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2017 | OriginalPaper | Buchkapitel

3. Adviser and Activist: Lerner on the Israeli Economy, 1953 and Afterward

verfasst von : Daniel Schiffman, Warren Young, Yaron Zelekha

Erschienen in: The Role of Economic Advisers in Israel's Economic Policy

Verlag: Springer International Publishing

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Abstract

Over the period 1953–1956, Lerner served as a resident economic advisor to the State of Israel. For most of this period, Lerner was a member of the Economic Advisory Service (EAS). He also served in 1956 as an advisor to the Finance Ministry. This chapter utilizes the Lerner Papers and the EAS papers in Israel State Archives to document Lerner’s activities and influence in these roles. Lerner analyzed export subsidies, the proposed legislation to establish the Bank of Israel, and the cost of living allowance (CLA system). He also played the unconventional role of critical public intellectual. He contributed to “the economic independence debate” and even launched a campaign to abolish the CLA. He continued his attacks on it after returning to the USA, albeit changing his views in 1974, after the oil price shock and its impact on the Israeli system of wage linkage. We conclude by conjecturing that Lerner’s views emanated from his observations of the operations of the National War Labor Board (1942–1947) and the problem of Federal Reserve independence (1942–1951).

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Vorheriges Kapitel Economic Crisis and Policy Prescriptions: The Kalecki and Mikesell Reports, 1950–1952

Nächstes Kapitel Ex-officio Adviser: Kahn in Israel, 1957 and 1962

Nur mit Berechtigung zugänglich

Lerner had been approached by Gass almost a month before, with an invitation to join the EAS and a contract to begin work in July 1953. During 1945–1947, Gass and Lerner had been involved with the Academic Committee for the Hebrew University (Salo Baron Papers, Stanford University, Box 34, Folder 1).

Indeed, in late March 1954, David Horowitz, the former director-general of the Ministry of Finance and first governor (designate) of the Bank of Israel, complained to Prime Minister Sharett about the EAS, which he dubbed “the Gass Team.” As Sharett wrote in his personal diary: “[Horowitz] is prepared to endure the ‘Gass Team’ without Gass, but if Gass is removed, then he [Horowitz] advocates breaking up the group and installing each of its individual members in the relevant Ministries-Bell to the Finance Ministry, [Bertram] Gross to the Ministry of Labor, Clawson to Agriculture, Abba Lerner to the Central Bank” (Sharett 1954, entry for 31 March 1954).

We are unable to locate the original memorandum.

This estimate excluded the anticipated cost of raises for teachers, nurses, and career military personnel.

This was apparently an empty threat, considering that the Progressives had only 5 of the 80 coalition MKs.

The Post’s (anonymous) reporter exaggerated Lerner’s views by attributing to him the following dire warning: “Wages must be reduced by 25%, or inflation, followed by disastrous devaluation, will be inevitable next year.” Lerner never wrote this. In his memorandum, Lerner warned that a basic wage increase would precipitate “a runaway inflation” (Lerner memo, 27.11.55, 1). He strongly recommended a 25% cut under the auspices of the wage authority and emphasized its potential positive effects but did not explicitly predict rapid inflation in the event of non-implementation (Lerner memo, 27.11.55, 11–13). Rather, he qualified his recommendations as follows: “I would stress not so much the desirability of accepting these particular lines of operation as the necessity for the Wage Authority to adopt some criteria for regular and rational decision on these matters” (emphasis in original; Lerner memo, 27.11.55, 12).

Becker was effectively second in the Histadrut hierarchy; only the secretary-general ranked higher.

The English version which we cite (Lerner 1956b) was dated 8 January.

Since there was nothing new in Lerner’s substantive argument, we will not quote it here. Instead, we will focus exclusively on Lerner’s political arguments.

According to a source within the Finance Ministry, because Lerner was employed on a special contract, he was not bound by standard civil service regulations (Davar 1956).

The Finance Ministry source stated: “It would have been better if [Lerner] had left out one or two sentences in his public letter, because of their excessively sharp [tone] and lack of justification, and also because of their irrelevance to the core issue” (Davar 1956).

Ben-Gurion implied that he rejected Lerner’s advice only because Lerner had opined on political matters in which he had no expertise; had Lerner stuck to economics, Ben-Gurion would have accepted his advice. But this should not be taken at face value. As a rule, Ben-Gurion rejected expert advice when he thought he knew better (Knesset speech reported in Jerusalem Post 1953), and in this case, he had made up his mind to reject the Guri recommendations regardless of Lerner’s opinion. As an experienced negotiator, Ben-Gurion knew that the IMA would never accept the argument “I know better than Lerner,” so he attributed his rejection of Lerner’s advice to Lerner’s lack of expertise on “public psychology.”

After the physicians struck from February 7 to 20, the government agreed to pay the professionals two-thirds of the increase recommended by the Guri Committee.

We choose to take Ben-Gurion’s words at face value. Ben-Gurion never would have met with Lerner had he been uninterested in Lerner’s advice.

It is not known whether Lerner ever prepared the document that Ben-Gurion requested.

Israel’s first lady, Rachel Yannait Ben Zvi, was reportedly one of Lerner’s few public supporters (Davar 1966).

Lerner kept a copy of this article in his personal papers (Lerner Papers, Box 13, Folder 3).

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Titel: Adviser and Activist: Lerner on the Israeli Economy, 1953 and Afterward
verfasst von: Daniel Schiffman
Warren Young
Yaron Zelekha
Verlag: Springer International Publishing
Buch: The Role of Economic Advisers in Israel's Economic Policy
Print ISBN: 978-3-319-60680-4

Electronic ISBN: 978-3-319-60682-8

Copyright-Jahr: 2017
DOI: https://doi.org/10.1007/978-3-319-60682-8_3