Forum/13 Powerful Workers: Hyperinflation and the Challenge to State Autonomy ————

———— 1980 — Forum/13 Powerful Workers: Hyperinflation and the Challenge to State Autonomy ———— 6. 1980 — Forum/13 Powerful Workers: Hyperinflation and the Challenge to State Autonomy1 I. Introduction The May 1977 election results were a continuation of the existing trend of Mizrahi lower classes shifting their support from the Alignment to the Likud, primarily in the peripheral development towns. The Mizrahi protest initiated by the Black Panthers in 1971 culminated with the Li- kud’s rise to power in 1977, albeit this was a far cry from the original intentions of the movement’s leaders, who joined two small left-wing parties that were part of the 1977 elections, as mentioned above. The creation of a new party called Dash, most of whose members and voters had been formerly associated with the Labor Movement, and the widespread corruption within the Alignment’s ranks were two external manifestations of a deeper phenomenon everyone had been aware of ever since 1967: the Labor Movement had lost its way. Dash attracted many votes of all ideological shades from among the upper and middle class, mainly Ashkenazis in the big cities (Diskin, 1988). However, its attempt to become the power broker failed, since the Alignment’s down- fall was such that no coalition government could be formed under its leadership (Rubinstein, 1982). After its electoral defeat, the Alignment leadership mobilized to save its control of the Histadrut. Thanks to a huge organizational effort, most Histadrut members, including many who had voted for the Likud in the parliamentary elections, were per- suaded to vote for the Alignment in the Histadrut elections. The argu- ment was that if the main opposition party in the Knesset continues controlling the Histadrut, the working class would benefit in its struggle 1 This chapter is based on my MA research thesis (Grinberg, 1985), which was later published as the book Split corporatism in Israel (Grinberg, 1991). Some of the interviews quoted here were published only in 1991, others only in 1985. — 181 — ——————————————————— CHAPTER SIX ——————————————————— against the new anti-labor economic policy only to be expected of a liberal Minister of Treasury. This campaign proved a surprising success: for the first time, the Alignment received more votes in the Histadrut elections than in the Knesset elections: 523,000 against 430,000 (Ba- hat, 1979). As in the aftermath of the 1960s crisis, the Histadrut proved its survival skills under difficult conditions. However, as we shall see below, the long-term implication of the Alignment’s electoral defeat in the Knesset was a weakening of the Histadrut’s huge economic power. Thus, the path towards the decline of the Zionist Labor Movement passed through two main historical moments: (1) the loss of the hege- monic ideological position it had held since 1967 following the institu- tionalization of a dual democratic/military regime over all Israel/Pales- tine; and (2) the loss of power in 1977 to the Likud, which was equipped with an ideology able to legitimize the new political realities institutionalized by the ZLM. Ever since 1977, the labor movement progressively deteriorated organizationally, ideologically and economically. Even the attempt to breathe new life into the movement in 1992-1995 (discussed in the next chapter) by changing the agenda and the order of priorities, putting an end to the occupation and reforming the Histadrut, eventu- ally failed on both counts. The Likud’s rise to power made many Israelis fear that, with its new political alliance with Mafdal (the pro-settlement National Religious Party), it would follow a strategy of exacerbating the Israeli-Arab conflict. This fear led almost immediately to the establishment of the Peace Now protest movement (T. Reshef, 1996). On the other hand, many others, even members of the labor movement, expected the new liberal economic policy to overcome the crisis provoked by the Alignment’s over-interventionist approach (Grinberg, 1991). However, right at the beginning of Begin’s first term as Prime Minis- ter, these two widely held expectations—economic success and external national conflict escalation—failed to materialize; on the contrary, the opposite was true. While the new government’s economic policy quickly drove the economy into unprecedented three-figure inflation, Begin surprised everyone with a historic peace treaty with Egypt. This chapter discusses the forces that pushed towards inflation, the threat posed by liberal policies to weak and strong workers, and the organized reaction of the most powerful 13 worker committees in a mo(ve) ment of resistance to the government’s economic policy. I will argue — 182 — ———— 1980 — Forum/13 Powerful Workers: Hyperinflation and the Challenge to State Autonomy ———— that the class struggle against the liberal economic policies succeeded in the short term to prevent direct damage to the powerful workers, but that later on, the counter-mo(ve)ment led to the imposition of a radical neo-liberal policy—designed according to the principles of the Wash- ington Consensus (WC)2—aiming to halt hyperinflation and weaken all organized labor. The question discussed below is why and how the powerful workers’ organization and resistance mo(ve)ment ended up in the implementation of the neo-liberal economic plan in 1985, a historic turning point that structurally dismantled worker power. II. Background: Economic Crisis, Wage Restraint, Capital Subsidies and Political Turnabout After the 1973 elections, it became clear that two large party blocks were now fighting for power, both with a socioeconomically condensed electoral basis. This melted the tribal dichotomy of the political arena, which, as we have seen in Chapter 4, emerged towards 1965, removed the class conflicts from the partisan competition, and channeled them into the parties themselves. Disagreements regarding the country’s economic policy split the parties from within rather than one from the other. The phenomenon of a party representing class interests, identi- ties and demands—the prime examples being Mapam and the Liberal Party in the 1960s—became obsolete. In the context of the dual regime that institutionalized the ethno-class hierarchies, even a party with a salient class ideology, such as the Communist Party, became mainly the representative party of the ethno-national minority of Palestinian citi- zens, after most Jewish voters had abandoned it. While the Alignment was troubled by incessant debates both within its own ranks and between the government and Histadrut during 1974- 1977, the Likud was able to evade its internal contradictions and bene- fitted from being in the opposition. As a melting multi-class opposition party, which mobilized both private capital economic elites and Mizrahi low ethno-class, it managed to attack the government both from the economic right and left at the same time. From the right, the members 2 See Williamson (1989) for a detailed description of the principles of the Washington Consensus and their political logic. — 183 — ——————————————————— CHAPTER SIX ——————————————————— of its constituent Liberal Party demanded a more liberal economic policy; and from the left by its Mizrahi coopted figures, particularly David Levi, head of its Histadrut faction, which opposed cancelling subsidies of basic goods and the commodification of welfare services and supported workers’ wage demands. As we shall see below, once the Likud came into power, it implemented its multi-class contradictory economic policies, causing inflation to soar. The 1973 Yom-Kippur War spelled the end of rapid growth and accel- erated the negative economic processes that had begun already in 1967. The balance of payments was worsened, while security expenses, capital imports, and loans required to replenish military equipment spiraled.3 At the same time, the structural problem of the increasing share of the public sector in the economy and national product only deepened. In- flation reached an annual level of 30-40%, this time due to increased public spending. Another factor that exacerbated this situation was the decrease in Jewish immigration, which, together with the world energy crisis, brought growth to a halt. Capital imports for the US could only be used to buy specific military supplies in the US, making it extremely difficult to fund public and civil services. In order to continue providing its services at their current level, the government responded by raising taxes (Shalev, 1992; Ben Porat, 1986; Berglass, 1986). At the same time, it began to cut its subsidization of basic goods such as bread and milk. Even more important in terms of social consequences was the new exchange rate policy called “crawling devaluation,”4 designed to promote exports and reduce private con- sumption. The inflation that resulted from the currency devaluation significantly increased the extent of capital subsidization in the form of non-indexed loans (see Chapter 5), providing the private employers and the WS with government aid above and beyond what they had already been enjoying in the form of salary erosion due to inflation. Finally, the government supported the employers by its policy of wage restraint, implemented mainly at the expense of the weak and peripheral workers. 3 During 1970-1975, the import surplus more than tripled, from 1,262 to 4,050 million dollars. Security related imports rose from about 490 million dollars in 1972 to 1.25 billion after the 1973 War and reached a peak of 1.85 billion dollars in 1975. Loans (from the US—the main source— the Jewish Diaspora, Germany, and other sources) grew from 475 million dollars in 1970 to 1.473 billion (Arnon, 1981: 82-6). 4 The “crawling devaluation” was a policy of slow devaluation controlled by the government. — 184 — ———— 1980 — Forum/13 Powerful Workers: Hyperinflation and the Challenge to State Autonomy ———— All these developments forced rank-and-file workers into the de- fensive, and 1974 saw a sharp fall in the frequency of wage raises and industrial conflicts.

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