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3 T HE CAPITAL MARKET: THE O RIGINS First Steps As we have seen, the virtual nationalization of the capital market was underpinned by the perceived need to allocate investment in a manner that would enhance national objectives. Stated in this fashion, governmental involvement could be interpreted as an ad hoc means, designed to deal with Israel's extraordinary difflcult ies. Yet regardless of the special circumstances, it came naturally, because the ideological makeup of the early proponents of Israel's economic framework, their experience in pre-Israel Palestine, and their beliefs about how the economy of the Jewish community had developed were all conducive to the seizure of the capital market. The first political nucleus that was organized enough to advance its ideological agenda in a systematic manner consisted of immigrants from Eastern Europe, who held both Zionist and socialist views. These views were forged by the terrible plight of the Jews, especially in Czarist Russia, and it was quite natural for the immigrants to associate the longings for a socialist revolution with a liberation of the Jews from their bondage, so much so that they came to view national and social liberation as inextricably intertwined. This is how socialist Zionism came into existence.' The first socialist Zionists came to Palestine in the years between the turn of the century and World War I, in what came to be known as the Second Aliya (immigration wave). Upon arrival, they found a Jewish community made up of city dwellers and, more important, individual Jewish farmers. These farmers lived in farm communities that had been established during the last quarter of the nineteenth century and derived their livelihood primarily from the cultivation of citrus groves and vineyards. These activities were labor intensive, and the farmers therefore employed a lot of hired workers, the overwhelming majority of whom were Palestinian Arabs. The picture of Arab laborers who toiled at dirt cheap wages for the capitalist owners of the groves correlated beautifully with the new immigrants' image of the very economic setup they had come to hate in Russia. It was not the kind of economy they 62 The Poltical Economy ofIsrael were dreaming about, and they were resolved to mold it to their own liking. The first opportunity to direct funds collected by national bodies to what would otherwise be purely the domain of the private sector came when the Zionist Organization established its Palestine Office in 1908. It had at its disposal three financial instruments. Two had been founded earlier: the Jewish National Fund, founded in 1901 as a land-purchasing organ, and the AngloPalestine Company (APC, later referred to as the Anglo-Palestine Bank, or APB) founded in 1903 as a subsidiary of the Jewish Colonial Trust (JCT), which had been the first financial organ of the Zionist Organization and was established by the founding father of the movement, Theodor Herzl ( 1860-1904), in 1899. The shareholders were the founders of the movement, and they were guaranteed a majority vote. The JCT also founded a bank in Poland. The third institution was the Land Development Company, established together with the Palestine Office. The director of the Palestine office, Arthur Ruppin (1876-1943), came from a background very different from that which produced the socialist component of the movement. He was a Central European, educated in the German tradition, and did not share socialist convictions. Yet he absorbed enough of the socialist rhetoric to skew his actions, and his views, away from a capitalist frame of mind. His extensive writings provide a fairly clear picture of the beginnings that ultimately led to the abduction of the capital market. Very early on, Ruppin expressed his conviction that the colonization of Palestine often was at odds with the profit motive:2 "I can say with absolute certainty : those enterprises in Palestine which are most profit-bearing for the businessman are almost always the least profitable for our national effort; and per contra, many enterprises which are least profitable for the businessman are of high national value" and3 "In our agricultural work, which is connected with the training and adaptation of human material, we must be prepared to relinquish the idea of profit." That Arthur Ruppin had not been led to these utterances by socialist ideology is demonstrated by his apparent agonizing over the problem of incentives. His primary concern was to create a situation whereby new settlers would have a stake in their farms. He went to great lengths to devise a mechanism...


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