The celebrations in honor of Israel's 70th anniversary have provided a wonderful opportunity to recognize the miracle of the Jewish state's success in handling various problems, the most serious of which was its security and physical survival. The issue of the economic challenge faced by the young nation has been unjustly sidelined.
The exhibit "The Zionist Side of the Coin," now open at the Discount Group's HerzLilienblum Private Museum, which is devoted to the Israeli banking industry and Tel Aviv nostalgia, sheds new light on Israel's economic survival in the first six years of its existence – survival that to onlookers seemed almost impossible.
The planners of the exhibit have attempted to portray the economic drama of the early years of the state as a story whose scenes evoke every response – tension, fear and even amusement. It is no exaggeration to say that the heroes saved Israel from bankruptcy, without being superheroes. They included economists and officials, like the people who would later become known as "captains of industry," but most of them were ordinary citizens, folks who had a hard time making a living and who bore the burden of creating an independent economy out of nothing.
The exhibit sets the stage for the story of Israel's economy using rare photographs and vintage items. Historic objects collected for the exhibit show what happened. One such piece is a "coupon book," a booklet of tickets to be redeemed for food during the years of austerity that followed the 1948 War of Independence. A group of teenagers who were standing next to me at the museum found the concept difficult to understand: "What, someone decided how much cheese we'd eat?" one asked.
Climate and diet
The economic reality in Israel's early years was quite grim. The War of Independence came at a heavy cost to the economy. The waves of aliyah that began arriving after the establishment of the state were reason to rejoice, but money was needed to take in the new immigrants, most of whom landed on the shores without much money or property.
"To put it simply, the state's coffers were empty," says Dr. Dan Giladi, a researcher who specializes in Israel's economic history and who served as an expert adviser to the exhibit.
To ensure that daily life went on, the government declared an austerity policy that took effect in April 1949. The policy was enacted through food rationing. Every citizen received a regular allotment of basic foodstuffs in exchange for ration points that were deducted from their coupon booklets.
The austerity measures weren't popular, and the government had to invest resources in explaining why they were necessary. Official posters admonished that "rationing ensures food for everyone." One of these posters holds pride of place in the exhibit.
Yudith Ben Levy, one of the curators, explains that "curtailing consumption saved a currency that was more precious than gold because most food in those days was imported. It also kept the prices of food staples low."
So, what did the people in newly independent Israel eat? The government consulted an American dietitian but adapted his proposal to the local climate conditions.
The monthly rations per person handed out from July to September 1949 included 12 eggs, 200 grams (7 ounces) of cheese, and 100 grams (3.5 ounces] of salty cheese (similar to feta), half a kilo (slightly more than a pound) of small fish, 750 grams (1.6 pounds) of meat, and a sugar ration that worked out to 58 grams (approximately 14 teaspoons) per day. Some sectors received supplements – pregnant women were given a quarter of a chicken, and children received one chocolate bar a month. Every "basket" cost about 6 liras, a price that anyone who worked could afford.
The wall devoted to the period of austerity includes another surprising ad – one for suits.
"We wanted to show that in addition to austerity, there was a retail trade here, but only a few could afford it," says curator Shirli Goren.
According to Giladi, the enormous influx of immigration in the early years of Israel's existence had a profound effect on the economic climate. The mass aliyah came mostly in the first three and a half years after the establishment of the state. The population more than doubled as 700,000 Jews relocated here. No other country has experienced a similar process, or anything close.
Giladi stresses the unique role that Prime Minister David Ben-Gurion played in economics.
"Ben-Gurion said he hadn't studied economics and didn't understand it, but his major decisions always had more influence on the economy than anything else. The policy of massive, unlimited immigration was the result of a decision Ben-Gurion made on his own. [Advisers] hinted that the huge wave of immigrants would lead to economic disaster, but Ben-Gurion forced everyone to accept his opinion. Such a major decision had direct ramifications on economic matters," Giladi says.
The roots of improvisation
The exhibit has its own dual perspective. The matter of the "captains" who shaped Israel's economic framework dovetails with the focus on the material aspects of ordinary citizens' lives. Ben-Gurion's fateful decision to open the gates to all Jews led to difficulties in taking them all in.
"We delve into the profile of the immigrant – who didn't know the language, and in many cases didn't have the skills to make a living – the urgent laboring jobs that were offered to the new immigrants, the conditions in the transfer camps and development towns," Goren says.
Expenditure is just one part of the picture. To take in aliyah, feed the population and deal with enemies, the state needed income, and the exhibit contains plenty about that, too. Israel's biggest export industry in its early years was citrus fruit, and the country invested in it. In 1948, Israel sold 3.5 million crates of citrus abroad. By 1954, that number had risen to 8.1 million crates. The national income from agriculture jumped from 20 million liras in 1949 to 194 million liras in 1954. But the nation needed far more money than that.
How did Israel reconcile its heavy outlay with its relatively modest income? Through loans, of course. And how did it persuade banks to lend money to a country in the midst of a war?
Giladi has the answer: "When Israel was admitted to the U.N., it became the 59th member state. Another 150 [countries] were founded at the same time or after it. None of these 150 countries met all of their international obligations. From its first year, Israel was careful to pay back all its loans. Israel did the impossible."
Sometimes, it was tough to meet the payments. Giladi talks about something that took place in 1951, when Israel was due to repay a U.S. bond but didn't have the money. Then someone had the idea of taking advantage of the time difference between the U.S. East and West Coasts. The Israelis asked to repay the bond in Los Angeles, gaining a few extra hours to drum up more money, which they found through traditional Jewish means – taking an interest-free loan from local Jews and repaying the bond right on time. Anyone seeking the roots of the Israeli ability to improvise is welcome to look into the story.
Ben-Gurion's decisions
The foundations for this approach were laid by Israel's first finance minister, Eliezer Kaplan. Giladi claims that Kaplan's name has been glossed over and that his successor, Levi Eshkol (later to become prime minister) got most of the praise, whereas they were both equally deserving of it.
"Thanks to them, and thanks to the first director general of the Finance Ministry, David Horowitz, the Israeli economy took its first steps in conditions that are difficult to conceive," Giladi says.
"Sometimes, the distress was almost bizarre. In 1951, a ship carrying fuel arrived in Israel. The fuel was needed urgently, but there was no money to pay for it. Horowitz spoke with a representative of the company that had supplied it and asked to put off payment for a few days so the Israeli authorities could find the money to make the payment. The representative agreed to hold off on accepting payment on the condition that Horowitz would personally sign as guarantor that the country would pay," Giladi says.
"Horowitz was surprised at first because he was just a government employee with a modest salary, but the representative's reply couldn't help but convince him. [He said] 'You look like a gentleman and an honest man, and I have more faith in you than in the budget of the State of Israel.'"
In addition to the bank loans, the young nation established the Development Corporation for Israel, which became known as Israel Bonds. "Ben-Gurion was the deciding vote in that initiative, too," says Giladi.
"That was a revolution in the question of how to fund the Zionist enterprise – not only [through] donations from Jews, but also by selling government bonds. Ben-Gurion's opponents argued that no one would buy them, but the fact is, it worked."
Just as much courage was needed during the War of Independence and the hard years that followed it to dream up the basis of a developed nation. Power stations were constructed and hundreds of miles of roads were paved – all necessary for the country's future development – in its first six years. The network of roads in the Jewish state increased by 31% in these same years.
One section of the exhibit is devoted to the debut of the young country's own currency. It was no small thing for a nation that had yet to declare independence to issue its own banknotes, which were printed in the U.S. by the Anglo-Palestine Bank. The gambit was a success.
