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6 O BSTACLES TO G ROWTH: THE WOULD-B E B USINESS S ECTOR The Business Sector-A Tour This and the next chapters are designed to portray the business sector as dependent on the government to such an extent as to render it a private-public hybrid. Reviewing the main facts, the business sector may be divided into three categories: government corporations, Histadrut-owned enterprises, and the semi-private sector. ln 1987 the share of the Histadrut and its many affiliates in the economy accounted for 18 percent of all employed persons and for 21 percent of the GNP. Taken together with public sector-owned business, the two nonprivate components of the business sector accounted for 31 percent of all employed persons.1 The largest industrial concern, Koor, is controlled by the Histadrut and together with some other Histadrut-affiliated industries accounted in 1980-81 for 22 percent of industrial product and 18 percent of industrial employment. Jn combination with the portion of industry run by the public sector, the shares in 1980-81 were 46 percent of the product and 34 percent of employment.2 Out of the fifty largest industrial companies in 1988, the Histadrut controlled twelve (and the government seven). Out of a total of 102,600 workers employed in these enterprises, those controlled by the Histadrut employed 24 percent, and the share of government corporations came to 32 percent. Hence, less than half of the workers in the fifty largest enterprises were genuine private- sector workers. This is also evident on considering the ownership structure. In 1984the public sector's share of ownership came to 25 percent, the Histadrut had 27 percent, and the private sector only 48 percent.3 The insistence on treating the Histadrut economy as a separate component of the business sector stems from its impact on the sector as a whole. To examine this impact we must turn to the foundations ofthe Histadrut economy. The socialist founders of the Histadrut intended to organize the entire economy under its auspices in the form of a collection of cooperatives. Work- 116 The Poltical Economy ofIsrael ers would own the enterprises that employed them, and no hired labor would be employed. All this was to be managed within the framework of Hevrat Ovdim, the Workers' Corporation, which was created in 1923 and in which every member of the Histadrut was to have a share. This should not be confused with what one normally means by shares, as the holders are not entitled to dividends nor could they sell their holdings. Two attributes of the Workers' Corporation are particularly relevant to our story. First, the profit motive did not play a role. The charter of the corporation explicitly eschews profits, so there are no dividends to begin with. Instead of profits, the main objective was the creation of employment so as to facilitate the absorption of more immigration. The elimination of profits as an incentive had tremendous implications, because as far as the individual worker-owner is concerned, no meaningful incentive can be derived from the objective of creating employment. It cannot be translated into targets with which individuals can be presented. The second important attribute of the Workers' Corporation was the link between the affiliated entities, which were organized as a mutual insurance group. The survival of every entity would be guaranteed by all others.4 For the first twenty years, the corporation owned only wholesale and retail networks and enterprises in the construction industry, such as the construction contractor Solei Boneh and the quarrying corporation Even Vasid. But in the early 1940s, the industrial holding company, Koor, was founded. By its very nature, then, the Workers' Corporation could not possibly play the economic game along free market rules, because to survive in the free market a tireless quest for profits is required. However, it did not have to be profitable to survive. It could afford to play by rules other than those of the free market, because the parent organization has always had access to funds unrelated to its business activities, such as union membership dues. In years past, the Histadrut had also drawn on contributions, mainly from the labor factions of the American Jewish community. As noted in Chapter 2, the Histadrut has also had access to capital accumulated by pension funds managed by itself. This made it possible to remedy the connection between failure in the marketplace and survival by subsidizing its failing enterprises, at least for a while. As we...


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