The Recession: A Landmark in Israel’s Political-Economic History, 1964-1967

Abstract

Between 1964 and 1966 the Israeli Government implemented a counter inflationary policy that resulted in economic depression and widespread unemployment. Contemporaries defined this policy as a recession. Unlike previous studies, this article examines the recession in its long-term, political-economic, international and local context. The conclusion is that the recession policymakers, Pinhas Sapir and Levi Eshkol, wanted to introduce a structural change in the economy that would lead to advanced production and export. This was nothing short of a ‘second industrial revolution’ in terms of the Israeli economy. However a distinction has to be made between two phases during the recession, when two conflicting policies arose. The first phase – the restraint phase – was characterized by drastic counterinflationary measures that not only begat a social catastrophe but also dissociated the policy from its purpose. Once the leadership realized the consequences of its policy, it initiated an expansionary economic plan that marks the second phase of the recession. The purpose of this policy was to redress the damages of the exaggerated anti-inflationary measures in order to promote industrialization more gradually and with greater stress on the social implications.