman, who as chair of Sociology and Anthropology at Ben GurionUniversity generously hosted our workshop with John Campbell

A M., Haifa

M S., BerkeleyNovember 2016

it is a country that has much to teach us about the formation of nation-states,social conflict and nationalism—issues that bear directly on the rise of neo-liberalism, the subject of this volume.

During the 1960s and 1970s comparativists such as Andrew Shonfieldfocused on the large North American and Western European countries such

as the USA, Germany, the UK, and France This was an effort to understandhow these countries responded differently to the devastation of the SecondWorld War and how they contributed to the formation of the post-waradvanced capitalist political economy (Shonfield 1965) Later, thanks to PeterKatzenstein’s research, some smaller European countries were added to the mix

in efforts to see how countries coped with the stagflation crisis of the 1970s andearly 1980s (Katzenstein 1985) Soon thereafter comparativists grew interested

in the leading East Asian countries, notably Japan and South Korea, as emergentcompetitors to western capitalist economies South American countries began todraw some attention in the wake of the debt crises of the 1980s and 1990s as did

a few more East Asian countries (Haggard 1990; Haggard and Kaufman 1992).With the collapse of the communist regimes in Eastern and Central Europe,several comparativists turned their attention to these countries too (Campbell

and Pedersen 1996; Haggard and Kaufman 1995) Most recently, the ascendance

of the BRICs (Brazil, Russia, India, and China) among other developing omies has attracted the gaze of comparativists (Campbell and Hall 2015; Guillénand Ontiveros 2012) But Israel, not to mention the Middle East more generally,has never received much attention from them

econ-North America, Western Europe, and South America also received the lion’sshare of attention as scholars became interested in the globalization of theinternational political economy and the rise of neoliberalism Much of thiswork focused on the various mechanisms by which neoliberalism diffusedfrom one country to another; how powerful political and economic actors,such as the International Monetary Fund and World Bank, pushed neoliberal-ism in the guise of the Washington Consensus on to various countries; andhow national institutions mediated the degree to which different countriesembraced neoliberalism or not (Harvey 2005; Simmons, Dobbin, and Garrett2008) But, again, Israel never received much attention

Why has Israel been relegated to the sidelines so often by comparativists?The answer is not obvious but several possibilities come to mind One is thatIsrael did not join the Organisation for Economic Co-operation and Develop-ment (OECD) until 2010 As a result, data on Israel were not available in a formthat facilitated easy comparisons to other OECD countries

Furthermore, for whatever reason, comparativists have not been interested

in the Middle East more generally This is doubly ironic On the one hand,much of their research focused on how the stagflation crisis of the mid-1970swas a watershed moment for the rise of neoliberalism and a game-changer forthe international political economy But after all, this was a crisis sparked inthe first place by the Organization of the Petroleum Exporting Countries(OPEC) oil embargo in response to US support for Israel during the 1973war On the other hand, Israel and the rest of the Middle East have received

a tremendous amount of attention from scholars interested in internationalrelations So how Israel can be a focus of their work but not that of compar-ativists is curious indeed

Another reason why comparativists may have neglected Israel is that it is avery difficult case for them to understand because its complexities challengesome of their most basic assumptions about how national political economiesoperate There are two reasons for this First, most comparativists have focused

on class struggles rather than nationalist struggles to explain differencesamong national political economies For instance, many comparativists haveshown that so-called liberal market economies like the USA and the UK haveweak unions, poorly organized employer associations, and little corporatism

so they work much differently than co-ordinated market economies likeSweden and Germany that have strong unions, well-organized employerassociations, and much corporatism (Hall and Soskice 2001) Of course, this

emphasis on class stems from the fact that the societies they often studied—North America and Western Europe—tended to be relatively homogeneousculturally for various historical reasons, not all admirable or pleasant Put differ-ently, the question of nationalism had long been settled in the West but not inIsrael As Ernest Gellner argued, class conflict inside a common culture is rela-tively mild because it is not mixed up with ethnic, linguistic, religious, or otherforms of nationalist conflict For him the real political dynamite in modernityresults from the combination of nationalist and class politics (Gellner 1983: chap.7; Dahrendorf 1957: chap 6) Although largely absent in the postwar advancedcapitalist countries, such dynamite has been common in Israel where sinceits founding in 1948 tensions between Muslims and Jews from a variety ofclass, religious, ethnic, and linguistic backgrounds have festered continuouslyand often exploded violently Class and nationalist divisions have also beencommonplace among the Jews with important effects on the Israeli politicaleconomy Nationalism is not something with which most comparativists areconcerned or thatfits neatly into their analytic framework even though recentscholarship suggests that the degree to which countries are culturally homoge-neous does affect national economic performance—even in the relativelyhomogeneous Western countries (Patsiurko, Campbell, and Hall 2013).Second, the Israeli state is a stark and contradictory combination of whatMichael Mann called infrastructural and despotic power (Mann 1984) It is ademocratic state affording some of its inhabitants, including Muslims, Christians,and Jews, citizenship, the right to vote, the obligation to pay taxes, and otheropportunities to participate in the well-ordered functioning of society But it

is also an oppressive state subjecting a significant proportion of the Arabpopulation to strict and sometimes violent control, including the suppression

of free movement within the country and access to labor markets and socialservices This too is ironic insofar as much of what is now Israel was onceunder British colonial rule yet Israel practices a form of internal colonialismvis-à-vis the Palestinians living in the occupied territories in Gaza, the WestBank, and the Golan Heights The complexities involved are mind-bogglinginsofar as some Palestinian Arabs are citizens of Israel but others are not.Furthermore, beginning with the dismantling of the military governmentthat controlled Arab citizens toward the end of the second decade of Israelisovereignty, state regulation of and discrimination against Palestinian citizensbecame less despotic and more contradictory Yet raw despotic power, unme-diated by any liberal rights of citizenship, continues to be exercised over theresidents of the occupied territories.1Nevertheless, the more important point

is that this blending of infrastructural and despotic state power also makes

1 A partial exception are the residents of East Jerusalem, which was unilaterally annexed by Israel and who have a kind of halfway status as permanent residents of Israel.

Israel much different from the West where infrastructural power typicallysupersedes despotic power As a result, the nature of state power in Israeldoes not conform to that assumed analytically by most comparativists giventhe countries they study.

Afinal reason for the omission of Israel from comparative analysis is likelythat some of the important studies of the Israeli political economy werewritten in Hebrew rather than English In this sense Israel has suffered thesame fate as Denmark, for instance, another small state that was ignored bycomparativists for a long time because most of the literature available inEnglish about Scandinavian political economies was only about Sweden.Thankfully, this problem has diminished somewhat since the 1990s because

of pressure on Israeli academics to publish internationally (See for example,Shalev 1992; Nitzan and Bichler 2002b; Grinberg 2010, 2014; Maman andRosenhek 2011; Ram 2008, 2011) This volume contributes to that effort andpresents a wonderful opportunity for English-speaking comparativists to learnmuch about the Israeli case But there are other reasons too that it shouldreceive wide readership among comparativists—reasons that bear directly onour understanding of the rise of neoliberalism

To begin with, as the editors explain in their Introduction, neoliberalism inIsrael would not have been possible without the state This, of course, isparadoxical to the extent that neoliberalism is ostensibly a political andideological prescription for reducing the state’s role in the economy andunleashing market forces As this volume makes abundantly clear, the rise ofneoliberalism in Israel was driven by state actors seeking in many instances toenhance and reorganize rather than reduce the state’s power—or at least thepower of certain state agencies Notable among them were the Ministry ofFinance and the central bank, whose power and autonomy increased signifi-cantly over the last few decades thanks to various neoliberal reforms Thisflies

in the face of much conventional wisdom, which argues that the rise ofneoliberalism was driven by external actors like the IMF and World Bankwielding conditionality agreements to force governments into neoliberalreforms; the maneuvering of multinational corporations threatening capitalflight if their neoliberal demands were not met; and the diffusion of neoliberalideology from the USA via intellectual networks, notably professional econo-mists trained in American universities who then returned to their homecountries as disciples of the neoliberal creed

If Israel sheds new light on the motivations driving the rise of neoliberalism, italso sheds light on the mechanisms by which neoliberal reforms were achieved.Much has been written lately about the mechanisms of institutional change,such as layering, conversion, and drift as articulated by Wolfgang Streeck,Kathleen Thelen, and James Mahoney (Streeck and Thelen 2005a; Mahoneyand Thelen 2010a) What this volume adds, however, is that neoliberalism does

not necessarily follow an ever escalating trajectory—an inescapable marchtoward more and more neoliberalism—as their work sometimes implies(Streeck 2009).2That is, despite their incremental development reforms taken

in the name of neoliberalism do not always and inevitably produce moreneoliberalism on the ground What may seem to be neoliberal reform at thelevel of appearances and rhetoric may turn out to be something quite different

at the level of concrete political practice Moreover, sometimes reforms may beundertaken that actually reverse neoliberal reforms made previously Thismakes sense in light of the basic argument of this volume—that states makeneoliberalism What the state giveth the state can taketh away! After all, ifneoliberal reform is a project involving political struggles over state power,then we should not be surprised to learn that these struggles may sometimesroll back earlier reforms Nor should we be surprised that these struggles mayinvolve the mobilization of neoliberal symbols and discourse as legitimizingcover for ulterior motives All of this becomes clear in this volume

Finally, the evidence is mounting particularly in light of the causes of the

2008financial crisis and since then the failed austerity policies of WesternEurope that neoliberalism has not delivered on its promises Yet it remainsthe dominant policymaking paradigm in many countries Several scholarshave tried to explain neoliberalism’s resilience Peter Hall and MichèleLamont, for instance, argue that its resilience boils down to political, eco-nomic, and cultural resources that different groups mobilize at the family,neighborhood, local, regional, national, and transnational levels to pursue

or defend against neoliberalism (Hall and Lamont 2013) Similarly, VivienSchmidt and Mark Thatcher maintain that neoliberalism lives on because it

is a malleable set of principles with few alternatives that can be as easilyarticulated; because it has powerful supporters; and because it has beeninstitutionalized over a long period of time thus making it difficult todislodge (Schmidt and Thatcher 2013a) And Colin Crouch suggests thatneoliberalism’s resilience stems from the fact that multinational corpor-ations, which have a vested interest in neoliberal reforms, dominate thestate in ways that tend to lock neoliberalism into place (Crouch 2011) Forall of these reasons it is said that neoliberalism will continue to dominatepolicymaking regardless of how much evidence accumulates to contradict itsclaims While there is truth to these arguments, they all neglect one of theseminal insights of this volume: the state itself is perhaps the most import-ant source of neoliberal resilience State actors have a vested interest insupporting it and defending it against its critics

2 Streeck ’s discussion of globalization and the rise of neoliberalism in Germany is an example of

an argument about the more or less relentless march to ever more neoliberal outcomes.

In short, if we want to understand the origins, mechanisms, and resilience

of neoliberalism, we need to grasp the state’s role in all of this This volumedoes just that in rich historical and analytic detail In doing so it presents acase—Israel—that comparativists ought to take much more seriously goingforward than they have in the past

List of Figures and Tables xv

Notes on Contributors xvii

Asa Maron and Michael Shalev

Part 1 Transformations of the Key Actors

2 Paving the Way to Neoliberalism: The Self-Destruction

Lev Grinberg

3 Big Business and the State in the Neoliberal Era:

Daniel Maman

4 The Reconfigured Institutional Architecture of the State:

Daniel Maman and Zeev Rosenhek

5 Institutionalizing the Liberal Creed: Economists in Israel’s

Long Journey Towards Political-Economic Liberalization 74Ronen Mandelkern

Part 2 Neoliberalism and Social Policy Reform

6 Pathways to Neoliberalism: The Institutional Logic

Michal Koreh and Michael Shalev

7 “Wisconsin Works” in Israel? Imported Ideas, Domestic

Coalitions, and the Institutional Politics of Recommodification 109Sara Helman and Asa Maron

8 Bureaucrats, Politicians, and the Politics of Bureaucratic

Autonomy: Reforming Child Allowances and Healthcare 122Sharon Asiskovitch

Part 3 Neoliberalism and The Casualization of Employment

9 Precarious Employment in the Public Sector: How Neoliberal

Michal Tabibian-Mizrahi and Michael Shalev

10 Contradictions in Neoliberal Reforms: The Regulation of

List of Figures and Tables

Notes on Contributors

Sharon Asiskovitch holds a PhD in Political Science from the Hebrew University of Jerusalem and is a researcher in the Research and Planning Authority of the National Insurance Institute of Israel, and an adjunct lecturer at the School of Social Work, Ruppin Academic Center He is the author of a book on the politics of Israel’s healthcare system, Price Tag for Life [Hebrew] (2011) and articles on Israel’s welfare state and social politics in journals that include Social Policy and Administration, Policy and Politics, and Global Social Policy.

Lev Grinberg is Professor of Sociology at Ben Gurion University (Israel) He has taught as

a visiting professor at UCLA, UC Berkeley and Dartmouth College He specializes in Israeli politics, the history of the Zionist Labor Movement, Israel ’s political economy, and the sociology of the Israeli–Palestinian Conflict His books include Split Corporatism in Israel (1991), The Histadrut Above All [Hebrew] (1993), Introduction to Political Economy (1997), Politics and Violence in Israel/Palestine (2010), and Mo(ve)ments of Resistance (2013) His current research is a comparative study of “occupy” movements of resistance.

Sara Helman is Senior Lecturer in the Department of Sociology and Anthropology, Ben Gurion University (Israel) She specializes in political sociology, with an emphasis on the sociology of state–society relations and citizenship, and the sociology of social movements She has published in journals including The British Journal of Sociology, Constellations, Social Policy and Administration, Social Politics, and the Journal of Culture, Politics and Society, as well as in several book collections She is currently researching active labor market policy in Israel, and the ways it redefines the relations between individuals and state agencies.

Michal Koreh is a Lecturer in the School of Social Work at the University of Haifa Previously she was a Postdoctoral Fellow at the Taub Center for Israel Studies, New York University As a political economist of the welfare state, her research relates to broad questions of welfare state development as well as contemporary processes of restruc- turing Her research also addresses specific social programs in the areas of social insur- ance financing, pensions, and poverty amelioration Her articles are published or forthcoming in journals that include Socio-Economic Review, Journal of European Social Policy, Health Policy, and Social Policy and Administration.

Daniel Maman is Associate Professor in the Department of Sociology and ogy, Ben Gurion University (Israel) His areas of interest include economic sociology, sociology of finance, comparative political economy, and institutional change He was coeditor of The Military, State and Society in Israel (2001), and with Zeev Rosenhek he

Anthropol-coauthored The Israeli Central Bank: Political Economy, Global Logics and Local Actors (2011) He has published in journals including Socio-Economic Review, Review of Inter- national Political Economy, Organization Studies, and The British Journal of Sociology He is currently studying the emergence and development of financial literacy in Israel Ronen Mandelkern is a Lecturer in Political Science at Tel Aviv University Previously,

he held Postdoctoral Fellowships at the Polonsky Academy at the Van Leer Jerusalem Institute and at the Max Planck Institute for the Study of Societies (MPIfG), Cologne His main research fields are comparative and international political economy, with

a focus on economic liberalization processes in Israel and other developed economies.

He has published in World Politics, New Political Economy, and Comparative Political Studies.

Asa Maron is a Lecturer in the Sociology Department at the University of Haifa Previously he held postdoctoral positions at Stanford University, the Hebrew University

of Jerusalem, and Ben-Gurion University of the Negev He is a political sociologist specializing in the sociology of the welfare state and neoliberalism, with an emphasis

on the transformation of the state, its politics, institutional dynamics, and quences for state–society relations He has published in Law & Society Review, Adminis- tration & Society, Social Policy & Administration, and Mediterranean Politics.

conse-Guy Mundlak is Professor of Labor Law and Industrial Relations at Tel Aviv University, with a joint appointment in the Law Faculty and the Department of Labor Studies His interests span diverse areas of labor and social law, including social rights, welfare, and immigration, as well as industrial relations He has published extensively on inter- national, comparative and Israeli labor norms He is the author of Fading Corporatism (2007), and co-editor of Comparative Labor Law (2015) He serves on the editorial board

of the International Labour Review, chairs the advisory committee to the Equal tunities Commission in Israel, and is also a social activist.

Oppor-Zeev Rosenhek is Associate Professor in the Department of Sociology, Political Science, and Communication at the Open University of Israel He is a political and economic sociologist, and has conducted research on the political economy of the welfare state, labor migration, and the politics of institutionalization of the neoliberal regime in Israel He is the co-author with Daniel Maman of The Israeli Central Bank: Political Economy, Global Logics and Local Actors (2011) He has published numerous articles in journals that include Ethnic and Racial Studies, Journal of Ethnic and Migration Studies, Social Problems, Acta Sociologica, Journal of Social Policy, European Journal of Sociology, Review of International Political Economy, and Socio-Economic Review.

Michael Shalev is a political sociologist, formerly at the Hebrew University of lem and currently Visiting Professor at the University of California at Berkeley His primary research interests are in the political economy of Israel and rich democracies generally, focusing on the politics of social and economic policy, social stratification, and the socio-economic underpinnings of political action He is the author of Labour and the Political Economy in Israel (1992) and editor of The Privatization of Social Policy? (1996) He has published in World Politics, Socio-Economic Review, Social Forces and other journals Shalev’s recent research is on the mass protests of 2011 in Israel and Southern Europe.

Jerusa-Michal Tabibian-Mizrahi completed her PhD in Sociology at the Hebrew University of Jerusalem, and her contribution to this volume is based on her dissertation, Dynamics

of Gradual Institutional Change –the Development of Precarious Employment in the Public Sector She has served as Senior Researcher in the Research and Information Center of the Israeli Knesset (parliament) and Senior Division Head in the Department of Gov- ernance and Society of the Prime Minister’s Office, and is currently Director of Strategy and Planning in the Ministry of Education.

Introduction

Asa Maron and Michael Shalev

This book offers a gallery of recent scholarship exploring the politics, tional dynamics, and outcomes of neoliberal restructuring in Israel The focus

institu-is on the political economy broadly defined, with a particular interest in socialand labor market policies However, our ambitions are nomothetic as well

as idiographic In the struggle for theoretical primacy between the masterexplanations of political economy, power and interests have lost ground inrecent decades as Marxian analysis based on class conflict and the power ofcapital gave way to a growing emphasis on ideas and culture on the one hand,and institutions on the other This had a significant impact on the study ofneoliberalism, understood as the driving force behind the destabilization ofpostwar state–economy–society settlements in economically advanced dem-ocracies, via a growing primacy of markets and market logic The main goal

of the volume is to explore neoliberal reforms from a neo-institutional spective which, while attentive to the role of both ideas and institutions inshaping the role of the state, attempts to reassert the interests and power ofstate institutions and actors as pivotal to the success of the neoliberal project

per-We seek to understand neoliberalism as a contentious political project whichmay be—and in Israel was—advanced and nurtured mainly by engaged stateactors, via arrangements and coalitions with other state and non-state actors

We contend that the political study of the emergence of neoliberalism hasnot been sufficiently attentive to the role of states While scholars haveexplored the role of politicians, particularly in the emblematic cases of Britainand the United States but also in other countries and regions (Geddes 1995;Pierson 1994; Swarts 2013; Prasad 2006), this has not generally been coupledwith consideration of the role of state bureaucracies In addition, most studiesadopt a tipping-point, “one-way” understanding of the transition to neo-liberalism, neglecting the fact that at least some elements of such transitions

are potentially contentious, mobilizing resistance and possibly even leading

to policy reversals This volume offers to overcome these limitations, first

by adopting a state-centered perspective on the politics and outcomes ofneoliberal transformations, and second by offering a historical perspectivefocused on the capacity of reformers to translate their temporary achieve-ments into entrenched strategic advantages The role of the state is not theonly explanation for the ascendancy of neoliberalism, but it is more than justone of many equally significant interpretive approaches The scarcity of pre-vious attention by scholarship on neoliberalism to the role of the state,coupled with the specific need to correct earlier interpretations of the Israelicase which neglected its role, justify our decision in this volume to give theor-etical and empirical primacy to the state

This volume puts forward a bold proposition, that the very creation of aneoliberal political economy may be largely a state project Correspondingly,the key political conflicts surrounding the realization of this project may occurwithin the state These struggles engage state actors—bureaucrats and theiragencies even more than politicians and their parties—advancing differentpolicy projects and following distinct interests and logics that in many casesonly partly or tenuously reflect social and economic forces outside of the state.Neoliberal restructuring and the institutionalization of permanent austerityare dependent on reconfigured power relations between these actors and aremanifested in a new institutional architecture of the state This architecture,

in turn, is the context in which intra-state conflicts and coalitions are formed,and efforts to change social and employment policies play themselves out

A further guiding principle of this volume is that while neoliberalism is acompelling political phenomenon with clear trans-national commonalities, it

is neither omnipotent nor universal Contextually sensitive case studies areessential to advance scholarly understanding of both the general and particu-lar features of the contemporary neoliberal order and its underpinnings.Radically transformed from a developmental political economy to a neoliberalregime in only a few decades, Israel has experienced vast increases in theexecutive power of fiscal and monetary authorities committed to radicalneoliberal reform, alongside sea changes in the structure and capacities ofboth labor and capital The extraordinary powers of organized labor wereswiftly and sharply curtailed, while Israel’s already highly concentrated econ-omy became dominated by a small number of capitalist“tycoons.” Given theextent of these transformations, their rapidity, and the relative transparency

of a small country, Israel is an ideal setting to study the constitution ofneoliberalism as a contested state-driven project

Neoliberalism is not a coherent package of ideas, models and formal tutions applied identically in all locations and contexts (Campbell andPedersen 2001; Schwartz 1994; Manzetti 2010; Veltmeyer, Petras, and Vieux

insti-1997; Fourcade-Gourinchas and Babb 2002; Schmidt and Thatcher 2013b).Varieties of neoliberalism emerge because the new order does not steamrolleverything in its path, but rather interacts with existing institutional andcultural characteristics of national political-economic regimes, altering oreliminating some of their illiberal underlying principles and practices whileallowing others to survive and evenflourish Illiberal elements are perpetuatednot simply by institutional inertia, but by the political influence and agency

of segments of society which benefit from arrangements protecting themfrom the full force of neoliberal reform—or compensate them for its costs(Etchemendy 2011) The uneven and localized adoption of neoliberal policiesand practices also reflects resistance and obstacles in the form of institutionalveto points or ad hoc coalitions, many of them inside the state itself

The remainder of this introduction is divided into three sections Thefirstsection surveys key contributions of existing scholarship which have shapedthe understanding of the editors and contributors to this volume of themechanisms underlying the ascendancy of neoliberalism The next sectioncontextualizes the Israeli political economy and welfare state, sketching thebroad lines of their evolution into the neoliberal era This is followed by anoverview of the chapters to follow

Theoretical Inspirations

Considerable scholarship on the role of the state in developed political omies debates the extent to which states have been constrained by the mater-ial and ideational dictates of globalization and neoliberalism Both ourtheoretical orientation, and the evidence presented in this volume for Israel,align with the view that contemporary states continue to be extensivelyengaged with the economy and society and maintain significant steeringcapacities, though they may deploy new policy instruments and pursue newgoals (Block 2008; Campbell and Pedersen 2001; Levy 2006; Schmidt andThatcher 2013b; Weiss 2010) However, this book is less concerned withspecifying the role of the state under neoliberalism, than with exploring thepotentially decisive contribution made by states to its rise and consolidation.Investigating this problemstellung can be justified not only by the importance

econ-of understanding neoliberalism’s past, but also its present and future Thefinancial crisis of 2008 and its aftermath have focused attention on the puzzleposed by the“strange non-death of neoliberalism” (Crouch 2011), its surpris-ing endurance in the face of real-world failures and growing popular critique.This is often explained by the persisting ideational hegemony—or resilience—

of neoliberalism and the lack of a coherent alternative theory, ideology andpolicy paradigm (Block and Somers 2014; Centeno and Cohen 2012; Schmidt

and Thatcher 2013b) However, by tracing the centrality of the state—particularly state agencies—in advancing, nurturing, and entrenching a neo-liberal transformation of the political economy, this book implies that thecurrent resilience of the neoliberal project may also be explained by thesuccess of neoliberalism as a state project that succeeded in institutionalizingneoliberal policies and practices in the everyday routines of states.

Taking the seminal volume edited by Campbell and Pedersen (Campbelland Pedersen 2001) as a starting point, we observe that while it providedsubstantial evidence that the various agencies and actors of the state playedprominent roles in the rise of neoliberalism, the state as a distinct field ofinstitutional actors was not identified explicitly, nor was it theorized Theformal, normative and cognitive components of the new neoliberal institu-tional order appeared to have been superimposed on the state, rather thanoriginating from within it Questioning this seemingly passive understanding,the present volume shifts the spotlight to what Leibfried and colleaguesdescribe as the role of the state as“an active and effective mover of its owntransformations” (Leibfried et al 2015: 9) This is not a new perspective Morethan two decades ago Barbara Geddes wrote that“To understand the politics

of economic liberalization, analysts need to start by thinking in a more carefuland concrete way about the state and the interests of the officials who consti-tute it” (Geddes 1995) By deepening our understanding of the state, itsinternal power struggles and the interests which they reflect, much can belearned about the politics that shape neoliberal projects, the actors that buildand sustain them, and the consequences they invoke

State Theories Revisited

According to some theories, the state is an arena of political struggles overgovernmental power between social groups, while others depict it as a mereinstrument in the hands of societal groups (Alford and Friedland 1985) Themissing elements in both approaches are the active and comprehensive rolethat states play in society and politics, and the fact that the state is“a structurewith a logic and interests of its own” (Skocpol 1979: 27) Skocpol (Skocpol

1979, 1985) explicitly articulated these two essential aspects of the role of themodern state: as a structure and an actor The state as a structure refers to theinstitutional features of states—for example, whether they are unitary orfederal or the type of party system—and asks how they affect the strategies,identities and opportunities of both state and non-state actors

What determines the role of the state as an actor? An elementary but powerfulanalytical distinction has been made between the autonomy and capacities

of states As Amenta puts it, the power of states to make and implement policy

is dependent, respectively, on their “ability to define independently lines

of action” and “to carry out lines of action” (Amenta 2005: 100) Clearly,capacities like revenue extraction and centralized administrative control arecritical for states’ ability to make their decisions matter But it is often impossible

to maximize both autonomy and capacity States lacking resources may have tosacrifice autonomy in order to cover their resource deficit On the other hand,those enjoying capacities without autonomy tend to the opposite tradeoff,since lack of autonomy means subordination to non-state actors who exploitstate capacities for their own ends

State autonomy can never be absolute, and coalitions with societalinterests and other states are essential As a result autonomy is alwayscontingent, varying both across policy domains and over time Classicformulations of the state-centered approach attributed changes in auton-omy mainly to domestic and international challenges exterior to the state,coming at a time when its authority, military power and infrastructuralpower are underdeveloped or in decline (Trimberger 1978; Skocpol 1979;Krasner 1984; Mann 1984) This emphasis was accompanied by neglect ofthe “internals” of the state itself Due to the historical growth of statesand diversification of their functions and roles in society, modern statesare polymorphous rather than monolithic (Mann 1984) The state is anensemble of institutions, a heterogeneous and unequal field in whichinstitutional actors with different bureaucratic and professional logics andorganizational interests compete for power, resources, autonomy, and legit-imacy (e.g Bourdieu 1999; Carruthers 1994; Chibber 2002; Schmidt 2009;Martin 1989; Major 2013)

While the highly aggregated conception of the institutional interests of

“the” state proposed by Skocpol and other protagonists of the state-centeredapproach tended to overlook the internal institutional fragmentation ofstates, their specification of state interests is a valuable starting-point forunderstanding what drives the actions of individual state agencies Theinsight that states have primal interests in both capacities and autonomy,and that tradeoffs may be necessary between the two, is relevant to a disag-gregated as well as an aggregated perspective on states And here too a shiftingbalance is likely between contestation and cooperation vis-à-vis other actors,including not only actors from non-statefields, but also—and possibly evenmore importantly—other state agencies

Beyond these general influences, the actions of particular state actors are to

a large extent shaped by their position and function in the statefield, and theircorresponding agency-specific interests and professional expertise These nur-ture a certain set of goals, interests, responsibilities, and modus operandi (Hall1986: 19) that are internalized by bureaucratic and professional elites that play

a proactive role in formulating agency-specific policy lines As a result, thestructured relations between subunits of the state, and the conflicts and

coalitions to which they give rise, strongly influence which of the state’smultiple interests and logics come to the fore.

Explaining Transitions to Neoliberalism

Scholars agree that the rise and establishment of neoliberalism is associatedwith changes in the institutional architecture of the state In order to adoptneoliberal principles, states must transform Marxist perspectives link thetransformation of the state to the changing interests of capitalists, the reflec-tion of a wider shift from a Fordist to a Post-Fordist accumulation regime in the1970s (Amin 2011) The regulation approach focused on explaining the con-tingent adjustment of the state to the new demands of capital, by beingattentive to variations in class struggles (Boyer 1990) However, this approachstill falls short in recognizing the lasting importance of domestic structures,politics and institutions, while remaining mute on intra state variation, andthe dynamics and struggles that can emerge around attempts to replaceentrenched policy goals and instruments (cf Jessop 1999, 2002 on the tran-sition from welfare to workfare)

Insightfully embracing a disaggregated perspective, Jayasuriya (2001, 2005)and Major (2013) have argued that the internal architecture of states, theirsubdivision into agencies with varying resources, capacities, and autonomy, iscritical for understanding the transformation of states and their embrace ofneoliberalism Both authors point to the rise of macroeconomic agencieswithin states, and the subsequent development of new relations betweenthem and other subunits, as central features of the transition to a neoliberalpolitical economy Yet notwithstanding the importance of these institutionalreconfigurations, it is essential to recognize both components of the structure/agency couplet Changes in internal state architecture, such as the rise ofautonomous central banks and the growing authority and autonomy of eco-nomic technocrats over budgeting, have indeed provided essential institu-tional preconditions for the rise of neoliberal relations between state,society, and economy But the other side of the same coin is that the expertswho run the state’s economic bureaucracies have actively engaged in politicalaction designed to promote these very institutional changes, using them toaggrandize the power and autonomy of their agencies vis-à-vis rival centers ofpower These rivals, at the extreme veto players, may be located outside as well

as inside the state In the non-state arena they include powerful segments ofcapital, labor, and civil society; and within the state, other state agencies,courts, and elected governments and legislatures

State agencies in pursuit of autonomy strive to guide and if necessarydiscipline powerful societal actors and their organized representatives Theguiding role of economic bureaucrats in the pre-neoliberal era was evident in

the so-called developmental states of East Asia (Johnson 1982; Evans 1989),but it was also integral to Shonfield’s claim in the 1960s that some form ofplanning was essential to the continuing success of the most advanced capit-alist economies (Shonfield 1965) Neoliberalism has often been understoodfrom this perspective as a necessary corrective to the emergent contradictions

of postwar settlements that empowered labor and the left It has beenargued that, as a result of profit squeeze and fiscal crisis in the 1960s and1970s (Glyn and Sutcliffe 1972; O’Connor 1973), the autonomy of thestate vis-à-vis capital shrank On top of domestic pressure to increase profitmargins, globalization was said to enhance the leverage of market actors—especially multinational corporations, international finance, and domesticbusiness groups—over states, further undermining their capacity to maintainpostwar commitments to labor and society (Cerny 1997; Held 1999) Thus,states were obliged to reinstate conditions for capital accumulation and there-empowerment of capitalist elites (Harvey 2005)

Our focus on the state does not preclude the influence of societal interestsand powers, including the role of capital, internationalfinancial institutions,and domestic civil society organizations in neoliberal restructuring Neverthe-less, we follow a significant body of research which rejects the idea that there is

a direct and imperative causal link between economic forces and domesticpolicy change Much of this work has highlighted the critical mediating role

of state institutions and domestic politics (e.g Swank 2002; Brady, Beckfield,and Seeleib-Kaiser 2005; Weiss 2003b; Levy 2006), contending that states“canblock, adapt to, mediate, and in some cases even reverse neoliberal tenden-cies” (Campbell and Pedersen 2001: 1) Moreover, while changes in the inter-national environment and the financialization of capitalism have imposedconstraints on some state activities, they have also stimulated and enablednew roles and activities (Levy 2006; Weiss 2003a, 2010)

Even when responding to intense economic pressures for liberalizationandfiscal austerity, states have not simply been passive victims of domesticand international forces In his study of state reorganization in small trade-dependent countries that were in the vanguard of neoliberalism, Schwartz(1994: 529) emphasized how state actors strategically“pushed institutionalchanges that enhance central state autonomy.” It is this state-centeredmoment of the relationship between states and neoliberal capitalism thatthe present volume seeks to privilege Accordingly, turning around theconventional perception, we adopt the view that globalization and the rise

of monetarism and supply-side economics helped to empower monetary andfiscal state agencies by making it “imperative” for them to impose discipline

on both private economic actors and other units of the state Increasinglyembedded in international networks of experts and technocrats, thestate’s economic managers have buttressed their professional authority to

become national guardians of austerity and competitiveness (e.g Gourinchas and Babb 2002; Major 2013; Jayasuriya 2001; Wanna, Jensen,and Vries 2003).

Fourcade-How and When is Transformative Change Possible?

If it is indeed true that self-interested state actors have played pivotal roles inneoliberal transformations, how did they succeed in overcoming the conser-vative institutional biases of state structures and practices?

From a path dependence perspective, major changes are expected tooccur“when new conditions disrupt or overwhelm the specific mechanismsthat previously reproduced the existing path” (Pierson 2000: 266) This type

of disruption is especially likely at critical junctures, “moments when thefreedom of political actors and impact of their decisions is heightened”(Capoccia and Kelemen 2007: 343), and consequently institutional equilibriaare “punctuated” and dramatically reconfigured (Baumgartner, Jones, andMortensen 2014; Krasner 1984)

This perspective, which leads naturally to a focus on crises and radicalresponses to them, has been challenged by scholars with an interest in gradualand cumulative transformation It is claimed that by paying greater attention

to the agents responsible for the ongoing maintenance of institutions, it can

be discerned that incremental institutional change takes place even underconditions of apparent institutional inertia (Crouch 2005; Streeck andThelen 2005a; Mahoney and Thelen 2010a) Nuanced mechanisms, like fail-ure to adapt to new conditions or the stepwise accumulation of modestinnovations, may result in a structural break but one that is not necessarilynoticed along the way Thus, gradual reform assists politicians and bureaucratsseeking to obfuscate the intended outcomes and effects of the institutionalchanges they promote (Pierson 1994) Incrementalism has become widelyrecognized as a key means of overcoming the institutionalization of embed-ded liberalism in the postwar era, which constrained entrepreneurs of liber-alization (Ruggie 1982)

While a number of the substantive chapters of this volume draw attention

to the role of mechanisms like layering, drift and displacement, the tors also utilize complementary theoretical insights into how barriers to insti-tutional change may be overcome by state actors

contribu-First, change agents within the state form coalitions in the hope of ting the power of veto players The coalition partners can be other agencies,politicians, civil society actors or market actors These networks of govern-ance and change aim to circumvent resistance from both within and outsidethe state (Newman 2001) They may exploit new ideas in order reinterpretinstitutional rules and goals in ways that justify their efforts at institutional

offset-change (Palier 2005; Hall and Thelen 2009; Hall 2010; Helman and Maron,this volume).

Second, in order to bypass institutionalized mechanisms of governance thatare monopolized by state agencies or sub-units opposed to change, changeagents may adopt new modes of governance (like privatization and outsour-cing) while actively undermining old ones (such as corporatist deliberation).New (or newly emphasized) modes of governance associated with neoliberal-ism take the form of private–public networks and partnerships, including thegrowing role of both lobbyists and consultants However, it is important torecognize that these are not only part of the self-styled neoliberal toolkit, and

in this sense powered by neoliberalism, but also comprise conveniently imated resources for state agencies in search of enhanced autonomy

legit-Third, rejecting the accepted view that gradual/indirect change mechanismsare a theoretical alternative to“big bang” mechanisms like punctuated equi-librium and critical junctures, this volume treats the two approaches as poten-tially complementary Anticipating a conclusion that will be teased out morefully at the end of the book, it can be said that in Israel a major economic crisisprovided the necessary (albeit not sufficient) conditions for launching a care-fully conceived and negotiated“Emergency Stabilization Plan” that redefinedkey parameters of the political economy Building on this turning point, andessential to its maturation and consolidation into a more comprehensiveneoliberal regime, were a succession of reforms based to a large extent onthe other mechanisms discussed here: modest and oblique changes, intrastatecoalitions and conflicts, and the adoption of new modes of governance

The Change Agents of State-led Liberalization

Among the intra-state contestations surrounding neoliberalism, strugglesbetween spending agencies and fiscal savers or “guardians” (Wildavsky1964) have played a prominent role in the reconfiguration of the state In adialectic that is especially clear in the realm of social policy (yet remainssurprisingly understudied), line agencies responsible for performing the sub-stantive functions of the state try to secure and maintain the goals and theinterests of their constituencies, while Ministries of Finance strive to usurpcontrol over policymaking and subordinate state projects to an economisticlogic (Bourdieu 1999; Jenson 2012; Wacquant 2010; Phillips et al 2006).The rise of state agencies in charge of macroeconomic management as prom-inent actors in advancing a new institutional order was underpinned by a moregeneral change in the significance of economists as the new technocrats ofneoliberalism This raises two issues First, were the ideas of economists andthose of neoliberalism joined by elective affinity, or did economists’ theoriesand ideologies alter as a result of the rise of neoliberal ideas? Second, did the

ideas of economists—whether old or new—influence policy due to their ent properties, or as a result of the growing power and status that economistsenjoyed? And if so, how can their growing power and status to be explained?One explanation for the normative power and scientific authority thathave enabled economists to dominate governance of the economy is aninternational process of professionalization over the course of the twentiethcentury (Callon 1998; Fourcade 2006) However, this process has been sub-ject to substantial context-specific variation In some contexts the decisivefactor was economists’ entry into positions of bureaucratic authority for thefirst time In others it was generational turnover in the staff of the economicbureaucracies, or else a more gradual transformation in the beliefs and ideascarried by economic technocrats (Fourcade-Gourinchas and Babb 2002; Hall1993) In addition, especially in Latin America, the normative power ofeconomists was critically reinforced by the ability of American and inter-nationalfinancial organizations to inflict economic sanctions (Dezalay andGarth 2002).

inher-The ideational or discursive stream of institutionalist theory contends that

in the wake of the rise of monetarist and supply-side economics, economists’ideas redefined the interests and strategies of institutional actors, while pro-viding them with both the blueprints and the legitimacy needed to advancenew policy proposals (Blyth 2002; Hay 2001) Nevertheless, the autonomouscausal significance of ideas remains contested While a strong case has beenmade that persuasive ideas play an important role in institutional change(Blyth 2007; Schmidt 2008), the role of power relations in the selection andsuccess of persuasive ideas should not be ignored Case studies have shownthat by promoting think tanks and exploiting their control over the massmedia, business interests have aggrandized and disseminated only some eco-nomic ideas and rewarded their bearers (Blyth 2001; Campbell 1998) It hasalso been demonstrated that economists’ ability to directly influence policydepends not only on the inherent persuasiveness of their ideas, but also—andperhaps more importantly—their professional and political capital (Mandelkernand Shalev 2010)

The growing empowerment of bureaucratic actors and agencies with claims

to impartial economic expertise, and as a result the partial depoliticization

of economic and social policymaking, also raise questions regarding the role

of politicians in neoliberal transitions Based on a systematic comparison ofcountries in Latin America and the European periphery, Geddes (1994) sug-gested that politicians’ motivation and ability to propel liberalization wasdependent not only on their indebtedness to interest groups, but also—andeven more importantly—on the extent to which they (or their political rivals)relied on state resources in order to maintain party machines and othersources of political power In her study of the impact of the oil crisis on four

rich democracies, Prasad (2006) argued that self-interested politicians, ing within a variety of institutional settings, were pivotal in advancing neo-liberal reforms In the UK and the USA, adversarial political structuresprovided them reasons to embark on neoliberal policies in order to mobilizeelectoral and financial support, while in France and Germany, institutionswhich subordinated political conflicts to either technocratic or corporatistdecision-making arrangements provided politicians no such incentives How-ever, in these studies the recognition of politicians’ autonomous interestsovershadowed the autonomous interests other state actors may have in trans-formations of the political-economic regime.

operat-Fourcade-Gourinchas and Babb (2002) have shown that while cadres ofprofessional economists with senior positions in state bureaucracies played

an important role in all neoliberal transitions, sometimes after a generationalshift, in some contexts these transitions were driven by political elites Evenwhen facing bureaucrats who enjoy strong institutional autonomy, if politi-cians’ own core interests are involved they may exercise their formal authority

in order to veto bureaucratic initiatives or to press an independent reformagenda (Asiskovitch, Chapter 8, this volume) The relationship betweenbureaucratic and political elites is therefore highly contingent It can easilyshift between cooperation, competition and blame avoidance (Gualmini andSchmidt 2013)

Like technocrats, politicians may be motivated by ideological as well aspragmatic motives But in both cases, ideological choices also have a pragmaticdimension Politicians can and do use ideas instrumentally to publicly legitim-ate their actions, especially in order to whitewash their own self-interest oravoid accepting blame (Weaver 1986) Moreover, similar to the striving ofbureaucratic agencies for greater autonomy, politicians may choose to exploitneoliberal policies in order to lessen their dependence on powerful interestgroups with claims that undermine their capacity to govern autonomously.This drive for autonomy has particular relevance to political parties of theleft and center-left and their reconstitution as “new Labor” or “third way”parties On the eve of the neoliberal era, leftwing parties were confronting thepolitical consequences of deindustrialization, the rise of the service economyand the growth of higher education, all of which led to shrinkage of theirtraditional electoral base and invited a shift in their appeals and policy port-folio in order to attract classes with different interests and worldviews Theseexternal pressures often intersected with the interests of aspiring politicianswhose political options, and in some cases also personal aspirations for lead-ership positions, were blocked by the weight of trade unions in funding andgoverning labor parties or challenged by new right populism The resultingpolitical interests, and not just the potency of new neoliberal ideas and thepower of the interests supporting them, help to explain why left-leaning

parties were often the most effective proponents of neoliberal reforms(Mudge 2008; Newman 2001; Centeno and Cohen 2012: 323–4).

To sum up, this book is based on a theoretical view of the state as a distinctfield of institutions and institutional actors engaged in advancing conflictinginterests rooted in their specific institutional location and function within thestate These actors engage in intra-state relations of either collaboration orcompetition, seeking to advance short and long term goals—and above all,their own autonomy—vis-à-vis other state agencies and societal actors Statemanagers, economists, and politicians are influenced by ideas, but also utilizethem for instrumental purposes This reflects the dual role of ideas in politics:they exert power over actors by molding their actions and even their interests,but are also mobilized by them as power resources in order to produce legit-imacy and consent Along with the inspiring and legitimizing role of ideas,coalition-building and gradual change are other mechanisms that have aidedthe rise of the neoliberal policy paradigm State actors may tactically advance

ad hoc coalitions to achieve short term goals, or patiently nurture far-sightedcampaigns to conquer long-term goals Gradual institutional change hasplayed a central role in the erosion and eclipse of entrenched arrangementsthat preceded neoliberalism This is true of restructuring of the institutionalarchitecture of the state itself, as well as reforms of specific policy fields

The Israeli Case

As in other national contexts, the familiar forces of global liberalization werejoined in Israel by specific local histories, settings, and conjunctures Forged

as a collectivist settler society with hyper-corporatist arrangements and anextended role for the state in both market and society, liberalization repre-sented a radical break with Israel’s past of “embedded illiberalism” (Shalev1999) For two decades a succession of economic crises that began early in the1960s signaled the unsustainability of Israel’s developmental state, whichuntil then had not only dominated industrialization and the distribution ofeconomic and social resources, but was also responsible for massive, expensiveprojects of territorial and demographic expansion and the buildup of militarypower (Aharoni 1991a; Ben-Porath 1986a; Shalev 1992) Nevertheless, unlikeother over-extended states on the semi-periphery of the world economy, Israelwas not obliged by pressure from the USA and internationalfinancial agencies

to embark on economic liberalization (Silver 1990) On the contrary, for a longtime it was shielded from economic catastrophe by aid from the governments

of West Germany and the USA, along with Jewish communities around theworld (Shalev 1992) The turning point came after external subsidies provedinsufficient to prevent a series of external (balance of payments) and internal

(fiscal) crises which, combined with slow or no growth, culminated in theearly 1980s in rampant hyperinflation The state’s response, the StabilizationPlan introduced in July 1985, is widely regarded as signaling the end of Israel’sdevelopmental state (Maman and Rosenhek 2012a).

Who (or What) Promoted Neoliberalism in Israel?

Scholarship on Israel has frequently identified neoliberalism as a central pivot

in the subsequent transformations of Israel’s social and economic policies thatthis book seeks to explain Not surprisingly, interpretations of the rise ofneoliberalism in Israel invoke the same broad explanatory approaches as theinternational literature Some interpret neoliberalism as an ideological projectpromoted by dedicated political and business elites with the support of theupper middle class In this view, imported neoliberal ideas and models pro-vided powerful blueprints that succeeded in radically diminishing the illiberalaspects of Israel’s political economy and undermining the state’s role in socialprotection (e.g Doron 2007; Ram 2005)

While there is broad agreement that neoliberalism is a global phenomenonthat reached Israel by virtue of the power of forces beyond the control of thestate, they disagree over what these forces are For Doron, Israel’s neoliberali-zation is a result of ideological conversion to neoliberalism as a doctrine

In contrast, Ram (Ram 2005) argues that it is the outcome of the ubiquitoustransition to a post-Fordist mode of production, while Nitzan and Bichler(2002) maintain that it results from the changing accumulation requirementsand expanding global reach of the leading capitalist enterprises in theUSA Common to all of these interpretations is the view that, while the Israelistate could influence the distribution of profits and losses from globalizationamong domestic actors, it has played no independent role in initiating orstructuring policy change This is equally true of an account of Israel’s liberal-ization offered by a leading Israeli economist who presided over some import-ant reforms during his tenure as Director-General of the Ministry of Finance(MoF) According to Ben-Bassat (2002b) and other economist-technocrats, farfrom exercising agency they were responding in the only feasible way to graveeconomic problems caused by profligacy and misconduct

Other accounts of Israel’s liberalization focus on the self-interested actions

of domestic actors in the wake of new international opportunities For Shafirand Peled (2000b), the champions of economic liberalization and integrationwith the world market were the top managers of big business, notably in thepublic and collectively-owned sectors But while emphasizing the pressureexerted by Israel’s emergent “business community,” which in the early1990s pushed for a combined package of peace and privatization in thehope of enlarging its access to expanding world markets, Shafir and Peled

(2002) also noted the role of other change agents These included state cies such as the central bank, which actively promoted ideological and insti-tutional changes in order to enhance their own power and autonomy.Developments in the world economy and the interests of capitalists poseimportant constraints on, and opportunities for, states However, likeGrinberg (1991, chap 6) and Shalev (1999), we interpret Israel’s StabilizationPlan and the search to reduce the government’s fiscal burdens and delegate itsresponsibilities for economic growth to markets as having been decisivelyshaped by the dialectics of state autonomy Equally, we maintain that thediscourse of neoliberalism was as much a resource in this struggle for auton-omy as an explanation for it Our approach is inspired by the attention thatShafir and Peled drew to the success of Israel’s central bank in redefining itsauthority and autonomy—a transformation later studied in depth from a neo-institutional perspective by Maman and Rosenhek (2011 and Chapter 4, thisvolume) The Bank of Israel’s successful “declaration of independence”(Maman and Rosenhek 2007) highlights the potential role of state actors asactive and entrepreneurial political agents, and the coalitions and conflictsthis entails with other state actors.

agen-Continuity and Change in Israel’s Welfare State

The Israeli welfare state regime has been characterized as both conservativeand dualist (respectively, Stier, Lewin-Epstein, and Braun 2001; Rosenhek

1995, 2003b) Building on practices established in the pre-sovereignty period,when social policy was tightly coupled with settlement and state-building,access to benefits, services and protection schemes is allocated unequallyaccording to citizenship, nationality, ethnicity, gender, and contribution tonational goals (Rosenhek 2007; Ajzenstadt and Gal 2001; Shafir and Peled2002) The peak association of workers, the Histadrut, along with closely alliedZionist labor parties, promoted collectivist forms and institutions of Jewishsettlement (Kimmerling 1983; Grinberg 1993b) Under the banner of“con-structive socialism,” collective resources were primarily directed to landpurchase and creating the means of production and new jobs needed forabsorbing Jewish immigrants Income maintenance was a low priority, andcommunal authorities played only a residual role in social welfare In contrast,employment-based social protection was central, particularly the responsibil-ity of the Histadrut for health care, providing it with considerable organiza-tional and political power that it shared with labor parties Wearing its tradeunion hat, the Histadrut used its role in collective bargaining to promote acontributory pension scheme that enhanced credit-claiming vis-à-vis rankandfile members, and also served the interests of the labor organization asowner and operator of large segments of industry and banking (Shalev 1992)

Because of the organizational, financial, and political advantages of thissystem of non-state social protection, for many years the Histadrut, protected

by the Labor Party, resisted expansion of the limited role of universal welfareprovision by the state (Doron 1988) As a result, the labor movement pro-moted a distinctive welfare regime characterized by reluctance to award basicsocial rights of citizenship, a comparatively low level of generosity and cover-age of decommodifying entitlements, and absence of the social partners fromthe governance of most public schemes, which was instead managed either bystate bureaucracies or the Histadrut However, transfer payments were by nomeans the only mechanism of redistribution and protection They were sup-plemented by subsidies of basic consumer goods, healthcare, land, and hous-ing Moreover, state welfare was unnecessary for many employees and theirfamilies, owing to the job security and protective benefits entrenched in theinternal labor markets of the broad (state-owned or subsidized) public sector.The 1970s and early 1980s saw expansion of the social insurance system,supplemented by reform of the social assistance safety net (Doron and Kramer1991) Some programs continued to be fragmented, especially along nationallines (Jewish vs Arab citizens) but also reflecting intra-Jewish inequalities ofpower and status (Rosenhek 2003b) Despite its official branding as social-democratic, the Israeli welfare state was still worlds apart from the Scandi-navian model of a comprehensive, rights-based, and decommodifying welfarestate (Shalev 1989) Nevertheless, cumulative reforms and system maturationstrengthened core universal programs and rendered entitlements more trans-parent At the same time, a substantial and persistent component of transferpayments in Israel is characterized by a variant of the state paternalism andcooptation that marked the origins of the conservative welfare states of Con-tinental Europe (Esping-Andersen 1990) This component represents a Repub-lican bargain under which the Israeli state provides citizens (primarily theJewish ones) with compensation for the heavy burdens of the Israeli–Arabconflict.1

Jewish Israelis hold to a moral economy that expects the state tosafeguard the living standards of the beleaguered collective and to rewardindividuals for contributing to nation building/sustaining projects (Shalev2007) Symbolic and material“loyalty benefits” are targeted to deserving indi-viduals who perform military service and sacrifice or make other contributions

to what the state defines as the common good (Friedman and Shalev 2010)

To what extent and in what sense has Israel’s distinctive welfare state regimebeen transformed in the neoliberal era? No less important for our purposes,what are the broader changes which made such a transformation possible?

1 This conceptualization is inspired by Sha fir and Peled’s (2002) emphasis on Republicanism as a legitimating discourse of citizenship rights and obligations in Israel, and Levy ’s (2008) claim that citizens’ compliance with the demands of the military is contingent on a “Republican equation.”

As we have indicated, at the onset of the 1980s, economic liberalization andthe state’s withdrawal of previous forms of financial and institutional supportushered in radical changes in Israel’s political economy The stabilization plan

of 1985 and related measures not only attacked the problems of tion and runaway budget deficits, but also rescinded institutionalized arrange-ments that protected organized workers and subsidized big business, bothprivate and labor-owned The old corporatist system of centralized industrialrelations faded away (Mundlak 2007), as did the Histadrut’s massive role as aninvestor and employer, along with its responsibility for the supply of socialservices (Grinberg and Shafir 2000; Ratson 2010) In tandem, the institutionalarchitecture of the state was self-consciously restructured by the Treasury andthe central bank Both agencies greatly enhanced their institutional auton-omy and power by initiating new laws or altering existing ones (the BudgetLaw, the Bank of Israel Law, the Omnibus Arrangements Law, and the DeficitReduction Law),2and also by instituting durable non-statutory arrangements(inflation targeting, for example)

hyperinfla-The Treasury’s earlier loss of budgetary control fed its perception of cians and other state managers as populist and/or incompetent, and thusnot to be allowed to govern autonomously Led by the Budget Division, theMoF won capacities to control the design and implementation of thestate budget to a degree greater than in almost any Organization for EconomicCo-operation and Development (OECD) country, with the intended conse-quence of undermining the role of democratically elected politicians andmarginalizing other bureaucracies (Ben-Bassat and Dahan 2006; Deri andSharon 1994) One of the institutional foundations of this shift is the Omni-bus Arrangements Law, introduced as an emergency measure in 1985 anduninterruptedly passed every year by the Knesset since then, which enablesthe MoF to promote socio-economic legislation with little parliamentarysupervision (Rolef 2006; Nachmias and Klein 1999) The Ministry also woncontrol over implementation of budgets by appointing personnel from theoffice of the Accountant General as the financial controllers of all otherministries and public agencies Finally, while not always successful, the Treas-ury promoted reorganization of other government agencies in order to eitherstrengthen its influence or disarm its opponents

politi-From the 1990s the MoF and the central bank were the most powerfulnon-military units of the Israeli state The Treasury focused on deregulatinglabor andfinancial markets, privatizing public enterprises, outsourcing publicservices, and controlling public expenditure Meanwhile, similar to the role

of central banks in neoliberal transformations in other countries, the Bank of

2 See <http://www.boi.org.il/en/AboutTheBank/Law/Pages/Law.aspx>; Biton and Tzedek (2010); and sources cited in the next paragraph.

Israel won sovereignty over both interest and exchange rates, using its powers

to privilege the role of markets in economic growth and to buttress the MoF’sefforts to enforce fiscal discipline on governments, the general public, andstate agencies (Maman and Rosenhek 2011 and Chapter 4, this volume).These changes in the content of policy and in power relations inside thestate substantially altered the conditions under which welfare state institu-tions and decisions in Israel were interpreted, challenged and reformed(Rosenhek 2004, 2007) Some scholars characterized the result as“shrinkingsocial rights” (Shafir and Peled 2002) or even a full-scale transition to a liberalwelfare state regime (Doron 2007), while others pointed out that core welfarestate schemes remained relatively stable (Rosenhek 2007) Supporting theless alarmist interpretation, through the 1990s global spending levels ontransfer payments and social service provision remained notably resistant tocost-cutting and structural reforms From the Treasury’s perspective, the con-tinuing buoyancy of government spending on transfers to households andprovision of social services posed a sharp contrast to its successes in pruningother big-ticket budget items—defense, capital subsidies, and debt service(Shalev 1999) Over the first two decades of liberalization most transferpayments resisted diminution and social assistance grew substantially As aresult, redistribution succeeded in restraining the impact of rising marketinequality on income inequality.3

A major turning point was reached in 2002, when the second PalestinianIntifada and subsequent wave of terrorist activity, an economic crisis, and anunusually favorable government coalition provided the political opportunityfor the MoF to roll back redistribution by imposing long-desired cuts andconditionalities on most major cash benefits (Gal and Achdut 2007) Con-tinuation of this trend, coinciding with regressive income tax reforms, hasresulted in recommodification, rising poverty, and substantial decline in theeffectiveness of redistribution in reducing income inequality.4A detailed ana-lysis of social expenditure in Israel and selected OECD member states recentlyconcluded that“the overall magnitude of public social expenditure in Israelfell during the 2000s, at a rate without parallel in the other six countries in thisstudy.” The study found that retrenchment was particularly severe in pro-grams that mainly serve the most economically vulnerable segments of soci-ety, while many non-contributory programs not targeted to the needy(especially what were described earlier as loyalty benefits) escaped the cuts(Shalev, Gal, and Azary-Viesel 2012: 413–14)

3 Based on data published yearly in the Annual Survey of Israel’s National Insurance Institute on the impact of redistribution on the Gini index.

4 See the source cited in the previous note Between 1990 and 2002 the reduction in the Gini Index attributable to redistribution averaged 32%, while in recent years it has fallen below 25%.

Nevertheless, as has become apparent in other welfare states (Bonoli andNatali 2012), in the era of retrenchment some new programs have been addedand old ones expanded The most significant social rights added to the Israeliwelfare state since the 1985 Stabilization Plan are the Long-Term CareProgram (1986) and the National Health Insurance Law (1994) However,the design of these programs, as well as their repercussions, were influenced

in important ways by the fact that they were developed under changed state power relations The provision of long-term care was outsourced to non-state organizations from its outset, since the MoFfiercely resisted any attempt

intra-to expand public secintra-tor employment (Ajzenstadt and Rosenhek 2000) Thehealth insurance law mandated universal enrollment in a state-run healthinsurance scheme, effectively turning voluntary but state-subsidized “sickfunds” into sub-contractors to the state At the same time, new distinctlyneoliberal elements were introduced into the operation of the scheme, includ-ing encouraging competition between providers aimed at lowering costs andincreasing consumer choice The MoF has also encouraged the growth ofcomplementary private insurance schemes, and since 1997 has introduced aseries of reforms of health budgeting that have led to a significant decrease

in public expenditure and corresponding increases in private out-of-pocketspending

Privatization of costs is also a significant trend in public education services.The drivers include growing private expenditure by anxious middle-class par-ents, particularistic political arrangements to compensate poor Ultra-OrthodoxJewish voters, and growing engagement of entrepreneurial non-governmentalorganizations in the provision of in-class tutoring The consequence has beenincreasing inequality in both educational inputs and outputs (Aviram, Gal, andKatan 2007; Chernichovsky and Regev 2012; Maron 2015) Concurrently,higher education has massively expanded and become more accessible sincethe 1990s, with mixed results for both horizontal and vertical inequalities(Rotman, Shavit, and Shalev 2015; Feniger, McDossi, and Ayalon 2015).The clearest indications of growing inequality paralleling the rise of neo-liberalism come from data on income distribution and redistribution Israel isnow a leader among the developed economies in indicators of poverty andinequality In the new millennium a combination of benefit retrenchmentfor the poor and tax cuts for the affluent has eroded the redistributive impact

of taxes and transfers, a trend that continued even after the rise in marketincome inequality bottomed out.5Moreover, poverty and affluence are closelyconnected to national, cultural, and political cleavages In response the

5 These trends are documented in depth in the Annual Surveys of the National Insurance Institute (www.btl.gov.il) and the annual “State of the Nation Report” by the Taub Center for Social Policy Research in Israel (<http://taubcenter.org.il/>).

OECD, which Israel joined in 2010, has urged adoption of“reforms to mote social cohesion and share the fruits of growth” (OECD 2016: 5) Both thegovernment and the economic bureaucracies interpret this advice as aninjunction to urge, assist, and compel disadvantaged minorities to increasetheir commitment to paid employment Given that the state’s social policies,and even more its economic-steering interventions, have historically disad-vantaged the least powerful bloc of Israelis—Palestinian-Arab citizens whocomprise one-fifth of the population—ironically, participation in a liberalizedeconomy may offer them an unexpected path to more equality (Haidar 1995;Saʻar 2016; Marantz, Kalev, and Lewin-Epstein 2014).

pro-Overview of the Book

The first of the book’s three main parts describes and explains the mostimportant transformations of Israel’s political economy since the 1980s Fourchapters document the unmaking of critical structural barriers to Israel’s tran-sition to neoliberalism The exceptional political and economic power of the peakassociation of labor (the Histadrut) was drastically trimmed by undermining itstriple foundations: the labor organization’s centrality to a hyper-corporatistsystem of industrial relations, its control over an autonomous but state-subsidized complex of economic enterprises and social services, and itsprivileged relationship with the ruling Labor Party (Chapter 2) Domination ofthe economy by sheltered and heavily subsidized business groups persisted, but theircomposition and ownership changed Privatization of both Histadrut and stateenterprises, along with new regulatory interventions, redistributed businesspower A coterie of oligarchs was empowered, whose wealth and power nolonger make such massive claims on the state’s resources (Chapter 3) The statealso addressed the lack of institutional autonomy on the part of its fiscal andmonetary agencies, which had rendered these agencies impotent in the face ofmacroeconomic and fiscal crisis The Treasury and the central bank wagedsuccessful struggles for institutional autonomy, which did much to depoliti-cize policymaking and undermine the power of veto players (Chapter 4) Inparallel, the limited influence of professional economists over economic policy-making was overcome when, at a critical juncture, economists in academiaand government mobilized their professional and political power to winacceptance of a blueprint for both immediate stabilization and long-termliberalization (Chapter 5)

In Chapter 2, Paving the Way to Neoliberalism: The Self-Destruction ofthe Zionist Labor Movement, Lev Luis Grinberg shows that elimination of theunique functions and capacities of the Histadrut—an essential preconditionfor Israel’s neoliberal transition—did not result from the rise of neoliberalism