THE young state of Israel is celebrating it second birthday. It has been able to withstand its enemies on the battlefield; it has established diplomatic relations with almost all civilized nations; and it is a member of the United Nations. Despite the heavy arms importations of neighboring Arab states, and the repeated threats of a “second round" in the Palestine war being circulated in the Arab press and radio, the Jewish government is now concentrating all its efforts on bolstering its economy, absorbing its immigrants, and strengthening its political position at home and abroad.
Thanks to the efforts of the UN Palestine Conciliation Commission, and especially to the realism of Dr. Ralph Bunche, a series of armistice pacts was concluded last year with Lebanon, Syria, Transjordan, and Fgypt. The agreement with Lebanon is only a little short of an actual peace settlement. Peace talks between Israel and Abdullah’s Hashimite Kingdom of Jordan are no longer a secret. They have been officially acknowledged by both governments and may result in a peace treaty within a few months. Similar peace negotiations are under way with Kgypt. The breaking up of the Arab Customs Union between Syria and Lebanon in March, 1950, has dealt a heavy blow to Arab unity, and may clear the road for peace talks between Israel and additional Arab states.
The Jerusalem issue
The plan for the internationalization of the whole Jerusalem area, a major defeat for Israel in the UN, was found unworkable immediately after the vote was taken, because both Transjordan and Israel, the two states actually in power, have strongly opposed it. Israel, which occupies the New City, hopes to obtain authority over all of Jerusalem eventually, but it would be willing to extend guarantees of free access to the Holy Places. The Arabs rejected the Garreau Plan, a compromise proposal, and new plans are now under consideration.
The Israelis, though bitterly criticizing their own government for its failure to block internationalization of Jerusalem last December, are no longer excited about it. In modern Jerusalem, the 80,000 Jews are carrying on their daily business, and the government is calmly proceeding with the transfer of Parliament, Ministries, and governmental offices into the city, which has been proclaimed Israel’s new capital as a protest against the UN resolution for internationalization.
Meanwhile, the Jerusalem issue has had an impart upon Israel’s political orientation. For months the young government anxiously maintained friendly relationships with both Fast and West. The Israeli delegation in the UN often voted in favor of Soviet proposals, knowing that the rules of quid pro quo do not slop before the portals of Flushing Meadows. On the question of the internationalization of Jerusalem, Russia voted against Israel and against the Anglo-American countries, but with the Catholic states.
Despite Moscow’s declarations that this would not change its stand inwards Israel, and despite the dialectical acrobatics of Israel’s Communists to explain the Kremlin move, Soviet sympathies in Israel have sharply declined ever since. A strong wave of official anti-Zionist propaganda has again been organized in Iron Curtain countries. Prime Minister Ben-Gurion has indicated that Israel’s strict neutrality between Fast and West may come to an end. For the tirst time, the left-wing opposition party in Israel, Mapam, may now join the government coalition.
Negotiations are under way to establish diplomatic relations with the Vatican, and Israel’s representatives in the Catholic Latin-American countries are being reshuffled. It is felt that closer diplomatic ties with these states that voted against Israel on the Jerusalem issue in the UN are important for Israel’s foreign policy. Moreover, a new orientation towards Asia is taking shape. Turkey, Iran, and Burma have exchanged envoys with Israel or cxlended full recognition, and Israeli economic missions are in these countries as well as in India.
Too many new citizens
Since the foundation of the state in May, 1948, over 300,000 immigrants have arrived. Israel’s cities are jammed. The whole coastal plain is studded with tents and shacks providing quarters for more than 80,000 newcomers.
But the peak in immigration has passed. Early in 1949, several Eastern European countries barred their Jewish inhabitants from emigrating to Israel. DP camps in Germany, Austria, and Italy are practically empty, and “Operation Magic Garpet,” bringing Jews from Yemen into Israel by plane, is nearing its end. Jews from Arab countries will make up the majority of immigrants in the future.
Free immigration for all Jews has been one of the concepts upon which Israel was founded and for which the war with the Arabs was fought. The Israelis realized very soon the enormous burden which unlimited immigration imposed upon them, but no Israeli politician dared to advocate a curb on immigration. However, last February the Jewish Agency, in agreement with the Jewish government, decided to regulate the influx of those who have no means of subsistence.
Israel needs farmers
Most of the Eastern European Jews who have come since the war lived for almost a decade first in German concentration camps and then in American or British DP camps. They see Israel not only as a refuge but also as a country beckoning with promises of better living standards and business opportunities. Often these newcomers refuse to work as farmers. But it is obvious that the Jewish state will remain strategically unsafe, and will have to provide food for its inhabitants by large imports from overseas, unless it can establish a solid basis of agricultural settlements, especially at the frontiers.
Israel’s government makes a great effort to convince the immigrants to settle on the land. But these refugees are not used to accepting authority willingly; in ihe Nazi camps, the law was something to be evaded, and not to be obeyed. Consequently it is hard for many refugees to see that the regulations imposed upon them by necessity in the Jewish state of Israel have been issued by friends.
To become both producers and consumers, the new immigrants must be given adequate housing, food,
clothing, social services and medical care, schools, and, above all, employment. Rioting among idle refugees hastily settled in abandoned Arab villages and towns, and demonstrations of unemployed, homeless newcomers in Tel Aviv, Haifa, and Jerusalem, have highlighted the danger which may threaten the young state from within if it permits slum areas to exist.
The housing shortage is still acute. A minimum of about 50,000 houses was needed in 1949 to keep up with the most urgent demands, but only 25,000 units could be built during that year through the combined efforts of government, coöperatives, and private enterprise.
High prices, scarce goods
The high cost of living in Israel, with prices for some ordinary consumers’ goods at levels two to five times as high as in the United States, can be explained partly by the excessive demand for goods in relation to the scant supply. High production costs in Israel are caused by expensive and scarce raw materials that have to be imported, a basic lack of mechanization, and abnormally high wages for skilled labor.
The per capita productivity of the Israeli worker is only half that of the American worker. Yet skilled laborers in Israel receive higher wages than professional people. This is a heritage of the mandatory regime, which paid high wages during the war. At present, however, all these nominally high wages have not raised the real income of either the worker or the white-collar man above the mere subsistence level, and as a consequence the purchasing power of both remains low.
The cost of living goes down
In June, 1948, Canadian-born Dr. Dov Joseph was appointed Israeli Minister of Rationing and Supply. His “austerity program,”a system that has proved as farsighted as it is rigid, has the dual purpose of breaking the vicious inflationary circle and of increasing Israel’s productive capacity.
Dr. Joseph introduced an audacious scheme of rationing, price controls, and taxation. Consequently, the cost of living index fell from an all-time high of 371 in April, 1949, to 280 in March, 1950. Price reductions on food and home articles wore imposed by the government, and production of “utility" clothing and furniture was organized, over the protest of many manufacturers.
The austerity scheme with its strict governmental controls must be regarded as only a first step in the economic development of Israel. A number of long-range plans will need to be integrated: the plan of the UN Economic Survey Mission under Gordon R. Clapp, President Truman’s Point Four program, and several other plans put forth by smaller groups such as the American-sponsored Palestine Economic Corporation. Meanwhile the government has not waited for the completion of these surveys, but has started its own plan, designed to cover a period of five years. The housing program is in full operation. Irrigation of the barren Negeb has started on a wider scale with more than thirty settlements in that area. New colonies in other parts of the country are built every month. The railroads between Haifa, Tel Aviv, and Jerusalem are operating again and industry is gradually being mechanized with the help of American machinery.
Attracting foreign capital
Excluding military expenditures, a total of 241 million dollars was invested in Israel during 1949, with 39 per cent from private sources and 61 per cent from public capital. The national income during the same year was about 600 million dollars. For the planned absorption of an additional million immigrants within the next five years — mostly from Arab Countries — an investment of 2.5 billion dollars is considered necessary.
Israel’s government knows that without the aid of foreign capital the job cannot be done. It has gone out of its way to attract investors from abroad. Generous tax exemptions, real-estate grants, and other facilities are extended to foreign capitalists who wish to set up industries in Israel.
At present about 2 million dollars of private American capital is being invested in Israel each month, but many potential big investors from America have hitherto been reluctant, for economic reasons, or because of the insecure political situation in the Near East. One deterrent has also been the uncertainty about the attitude of Israel’s authorities.
The government of Israel, predominantly composed of Social-Democrat Mapai in coalition with a religious and a liberal bloc, depends politically on a socialist and tradeunion electorate. During the recent debate in the Knesset (Parliament) on tax exemptions for foreign investors, only the two Communist representatives voted against the government-sponsored Investment Bill. Other left-wing elements agreed that concessions must be made in these times, and the rightists were willing to put up with a system of governmnent controls designed to overcome the present crisis. The big questions are whether these controls will remain for an unlimited time and whether private capital will be further curtailed in the future.
New markets for exports must be found, obviously in the Middle Ease and in adjacent areas, such as India and Africa. Only with the safe prospect of these future export markets will foreign capital be willing to invest in new enterprises in Israel.