Israel is a unique case in the Middle East; it is financed by imperialism without being economically exploited by it… It is obvious that the readiness of the US government to forward these sums [of money] depends on what it gets in return. In the particular case of Israel this return is not economic profit.
—The Class Nature of the Israeli Society by Haim Hanegbi, Moshe Machover and Akiva Orr, NLR Jan/Feb 1971
During the 1990s … there emerged, perhaps for the first time, a major cleavage within the elite. On the one hand, there is the ‘reactionary’ Zionist faction which hopes to freeze the world of yesterday. On the other hand, there is an increasingly powerful, ‘progressive’ faction, which seeks to ‘normalise’ the country, yet whose commitment to such normalisation weakens as its investment outside the country increases. This ruling class conflict doesn’t bode well for most Israelis, and for the Middle East as a whole.
—Nitzan and Bichler The Global Political Economy of Israel, 2002
If the return was not profit, as Hanegbi and his comrades argued in early 1970s, what was it then? And how should we explain the continuous support by the US and other Western powers of a state that moved from territorial expansion to both territorial and capitalist expansion, building ties with regimes in the region and beyond?
The development of Israeli capitalism: capital inflow
“Israeli society is not only a settlers’ society shaped by a process of colonising an already populated country, it is also a society which benefits from unique privileges. It enjoys an influx of material resources from the outside of unparalleled quantity and quality; indeed it has been calculated that in 1968 Israel received 10 per cent of all aid given to underdeveloped countries.(1) Israel is a unique case in the Middle East; it is financed by imperialism without being economically exploited by it [emphasis in by the authors]. This has always been the case in the past: imperialism used Israel for its political purposes and paid for this by economic support. Oscar Gass, an American economist who at one time acted as an economic adviser to the Israeli government … wrote:
‘What is unique in this development process . . . is the factor of capital inflow. . . . During the 17 years 1949–65 Israel received $6 billion more of imports of goods and services than she exported. For the 21 years 1948–68, the import surplus would be in excess of 7.5 billion dollars. This means an excess of some $2650 per person during the 21 years for every person who lived in Israel (within the pre-June 1967 borders) at the end of 1968. And of this supply from abroad . . . only about 30 per cent came to Israel under conditions which call for a return outflow of dividends, interest or capital. This is a circumstance without parallel elsewhere, and it severely limits the significance of Israel’s economic development as an example to other countries.’(2)
“Seventy per cent of this $6 billion deficit was covered by ‘net unilateral capital transfers’, which were not subject to conditions governing returns on capital or payment of dividends. They consisted of donations raised by the United Jewish Appeal, reparations from the German government and grants by the US government. Thirty per cent came from ‘long-term capital transfers’—Israeli government bonds, loans by foreign governments, and capitalist investment. The latter benefits in Israel from tax exemptions and guaranteed profits by virtue of a ‘Law for the Encouragement of Capital Investments’(3); nevertheless, this quasi-capitalist source of investment came far behind the unilateral donations and long-term loans.
“In the entire period from 1949 to 1965, capital transfers (both forms taken together) came from the following sources: 60 per cent from world Jewry, 28 per cent from the German government and 12 per cent from the US government. Of the ‘unilateral capital transfers’, 51.5 per cent came from world Jewry, 41 per cent from the German government, and 7.4 per cent from the US government. Of the ‘long-term capital transfers’, 68.7 per cent came from world Jewry, 20.5 per cent from the US government and 11 per cent from other sources. During the 1949–65 period the net saving of the Israeli economy averaged zero, being sometimes +1 per cent and sometimes -1 per cent. Yet the rate of investment over the same period was around 20 per cent of the GNP. This could not have come from within because there was no internal saving within the Israeli economy; it came entirely from abroad in the form of unilateral and long-term capital investments. In other words the growth of the Israeli economy was based entirely on the inflow of capital from outside.(4)
“Ever since its independence in 1948, and in fact from the early days of Jewish settlement in Palestine, Israel was dependent on foreign capital and assistance… The secret of capital flow lies … in Israel’s development as a capitalist society. The crucial aspects of this process relate not to the country’s consumption, saving or productive capacity, but to its ruling class and its progressive integration into the global political economy. A large part of the foreign inflow, particularly during the pre-independence period and the early years of the state, came as donations from the Jewish Diaspora. Contrary to popular perceptions, though, most big donors saw their contributions as political investments, on which many of them have since reaped enormous returns in the form of tax exemptions, special privileges, exclusive business rights, and privatised state assets at bargain prices.
“From the 1950s, the Israeli elite also began a parallel love affair with inter-governmental transfers, initially from Germany in compensation for the Holocaust, and subsequently from the United States in return for various security and insecurity services... The so-called economic part of this aid quickly became a target for the dominant capital groups, who fought viciously over its allocation. Eventually, most of this aid found its roundabout ways down to their bottom lines. Unlike economic assistance, military aid couldn’t be pocketed by the domestic groups, at least not directly. The main reason was that the money itself never left the United States. Instead, it was transferred straight from the bank account of the U.S. government to the bank accounts of U.S. military contractors, who then shipped their hardware to Israel. The arrangement did not leave the Israeli groups empty-handed, however.
The first impact of this aid, indirect but enormously powerful, was to boost local military procurement, which started rising in tandem with U.S. shipments and the consequent regional arms race. And there was more. Since the Israeli army retained the right to pick and choose its American weapons, each U.S. supplier had to hire its own local retainers to plead its case and hopefully share the spoils. Over the years, many of Israel’s retired IDF generals and chiefs-of-staff, big businessmen and leading politicians – including ministers, prime ministers and state presidents – have been integrated as middlemen into this mechanism. In addition, numerous contracts were conditioned on re-purchase agreements from large Israeli contractors, creating yet another access to the precious flow of greenbacks. And so, while on the surface the inflow of capital looked largely a matter of philanthropy, humanitarian aid or foreign policy, under the surface it helped create and sustain a complicated international infrastructure of private accumulation.”(5) (My emphasis N.M.)
“From the late 1980s this pattern began to change. Differential accumulation in the developed countries was once more shifting from depth to breadth, and the superpower and regional conflicts which earlier linked Israeli and U.S. capitalist groups were coming to a close. Instead of disintegrating, however, the relationships between these two corporate groups became all the more intimate. Whereas earlier, corporate interaction had to be mediated through intergovernmental aid and loans, since the early 1990s the shift toward private capital flow rapidly altered the structure of ownership, causing Israeli accumulation to be directly assimilated into the global circuit of capital. Within less than a decade, many of Israel’s leading firms, along with a growing part of its ruling class, have been transnationalised.
Until recently, the essence of this transnationalisation has been effectively concealed by a smokescreen of ideological hype. This hype, whose specific purpose is to promote the ‘new world order’ of neoliberalism…” It turned out that what emerged was “a global Technodollar–Mergerdollar Coalition, based on a new breadth regime of high technology and corporate amalgamation.
“What happened in Israel during the 1990s is part and parcel of these global developments. The changes have been nothing short of profound. Dominant capital firms, along with thousands of startup companies, shifted rapidly toward high technology; economic policy switched gears from large spending to sound finance; the social outlook reverted from state paternalism to individualism; and the external stance moved from regional conflict to reconciliation” – after the 2011 uprisings and the counter-revolution that ensued, ‘normalisation’ would become the catchword.
“In less than a decade, the collectivist Zionist ethos which dominated the country for nearly a century, has been effectively challenged by the new ‘Washington Consensus’ of free market transnationalism. This ‘new look’ has been marketed by its dominant capital proponents as a sure bet, the ultimate success story. According to this view, the future lay with ‘high technology’, and if Israel continued to ride this bandwagon, its position as the Silicon Wady of the Middle East, complete with fabulous riches and perpetual growth, was all but assured.
“Contrary to the neoliberal promise, privatisation and deregulation have led to the creation of the most concentrated corporate structure ever to rule Israel. ‘High technology’ has proliferated, but largely by eviscerating other parts of society. The average standard of living rose, yet not nearly as fast as one would expect from a ‘technological revolution’, and certainly far more slowly than during the ‘low-tech’ decades of the 1950s and 1960s. In recent years, overall unemployment has approached historical records, and income inequality soared to levels typical of Latin American dictatorships.
“Of course, as before, not everyone suffered from this new turn of events. The most notable winners were the transnational segments of the ruling class. During the 1990s, Israel’s dominant capital has been thoroughly integrated into the circuits of global accumulation. Many of the local groups, including some of the largest such as Bank Hapoalim and Koor, have been taken over by foreign investors, while foreign institutional investors have penetrated every corner of the Israeli stock market. The flip side of the process is that Israeli capital has begun, for the first time, flowing outward in quest of foreign acquisitions. Having taken over much of its own corporate universe, dominant capital can now expand only by going global, extending its reach outside the country.
“This latter development may mark the beginning of the end of Zionism. Throughout its history, Zionism went hand in hand with capitalist development. As a dominant ideology, it acted as a cultural melting pot, helped proletarianise a highly heterogeneous immigrant population, and sustained one of the more effective garrison states in the Western world. Over the past century, these were the key structural processes on which differential accumulation and ruling class formation were based. During the 1990s, however, there emerged, perhaps for the first time, a major cleavage within the elite. On the one hand, there is the ‘reactionary’ Zionist faction which hopes to freeze the world of yesterday. On the other hand, there is an increasingly powerful, ‘progressive’ faction, which seeks to ‘normalise’ the country, yet whose commitment to such normalisation weakens as its investment outside the country increases. This ruling class conflict doesn’t bode well for most Israelis, and for the Middle East as a whole.”(6)
Furthermore, in the 1950 and 1960s Israel, along with Iran and Saudi Arabia played a major role in countering nationalist and left-wing movement in the Middle East. After Word War II “US strategy initially relied upon the cultivation of various regional allies, settling in the late 1960s on a strategic partnership with Israel, Iran, and Saudi Arabia as a means to confront the growing strength of Arab nationalist movements.”(7)
“Responding to the formation of the UAR [United Arab Republic], Jordan and Iraq formed the Arab Union, a federation of the two monarchies that was set up as a pro-Western counterpoint to Arab nationalism. The unity lasted only six months, however, ending with the assassination of Iraq’s King Faisal II in a military coup largely inspired by the overthrow of Egypt’s monarchy in 1952. As these Western allies teetered, British troops were dispatched to Jordan to support King Hussein (with the support of Israel and the United States), while US Marines landed in Lebanon to bolster the pro-Western government of president Camille Chamoun.”(8)
“Overcoming Arab nationalism and subsuming it into the structures of imperial rule took place through a combination of political, military, and economic means. The overriding characteristic of this process was the widening of hierarchies and the differentiating of power at both the regional and national scales. By magnifying the region’s uneven patterns of development while simultaneously tightening its interdependencies, foreign powers were able to lock certain social forces within the Middle East into a framework of shared interests opposed to those of the vast majority. In spite of significant opposition, the principal consequence of these changes was the tempering of any anti-imperialist features of Arab governments and the sustained rollback of the populist measures on which they rested.
“On the political and military front, Western governments—led by the United States—initially pursued this strategy through strengthening alliances with three main regional pillars: Saudi Arabia, Iran, and Israel. Each of these countries was provided with large amounts of financial and military aid, and the specific socioeconomic and political characteristics of these three countries enabled them to emerge as the main articulation of US and European influence in the region. Their position within regional hierarchies was strengthened, and in return, they helped to confront the various radical movements that had developed during the 1950s and 1960s, whether nationalist or left-wing.”(9)
“As a settler-colonial state, Israel had come into being in 1948 through the expulsion of around three-quarters of the original Palestinian population from their homes and lands. Due to this initial act of dispossession and its overarching goal of preserving itself as a self-defined “Jewish state,” Israel quickly emerged as a key partner of foreign powers in the region. Inextricably tied to external support for its continued viability in a hostile environment, Israel could be counted on as a much more reliable ally than any Arab state. During the 1950s, Israel’s main external support had come from Britain and France. But the June 1967 war saw the Israeli military destroy the Egyptian and Syrian air forces and occupy the West Bank, Gaza Strip, (Egyptian) Sinai Peninsula, and (Syrian) Golan Heights. Israel’s defeat of the Arab states encouraged the United States to cement itself as the country’s primary patron, supplying it annually with billions of dollars’ worth of military hardware and financial support.
“Israel’s victory in 1967 signalled a decisive turning point in the evolution of Arab nationalism. While pro-Western regimes continued to be challenged from below by various radical movements, and new nationalist governments came to power in Southern Yemen (1967), Iraq (1968), and Libya (1969), Israel’s victory dealt a devastating blow to the notions of Arab unity and resistance that had crystallised most sharply in Nasser’s Egypt. The military defeat was symbolically reinforced by Nasser’s death in 1970 and the coming to power of Anwar Sadat, who subsequently moved to reverse many of Nasser’s more radical policies. The priority placed by the United States on its relationship with Israel was further highlighted in 1973, following another war between Israel and a coalition of Arab states led by Egypt and Syria. Despite initial Egyptian and Syrian advances in the opening salvos of the war, US airlifts of the latest military equipment led to Israel’s eventual victory. This was the framework in which the other front of imperialist strategy unfolded—the region’s economic subjugation.”(10)
“After the death of Mao Tse-tung in 1976, when China began purchasing arms from Israel, and after Moscow’s fateful invasion of Afghanistan in 1979, which alienated the Muslim world, Fatah lost the support of two of its patrons and arms suppliers. President Ronald Reagan’s assertive foreign policy, which sought to undermine national liberation movements and the causes for which they struggled, appeared to be paying dividends, and the alliance between the PLO, Cuba and Nicaragua was singled out for specific censure in an article by Jeane Kirkpatrick, United States Ambassador to the United Nations. As UN Ambassador, Kirkpatrick articulated the reversal of Carter’s Third World policy at the UN where the Carter administration’s censure of Israel for its settlement policy in Jerusalem had enraged the neoconservatives. Just two years after Israel’s 1982 invasion of Lebanon, and the expulsion of the PLO from Beirut, US Secretary of State George Shultz was waxing lyrical about the state of US–Israel relations, telling a conference on international terrorism in Washington, DC, that ‘[t]he terrorists who assault Israel are also enemies of the United States’.”(11)
“As had been the case since the 1970s, US power continued to be articulated through close military and political relationships with the Gulf, Israel, and client Arab states such as Jordan and Egypt. There was a shift, however, in the way these relationships were conceived. The basic approach was to draw these pillars of support together in a single economic zone under the domination of US capital. A critical pivot of this strategy was thus the normalisation of economic and political relations between Israel and the Arab world. As a consequence of its long-privileged relationship with the United States—expressed most pointedly in the massive receipts of aid without the conditionalities characteristic of loans to other states— Israel’s economy had developed in a qualitatively different direction from those of its neighbours.
Israel’s capitalist class had emerged with the support of the state apparatus around activities such as construction, agriculture, and finance. But through the 1990s, direct US financial support helped to enable the development of high value-added export industries connected to sectors such as information technology, pharmaceuticals, and security. Unlike its relationship with other states in the region, the United States had run a massive trade deficit with Israel since the signing of a US-Israel free trade agreement (FTA) in 1985. In this context, the push to normalisation would inevitably strengthen the position of Israel (and thus the United States) within regional hierarchies.”(12)
Geopolitics and assisting in and maintaining capital accumulation – that is what ‘normalisation’ fundamentally means – are not the only factors for the support of Israel. One might add that there is an umbilical cord between Israel and a former colonial power like Britain. Thus the latter’s continuous support. As Rashid Khalidi has noted that what “was once a British colonial speciality became an Israeli colonial speciality. Everything the Israelis have done they learned from the British—including the laws, the 1945 Defence Emergency Regulations, for example, that the British used against the Irgun. The same laws are still in force, now used against Palestinians. It all comes from the British colonial playbook.”(13). Like the veneration of Churchill or the display of statues of colonial figures (criminals and murders) in public squares, Britain today is unable to sever that umbilical cord.
“If you accept the settler-colonial framework of analysis, then the metropole is as important as the settler colony. Israel is not a typical settler colony, by any means; it’s also a national project, with a significant Biblical dimension, and a refuge from persecution. No other settler colony was a refuge from persecution to such a degree—the Puritans and other religious dissidents, like the Quakers, who came to North America, certainly experienced repression, but not on the same scale. Basically, this combination of characteristics is unique to the Israeli project. But the core of it, the settler-colonial core of it, relates to a metropole. And the elites in that metropole, unfortunately, have barely changed from the time when I was a child. The new generations are going to have to deal with this.”(14)
“Part of this has to do with the generational divide... The US is ruled today by an aged clique, a gerontocracy, that was indoctrinated in the 1960s and 70s with the myth of the connection between the Holocaust and the establishment of Israel. Schumer, Pelosi, Biden, Trump; these are old people. Their consciousness was formed at the time of the 1967 war. And since then, they have never opened their minds, they have never had access to anything but a poisonous narrative that paints Israel in the most gleaming colours and the Palestinians in the darkest ones—the idea that Israel is always in existential danger, the Cossacks are always at the door; that the Holocaust could be repeated, that Israel represents a flower of Western civilisation in a desert of Arab barbarism—a bunch of racist tropes that Israel, and the Zionist movement before it, successfully sowed throughout the West.”(15)
The other part – and here Khalidi goes beyond John Mearsheimer and Stephen Walt – is that “there’s a whole ecosystem that has extended to important elements of the American military, tech and biomedical sectors, which are closely integrated with their Israeli equivalents. Enormously important parts of the us economy are linked to these sectors in Israel and these are powerful forces in American society. They own Congress, in the sense that their contributions keep elected politicians in office—Silicon Valley, biotech, finance, the military sector in particular. The imbrication of the US security-military-industrial complex with that of Israel is seamless, as is the imbrication of Israel’s defence and intelligence networks with those in India, the Emirates and a few other places.
“Protecting Israel means protects clients in the region, as a few are entangled in the same web of interests. “The anti-missile defences of the Emirates were provided by the Israeli subsidiary of Raytheon, which means that Israel’s anti-missile surveillance against Iran is in Jabal Ali, in Abu Dhabi, not Jabal al-Sheikh (Mount Hermon), in the occupied Golan Heights. The UAE depends entirely on Israel for its security against missile attack. There are variations of that arrangement in Jordan, Egypt and other Arab countries. In Morocco, the royal bodyguards have been trained by Mossad for the past fifty or sixty years, since the time of King Hassan II. The Israeli defence connection is generations-old in the case of Jordan, Morocco and Egypt, and is well established in several of the Gulf countries and a couple of others, too.”(16) (My emphasis N.M.)
“The US’s inherited mastery of the Gulf has given it a degree of leverage over both rivals and allies probably unparalleled in the history of empire. Washington has established a highly conservative regional order through alliances with successive military dictatorships in Egypt and an ethno-nationalist Israel. Its overwhelming military control of the region ensures that Japan, South Korea, India and even China must deal with the US in the knowledge that it could, if it wished, cut them off from their main source of energy. It is difficult to overstate the role of the Gulf in the way the world is currently run. In recent years, under both Obama and Trump, there has been talk of plans for a US withdrawal from the Middle East and a ‘pivot’ to Asia. If there are indeed such plans, it would suggest that recent US administrations are ignorant of the way the system over which they preside works.”(17) (My emphasis N.M.)
“The reasons why despotic regimes have persisted across the Arab world, long after the dictatorships of the Cold War era were dismantled across Latin America, Africa and much of Asia, lie largely in the intertwining logics of Washington’s jealous guardianship of the region’s oil and Israel’s grip over its Middle East policy…For Washington, the Arab states are ranked according to a hierarchical calculus of interests: geo-strategic importance; proximity to Israel; oil and wealth; location; demographic weight; friend–enemy status. Egypt, as geo-strategic linchpin of the region, has been a ‘friend’ hugged close to the us since 1973, second only to Israel in the quantity of military aid it receives.”(18)
“[D]espite its weakened position, the US remains the pre-eminent power in the Middle East, with American hegemony resting primarily upon its decades-long political, military, and economic relationships with Israel, Saudi Arabia, and the other Gulf states. These dynamics bind the future of world oil to the Middle East’s place in global capitalism – and make it ever more important to take the region, and especially the Gulf states, seriously as a site of capitalist accumulation and not
simply conflict.”(19)
“Through the first three decades of America’s War for the Greater Middle East, the U.S.-Israeli relationship had weathered more than a few storms as successive American administrations and Israeli governments laboured to temper or, if need be, ignore the tensions between U.S. and Israeli security interests. The key to papering over those differences was to maintain the fiction that authorities in Washington and Jerusalem were equally committed to achieving a two-state solution to the Israeli-Palestinian conflict. The ‘peace process’ held out the theoretical prospect of comprehensive reconciliation between Israel and its Arab neighbours, thereby putting to rest the antagonisms triggered by the founding of the Jewish state in 1948. As long as both parties in the U.S.-Israeli relationship sustained the pretence of being committed to ‘peace’, Washington’s unstinting support for Israel, providing it with diplomatic cover along with enormous quantities of arms, remained minimally controversial.”(20)
As a prominent scholar of the Middle East, Fred Halliday believed in the ‘Oslo illusion’. He considered those who mistrusted the talk of ‘human rights’ and ‘democracy’, and ‘reform’ and saw in such a discourse another pretext for imperialism, “a simplification that was encouraged by rather too many, unfocused and irresponsible voices in the west.”(21)
“For all their uncertainties and defects, mainly to the disadvantage of the Palestinians, the Oslo Accords did provide a framework for a permanent peace,” argued Halliday. “The realisation of this involved, however, three preconditions, none of which was met: a commitment by Israel to evacuate, without equivocation, the territories seized in 1967; a clear and sustained commitment by the Palestinians, and the Arab world as a whole, to normal relations with Israel and the acceptance of this problem as, at least in principle, one susceptible to compromise; and a sustained and determined engagement by the USA to drive forward a two-state solution”.(22)
Halliday’s was a either a wrong reading of the accords or a selective one, because the failure and the deception were in the text itself, which did not provide a framework for a ‘permanent peace’ (whatever that means) and not in the realisation of the principles. Halliday didn’t even engage with the fact that the PLO had to bite the bullet and recognise Israel unilaterally. Most importantly, in his 2005 book that deals with The Middle East in international relations he never incorporates capitalism and imperialism, namely the American, Israeli, the Emirati and the Saudi capitalist expansion. By the time of the advent of the so-called ‘globalisation’, Halliday abandoned a radical approach he had employed in Arabia Without Sultans.(23)
In fact, since the misnamed Oslo Peace Process the United States and European Union sought to ‘normalise’ Israel’s place in the region through “a range of regional initiatives aimed at deepening Israel’s ties with Jordan, Egypt and the Gulf states. In relation to both the Iraq War and Israeli–Arab negotiations, US strategic objectives carried an explicit economic dimension (frequently overlooked) that aimed to deepen the region’s integration with global trade and financial flows – war, politics and the region’s economic transformation need to be seen as intimately connected.”(24) (My emphasis N.M.)
Oslo was advanced in a particular historical juncture: the fall of the Berlin Wall gave more impetus to American expansion worldwide, and the Middle East was one if not the most important region for the US. In that context the Palestinian Liberation Organisation was gradually sidelined “when it lost its major allies in Moscow and Beijing and when the US drew ever closer to Israel, and became more and more belligerent towards Israel’s enemies.”(25)
“Meir Hatina, based on his readings of articles published in al-Mujahid newspaper in Beirut and Gaza between 1989 and 1991, and an interview with Islamic Jihad’s founder Fathi al-Shiqaqi (1951–95) in the Iranian paper Kayhan al-‘Arabi in 1993, explains that Shiqaqi and other leaders in Islamic Jihad thought that the international balance of power would remain unchanged following the end of the Cold War. Accordingly, the great powers would still support Israel despite the upheavals in Eastern Europe and the Soviet Union. In Shiqaqi’s view, the United States, having supplanted Britain as the ‘policeman’ of the Middle East, would seek to mould the region according to its geopolitical interests by strengthening Israel and sidelining the Israel–Palestine dispute. Islamic Jihad believed that any peace agreement concluded in these circumstances would amount to submission, in which the stronger side would impose its will on the weaker.”(26)
“It was probably not a coincidence that Palestine was number three on a list of reasons why jihad against America was deemed justified by Bin Laden, after the US military presence in Saudi Arabia and the sanctions against Iraq. Khalid Shaykh Muhammad, the principal architect of the 9/11 attacks, cited American support for Israel as his principal motivation for undertaking the attacks, as did his nephew Ramzi Yusuf for the World Trade Centre bombing in February 1993.”(27) “The attacks took place almost one year after Ariel Sharon’s provocative visit to the Haram al-Sharif, which had sparked the Second Palestinian Intifada.”(28)
Israel is an ally and has been made powerful enough to assist Western imperialism in controlling the region. “[T]he brute reality of Western interventionism and imperialism in the region not only exacerbates ‘internal’ concludes Ussama Makdisi problems, but creates new conditions and contexts that define the very nature of what is internal. Thus, then-Secretary of State Condoleezza Rice declared confidently in 2006, amidst Israel’s devastating U.S.-backed assault on Lebanon, that the world was observing the ‘birth pangs of a New Middle East’.”(29)
The development of Israeli capitalism: the formation a ruling class
“The gradual emergence of ‘capital as state’ is well illustrated by the political economy of Israel. On the one hand, the Israeli state was created and subsequently sustained by foreign capital inflows. These flows, extended by both private investors and foreign governments, enabled their owners to act as partners, and often as the real boss, in crucial local and regional matters, including economic policy, war, and peace. On the other hand, domestic capital was born from within this context. Initially weak and sheltered by the state, it eventually grew to transcend it, locally by taking over and controlling more and more state functions, as well as globally by integrating into the transnational structure of accumulation.”(30)
“By the end of the twentieth century, Israel’s was a highly centralised, increasingly transnational and rapidly changing political economy. Ownership was tightly concentrated in the hands of a relatively small group of absentee owners… [S]ince the 1990s, Israel has emerged not only as a favourite destination for ‘high-tech’ investors, money managers, and illegal flight capital, but also as the source of much capital outflow, with locally based capitalists acquiring assets outside their country. As a result of this cross- fertilisation, it was no longer easy to distinguish ‘Israeli’ from ‘foreign’ investors, or for that matter to talk about ‘Israeli capitalism’ as such. Finally, the structure of ownership, although centralised and transnational, kept changing at an unprecedented pace, with mergers and acquisitions, divestitures and asset reshuffling keeping power forever fluid.
“[T]he recent neoliberal phase was not at all a structural ‘break’, but rather the latest step in the long process of Israeli capitalist development; a process which began not in the 1990s, but almost a century earlier, with the initial Jewish colonisation of Palestine… [C]apitalist development has turned the Israeli state today into something different from what it was in the 1920s or in the 1950s, while governmental, military and judiciary processes have similarly changed the nature of capital.” In a relatively short period capital gradually altered the structure of the Israeli state. But this is not unique to Israel. “The emergence and consolidation of European capitalism, for instance, began with omnipotent states providing the incubator for vulnerable capitalist interests, only to see these interests eventually grow to take them over. A similar process characterises the emergence of capitalism in colonial societies such as Latin America’s, or more recently in East Asia and former Soviet bloc countries. Where Israel does stand out, though, is in the speed of its transition; whereas in most other countries the process required a few centuries, in Israel it took only a few generations.
Behind the ideological rhetoric of ‘statism’, socialism’ and ‘nationalism’, there was the formation of the Israeli ruling class. “Zionist and labour organisations not only cooperated from the very beginning, but their leaderships were also gradually integrating – through joint projects, revolving door nominations, kinship ties and converging ideologies – into a ‘New Class’… The formation of this corporatist-socialist class, though, was inherently contradictory, and the results were quick to emerge in the Histadrut itself – an organisation which represented workers, while simultaneously acting as their biggest employer… [A]s urbanisation progressed, the labour movement as a whole began to fracture, with its core MAPAI Party gradually shifting away from representing workers, and into manipulating them as electorates. In parallel, the ‘private sector’, although still small, began to consolidate, often in open collaboration with its official ‘class enemy’, the Histadrut.
Independence in 1948 established the apparent primacy of the state and the ‘New Class’, yet within this warm cocoon, the seeds of dominant capital and the institutions of its differential accumulation already began to develop. These institutions included the distribution of land confiscated from Palestinian refugees, the controlled proletarianisation of a rapidly growing immigrant population, and the allocation of unilateral capital inflow, primarily from world Jewry and foreign governments. The impact of these external stimuli was highly differential, contributing to the relative growth of several core firms, primarily Bank Leumi of the Jewish Agency, Bank Hapoalim and Koor which were owned by the Histadrut, and the privately held Discount Bank. Although only the latter was formally private, the others were rapidly ‘commodified’ into de facto capitalist enterprises. This broad capitalisation process was accompanied by a growing integration between the existing ‘New Class’ cadres on the one hand, and the emerging big bourgeoisie on the other.”
The collapse of the statist model, which came during the 1970s, coincided with a massive shift, globally as well as in Israel. Unconventionally, Nitzan and Bichler (2002) argued that capital accumulation now was thriving on stagflation and crisis, not on growth. “By the early 1970s, the state-capital symbiosis and fusion “had already produced a core of very large dominant capital groups, whose magnitude relative to the small Israeli market was becoming self-limiting. If the latter’s differential accumulation were to continue (which it did), the underlying regime had to change – away from relying on growth and merger which had subsided, and toward higher profit margins through redistribution, conflict and stagflation. The transition was greatly facilitated by the global intensification of stagflation (which was itself propagated by growing conflict in the Middle East). Domestically, the result was a new order of ‘accumulation-through-crisis’, with differential accumulation depending increasingly on the twin engines of rising military spending and inflationary finance.
“On the surface, the state apparatus seemed to have ‘lost its autonomy’. It got deeper and deeper into external conflict and an escalating arms race; it grew increasingly dependent on the United States; and it stood paralysed in the face of domestic recession and sprawling inflation. Under the surface, though, the real transformation was not the decline of the state, but its further ‘commodification’ as an integral facet of accumulation. And indeed, the dominant capital groups, all of which were by now operating as capitalist enterprises regardless of their formal ownership, had little to complain about. On the contrary, their profitability soared – absolutely, as well as relatively to smaller firms, who were typically hit hard by the stagflationary crisis.
“[B]y the 1970s, the disparate elites of Israel’s ‘ancient regime’ had already been amalgamated into a single ruling class, whose end and tail were no longer easy to disentangle. Moreover, the interests of this class were growing increasingly tied with those of large oil and armament firms based in the United States, whose own fortunes were in turn dependent on the continuation of conflict in the region as a whole. These latter corporations and their Israeli satellites not only benefited systematically from a regime of regional instability and militarised stagflation, but also managed to have their governments in Washington and Jerusalem sustain and support this regime against the wider interests of their underlying populations. Their ability to do so points out the extent to which their rule became state rule. [my emphasis N.M.)
“In this broader context, the 1977 dethroning of the Labour Party by the right-wing Likud bloc appears far from the ‘political earthquake’ observers often make it look like. Being increasingly subsumed by dominant capital, successive Labour governments found it increasingly difficult to deliver what their socialist rhetoric promised, and therefore grew vulnerable to new ‘populist’ competitors. More importantly, dominant capital itself was now interested not in a strong government, but a large one – which, paradoxically, was much easier to have with the ‘liberal’ Likud than the ‘statist’ Labour. The Likud’s combination of right-wing foreign policy and hands-off economic policy, similar to the menu offered by the Reagan Administration in Washington, helped consolidate the new depth regime, securing higher military procurement and rising debt loads, as well as financial ‘deregulation’, a carte blanche for stock market rigging, and further stagflation.”(31)
“During the 1970s and 1980s then, “after the breadth sources of population growth and capital inflow dried up, Israeli dominant capital pushed toward an alternative depth regime, based on stagflationary redistribution. The process worked mainly through the twin engines of militarisation and financial manipulation. Dominant capital became the main beneficiary of domestic military procurement, chiefly through its ability to raise armament prices faster than the overall rate of inflation. A similar process occurred in the realm of finance, where the large firms, supported openly by the government, manipulated stock prices so as to effectively ‘print’ their own profits. These two processes not only fuelled an inflationary spiral, but also sent the economy into deep recession and heightened instability. And yet, since the higher profits went primarily to dominant capital, whereas the cutbacks were suffered mainly in the rest of the business sector, the result was an unprecedented surge of differential accumulation.
In short, stagflation, which to the macroeconomists appeared as an alienated riddle, was in fact a mechanism for a massive restructuring of power. This restructuring involved diverse processes, such as growing income inequality and heightened social tensions; the decline of the Labour Party and the rise of clericalism; the militarisation of production and the rise of finance; the intensification of the Middle East conflict; and the growing dependency of Israel on U.S. assistance. Most importantly, it was itself part of a broader depth regime [a regime of stagflation and crisis], affecting the nature of global differential accumulation.”(32)
“Every time the differential accumulation of this coalition (particularly the large oil companies) became negative, there followed an ‘energy conflict’; once the conflict was under way, differential accumulation was restored into positive territory; and, finally, no energy conflict occurred without a prior differential accumulation crisis. These statistical findings are further corroborated by the foreign policy backdrop during that period, particularly that of the United States. Although U.S. public officials swore allegiance to the national interest, their actual policies toward the Middle East proved much more ambivalent. The ambiguity remained latent as long as the so-called national interest coincided with the differential interests of the Weapondollar–Petrodollar Coalition. But when the two collided, the policy stance almost invariably tilted in favour of the coalition. The result was that, during the 1970s and 1980s, the United States ended up promoting both instability and high oil prices, exactly the opposite of its openly publicised aims.
“The Israeli elite, which endeavoured relentlessly since the early 1960s to become a U.S. satellite in the region, assumed a central role in this process, both by participating in the regional conflict, and by helping the Americans with various clandestine operations around the world. In return for these services, Israel was allowed to run a closed war economy, protected by high trade barriers, and bolstered by massive economic and military assistance. It was within this context of regional conflict and U.S. support that Israel’s dominant capital was able to enjoy close to two decades of depth-driven differential accumulation. At the same time, these developments also set in motion a process of transnationalisation, which eventually ‘denationalised’ Israeli capital, integrating it into the larger process of global accumulation.”(33) (My emphasis N.M.)
“[I]n the early 1990s, wrote Fred Halliday, “there were estimated to be around $50 billion of Israeli private money outside the country, marked by the unknown tens of thousands of Israelis, known as yordim, ‘those who descend’, who worked abroad.”(34)
Will the romance last?
“The ‘special relationship’ has lasted for this long, in large part, because it was a credibly bipartisan affair—an arrangement in service of American empire. But a resurgent critique of US imperialism is mounting, moving people onto the streets and against long-standing US foreign policy. The disenchantment among left-leaning Americans—and many elsewhere on the spectrum—with Democrats’ pro-Israel policy has no apparent fix, with domestic popular support waning and Israel’s ever more naked barbarity threatening regional chaos. Israel’s intense effort to locate itself alongside American power or to make sure American power was always behind its worst excesses has led not to a secure ‘fortress Israel’, as evidenced by the hundreds of Israelis killed in a day. It has instead enmeshed the US further in the very policies that produced the calamity; the eighteen-year siege of Gaza and the use of the Israeli military not for protection but for policing and dispossessing Palestinians.
At the same time, the US’s geopolitical priorities are shifting. For as long as the United States has had enemies which Israel could fight—Arab nationalists, African revolutionaries, Latin American Marxists and, eventually, Muslim extremists—there was a logically sound, if immoral case for keeping Israel around as is. This thesis came under strain during the Iraq War years of the 2000s but has lasted through today. Now, the US is gearing itself up for a new global confrontation against China, one in which the role for Israel to play is less clear-cut than in the past. China is among Israel’s largest trading partners, and the American Israel lobby may find it hard to press the pet issues of a nuclear Iran or college campus antisemitism if its state cannot place itself at the centre of the American strategic outlook. Whereas once it was oil that was the future proof fuel of world industry and transport, the coming years will be dominated with a transition to a ‘greener’ future that has as few hiccups for capital as possible.
It is not clear how Israel can contribute to such a solution when its continued existence requires pretending its problems do not exist. Israel’s decreasing centrality to American foreign policy may yet create an unprecedented opening for American political activists to apply the same kind of pressure that helped fell apartheid South Africa; and US rivals abroad may abandon trepidation concerning Israel’s human rights abuses, as the costs and benefits of tolerating Israeli policy recohere in a changing world order.”(35)
“We must realise that a society like the one into which Israel has descended is totally unviable. Zionism has now pushed Israel into what I believe is a terminal phase of its colonial atrocity. I and many other Jewish and Israeli activists argued for years that the only viable and just solution to the colonial conflict in Palestine is the single, secular democratic state in the whole of Palestine—the solution proffered by the PLO before 1988. Today, due the destructive influence of the Western powers, such a solution is even less likely than before. It is now difficult to imagine Palestinians agreeing to live side by side with their Israeli genociders. Yet, this remains the only just and workable resolution. If, as in 1947, 1967 and 1993, it is ditched in favour of the two-state phantom, or another Israeli-controlled colonial arrangement forced by the US, the current genocide is unlikely to be the last in Palestine.”(36)
In making the case for the single, secular democratic state, however, “we need to move beyond simple appeals to liberal notions of citizenship, and instead foreground the class and imperial interests that continue to sustain the status quo. What role does Israeli settler-colonialism —and thus the fragmentation of the Palestinian people—play in the architecture of US power in the Middle East? How does this connect to the place of other powers, especially the Gulf Arab states, in the regional capitalist order? What are the class dynamics of Palestinian society—across all its multiple geographies—and how have these been shaped by both Israeli violence and imperialist-backed plans such as the Oslo Accords? Clarity on these kinds of fundamental questions is more urgent than ever.”(37)
Capital accumulation and social struggles are interconnected. Class alliances and geopolitical confrontations are so prevalent in the region as a whole, but also on the global scale. “Struggles for national liberation, for the right of nations to exist as coherent state forms reflective of ethnic identities or religious affiliations, cannot be brushed aside as minor irritations in capitalism’s historical geography. But by the same token I think it is wrong to view such struggles as if they are entirely independent of processes of accumulation by dispossession or disconnected from the general dynamics of capital accumulation in space and time.
“Since capital accumulation entails territorial class alliance formation, the production of some sort of regionality and geopolitical confrontations, for example, it is highly likely that any struggles over ethnic or religious identity and autonomy will interweave and combine with all of these forces. The same connectivity will likely exist with accumulation by dispossession. This sort of interweaving is crucial for understanding something as complicated and dramatic as the longstanding Israeli-Palestinian conflict, for example. While a conflict of this sort cannot be reduced to some mix of accumulation by dispossession and expanded reproduction of capital, it cannot be viewed as having an entirely independent and autonomous existence either. It is the inner connections that are most intriguing to unravel. It is useful, therefore, to examine the varying character.”(38)
Notes and references
- Haim Hanegbi, Moshe Machover and Akiva Orr, The Class Nature of the Israeli Society, New Left Review Jan/Feb 1971. Le Monde, July 2nd, 1969
- Haim Hanegbi, Moshe Machover and Akiva Orr, The Class Nature of the Israeli Society, NLR Jan/Feb 1971. Journal of Economic Literature, December 1969, p. 1177
- This was passed in 1959. The Class Nature of the Israeli Society by Haim Hanegbi, Moshe Machover and Akiva Orr, NLR Jan/Feb 1971.
- The Class Nature of the Israeli Society. These figures are taken from The Economic Development of Israel, by N. Halevi and R. Klinov-Malul, published by the Bank of Israel and Frederick A. Praeger, 1968. The category ‘other sources’, included under ‘long-term capital transfers’, has been omitted from the figures for both long-term and unilateral transfers taken together.
- Jonathan Nitzan and Shimshon Bichler, The Political Economy of Israel, 2002, Pluto Press, pdf text, pp. 27-28.
- Nitzan and Bichler 2002, pp. 29-30
- Adam Hanieh, Lineages of Revolt, Haymarket Books, e-book version, 2013, p. 29
- Hanieh, Lineages, 2013, p. 35
- Hanieh, Lineages, p. 39
- Hanieh, Lineages, pp. 40-41
- Victor Kattan, Violent Radical Movements in the Arab World, pp. 99-100
- Hanieh, Lineages, p. 47
- Rashid Khalidi, New Left Review, No.147, May-June 2024
- Khalidi, NLR 147
- Khalidy, NLR 147
- Khalidi NLR 147. John J. Mearsheimer and Stephen M. Walt wrote in The Israel Lobby and US Foreign Policy: “Unconditional support for Israel is undermining relations with other US allies, casting doubt on America’s wisdom and moral vision, helping inspire a generation of anti-American extremists, and complicating US efforts to deal with a volatile but vital region,” the two write. “In short, the largely unconditional ‘special relationship’ between the United States and Israel is no longer defensible on strategic grounds.”
- Tom Stevenson reviewing David Wearing's AngloArabia: Why the Gulf Wealth Matters to Britain, 2019, London Review of Books, 9 May 2019.
- Tariq Ali, Between Past and Future – Reply to Asaf Bayat, New Left Review 80, Mar-Apr 2013)
- Adam Hanieh, World Oil: Contemporary Transformations in Ownership and Control, Socialist Register 2023
- Andrew J. Bacevich, America's War for the Greater Middle East, e-book version, p. 230
- Fred Halliday, The Middle East in International Relations - Power, Politics and Ideology, Cambridge University Press, 2005, pp. 142-43. In the same paragraph, Halliday even put the word imperialism in inverted commas.
- Halliday, p. 15
- Before moving to ‘realism’ and ‘integration’, here is what Halliday wrote in 1974: “The rulers of the oil-producing states, in limited conflict with imperialism over Israel and oil profits, were intent on gaining a more influential position within world capitalism; the anti imperialist movement wanted to destroy this system altogether” and that “The basis of an internationalist position on the Palestinian people must be a recognition of their situation as a people dominated by colonialist oppression (in this case Zionism) and of their right to wage political and armed struggle to end this oppression and to achieve self-determination. The assertion that the Palestinian problem is the result of a clash between two equally legitimate nationalisms, Israeli and Palestinian, avoids the central structural element that the Israeli nation has constituted itself by oppressing the Palestinians. Hence the two nationalisms cannot be placed on a par. Any just rectification of this oppression will involve the ending of Zionism, and of the Zionist state, the form of colonialism concretised in Israel. Given such a rectification the Israeli nation will be entitled to the rights of any national group, including secession and an independent state.” (Arabia Without Sultans, Penguin Books, 1974, p. 17 and a note on p. 30). “An equally reactionary use of religion to cement a state can be seen in Israel, where Judaism has provided an ideological basis for a racist and chauvinist regime.” (Halliday, 1974., a note p. 31). “The one major topic of dispute between Saudi Arabia and the advanced capitalist countries is the question of Israel ; the changes in oil policy do involve contradictions, but they are ones that form part of all inter-capitalist competition, and are found with regimes that are equally counter revolutionary – such as that in Iran.” (Halliday., 1974, p. 71). By 2005 the world/‘we all’ moved to ‘globalisation’, ‘human rights’ etc. Radical and revolutionary approaches and perspectives were no longer of any purchase.
- Adam Hanieh, The Arab Uprisings – A Decade of Struggles, edited by Miriyam Aourag & Hamza Hamouchene, Transnational Institute, May 2022, p. 32.
- Peter Sluglett, Violent Non-State Actors in the Arab World – Some General Considerations in Radical Movements in the Arab World: The Ideology and Politics of Non-State Actors, edited by Peter Sluglett and Victor Kattan, I.B. Tauris, 2019, p. 16
- Victor Kattan, The 2007 Hamas–Fatah Conflict in Gaza and the Israeli–American Demands in Violent Radical Movements in the Arab World: The Ideology and Politics of Non-State Actors, p. 97 and Meir Hatina, Islam and Salvation in Palestine: The Islamic Jihad Movement, 2001: 68–9. My emphasis N.M.
- Hegghammer and Wagemakers, 2013: 288
- Goldenberg, Guardian online). (Kattan, Violent Radical Movements, p. 101
- Ussama Makdisi, The Mythology of the Sectarian Middle East, an essay published in February 2017
- Nitzan and Bichler 2002, pdf text, p. 14
- Nitzan and Bichler, pp.16-20
- Nitzan and Bichler, p. 24
- Nitzan and Bichler, pp. 26-27
- Halliday, 2005, p. 295
- Noah Kulwin, Three New Realities for American Power After 7 October in Essays For a Free Palestine: From the River to the Sea, Verso & Haymarket 2023
- Haim Bresheeth-Žabner, Reality denial: the war to resuscitate the myth in Essays For a Free Palestine: From the River to the Sea, Verso & Haymarket 2023)
- Adam Hanieh, The Oslo Illusion in Essays For a Free Palestine: From the River to the Sea, Verso & Haymarket 2023)
- David Harvey, Spaces of Global Capitalism, ebook, Verso 2019 edition, p. 76)
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