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Israel is in crisis. The recent Lebanon War has heightened all its internal and external contradictions. Gabriel Ash looks at the economic and political foundations of this deeply militaristic and ideological state. The recent military defeat, brewing class divisions and political polarization from within, have made Israel more unstable than ever. To understand where this current crisis might lead Israel, a little historical context is needed. From the twenties on, Zionism was a project of colonial development. As economists Nitzan and Bichler brilliantly showed, the so-called Labor party was Capital’s best friend, providing cheap labor and a captive market to attract overseas investors. The establishment of the state in 1948 led to the strengthening of ties. Israel was ruled by a tightly knit junta of generals, industrialists and bankers who quickly transformed the country into a very profitable operation. The “seed” money obtained from selling indulgences to a penitent Germany (and later to guilt-ridden wealthy Jews) was invested in military buildup. Soon, Israel began exporting its principal product—regional instability—to the colonial powers, first to Britain and France, and then to its largest and most loyal customer, the US. By the 1980s, the economy built purely on international transfers and militarism was showing its age. The 1973 war debacle destroyed the political monopoly of the Labor Party, leading to the rise of Likud and the first appearance of the Israel’s Jewish underclass, the Mizrahi, or Arab Jews, on the political stage. A decade later, the unpopular first Lebanon war broke the bond between the leadership and the middle classes. Then, the first Intifada came soon afterward, transforming the occupation of the West Bank and Gaza from a cheap labor gold mine to a barely affordable burden. Between these three wars Israel also experienced a debilitating period of stagflation (inflation coupled with low growth and high unemployement) that culminated with an almost total banking meltdown. Capitalist interests Inspired by US capitalism, the Israeli ruling class responded to the long crisis with a religious adoption of neo-liberalism. The state was privatized and social services and wages were slashed wherever possible. The shekel (Israeli currency) was unmoored. The junta sliced up the different public enterprises and floated them on the financial market, which were duly liberalized. Israel became an open neo-liberal haven, albeit dominated by a tiny number of leading families. As the roaring 1990s came by, Israel fed Wall Street a long stream of technological start-ups built at taxpayers’ expenses. US capital and Israeli capital intermingled, becoming a seamless web of personal and financial connections straddling the globe. Take for example Haim Saban, former Israeli music producer and now West Coast tycoon. He is the owner, among other things, of Israeli telecom, the Japanese Power Rangers trademark, and a German satellite broadcaster. He is also a personal friend of all former Israeli prime ministers and the largest donor to the Democratic Party, as well as the paymaster of former US ambassador to Israel Martyn Indyk’s salary at the Saban Center for Middle East Policy in Washington. Saban epitomizes the new Israeli ruling class. The prostitute who used to live next door to Saban in Tel Aviv (according to his own “rags to riches” account) is equally symbolic—Israel is today the second most economically unequal society in the industrialized world. Less than two-dozen families own more than half of the value of Israel’s stock market. But unlike in the US, where war is always far way, the relation between financialization and militarism in Israel is complicated. The two ideologies complement each other culturally, both promoting a similar macho coarseness, lack of empathy and instrumentalization of the human world that are hollowing out Israel’s society as surely as a worm makes its way through an apple. Both, of course feed each other through military contracts, war exports, and other forms of corporate welfare. But the neo-liberal insistence of measuring all in dollars poses a growing challenge to a military culture that depends on undeclared waste and relatively high wages. The internationalization and diversification of capitalist interests created a powerful demand not as much for peace as for the absence of war. There was also demand for shrinking government services, lower taxes, and the conservative and rationalized management of state finances. The pressure to cut costs and to boost growth collides with the unquantifiable goals of completing the cleansing of Palestinians. The clash has been feeding into a growing institutional culture of corruption. A contradiction also exists between the dependence of military Zionism on a semblance of Jewish social solidarity that neo-liberalism scorns. Israel’s public broadcasting service used to erase the color from foreign films in solidarity with those who did not yet own a color TV set. Class power existed, but it was artfully camouflaged as long as elites raked their dividends through the state. The overtly selfish consumer culture imported from the US, together with privatization, eroded the military’s ability to demand the time and loyalty of thousands of reservists—whether for the exceptional war or for the daily maintenance of the occupation. The scions of the cosmopolitan middle classes dream of a career in investment banking rather than in the military. The destruction of the social safety net threatens the nationalist cohesion which binds the Mizrahi poor to the state and reconciles them to their abject class position. Regional destabilizer Israel cannot become Palo Alto. Not only is the military Israel’s largest exporter and largest employer, but Israel’s role as regional destabilizer remains essential as ever to its relation with the US. The military, which sees itself as the keeper of the Zionist flame, is still the incubator for most leadership positions and a formidable institution whose power within Israeli society is unrivaled. The military consumes around 8-9% of Israel’s GDP, totaling close to $10 billion, including over $2 billion in US direct military aid. The ruling class thus cannot do without militarism, which is both the foundation of its rule and the umbilical cord that ties it to the US. But the military, and especially its use in full-scale war, is a growing financial drain that can no longer be hidden in a globalized economy, as well as a potential threat to Israel’s rich upper crust’s trans-continental financial interests. The second Lebanon war follows the pattern of the second Intifada as being driven primarily by concerns over the military itself. The military began planning the second Intifada as soon as the Oslo agreements were signed. When the occasion presented itself—Sharon’s visit to Haram al Sharif—the army seized it, responding to unarmed Palestinian demonstrations with the shooting of over a million bullets, precipitating the transition of Palestinian resistance from street protests to suicide bombs. The generals’ dislike of Oslo was rooted in the correct understanding that Oslo represented an attempt to outsource the military. Rabin and Peres believed that maintaining the direct occupation was becoming too expensive, and sought to “cut the middleman” by paying Palestinians to repress themselves. But the middleman, in this case the Israeli army, fought back—and won. With the winding down of the second Intifada, the Israeli elites accepted the demise of Oslo and the imperative of continuing the colonizing project through the Israeli military. Therefore, the end of the uprising led to a lowering of the tensions surrounding the role of the army in relation to Palestinians. The birth of the centrist Kadima, free of any ideological commitment separating “left” from right within the traditional terms of Zionist politics, represents this moment of elite unity. Kadima is the party of the star politicians and is mostly beholden to the two dozen leading capitalist families in Israel, who have all generously funded its electoral victory. But the collapse of Sharon, the last of Israel’s first generation military heroes, and the rise of the civilian Olmert was also a sign of the times, and not totally auspicious for the military. The internal power struggle did not die with Oslo. After the Iraq war, with the fall of Saddam and the presence of the US marines in Iraq, Israel’s need for such an expensive military became less evident than ever. Whose armies was Israel preparing to fight in a traditional battlefield? Even the Bush administration has been pushing for slimming down Israel’s defense budget. In the last elections, a new threat materialized from the “left.” Peretz, a Mizrahi with trade unionist credentials, took over the leadership of the labor party on a (quite weak) commitment to reverse some of the excesses of neo-liberal policies. The protest vote of the disaffected middle class was captured by a new, and quite bizarre, party—the pensioners’ party, led by a former Mossad agent who made a fortune in Cuba. Peretz was appointed Defense Minister thanks mainly to his lack of military background and to his so-called “social” agenda. The first “qualification” ensured he could not outshine Olmert. The second would defend neo-liberalism from the brewing popular discontent. Shock and fizzle As defense minister, Peretz would have to fight for the military’s bacon, and thus be forced to sacrifice his voters or risk alienating the people who could make him fail in his job—the generals. But his appointment left the army under two inexperienced and weak politicians. When Hezbollah supplied the pretext, the military submitted its readymade plans, which were more marketing plans than war plans—a demonstration of the army’s awesome powers and political usefulness—shock and dazzle. If the war in Iraq was supposed to be a cakewalk, the war in Lebanon was supposed to be a power-point presentation, reminding the Israeli public, Olmert and the capitalists behind him, and finally the US paymasters, what the army can do for them. Except that it turned out as shock and fizzle. The war exposed the command of the Israeli military as incompetent, and the troops as untrained, undisciplined, badly supplied and not always willing to fight. The Israeli Air Force (IAF), on the other hand, proved its ability to cause massive civilian destruction. Since this is, despite constant denials, the normal mode of Western colonial warfare, the IAF’s display of lethality was in fact a partial success, undermined only by the unrealistic expectations that the military commander Halutz and Olmert created. However, there is nothing that the IAF can do that US and NATO jets cannot do, and probably better. Thus, the surprising failure of the ground forces should resonate a lot more with US strategists than the IAF’s performance. The defeat was a particular blow to the neo-con/Pentagon faction, giving a boost to Rice, who even dared float a balloon criticizing the “daily humiliation” of the Israeli occupation. To be sure, the US is not going to end its support for Israel soon, but pressure is mounting in Washington for a public relations boost through exacting some unpleasant concession from Israel. The army has therefore handed itself a defeat, severely weakening its prestige and therefore its bargaining power within the Israeli and US power game. On the other hand, precisely by weakening Israel and rekindling Arab dreams of military victory, the military can point to a new urgency for increasing, and certainly for maintaining, the military budget. The budget cuts that were scheduled for 2007-08 have been already rescinded, and negotiations are apace over budget increases the army is demanding for the long term. There is new interest in reviving various high tech anti-missile programs that were shelved in the last few years, probably for lack of funds rather for their inherent inability to deliver. Apartheid system True to form, the military leadership has engaged in a significant operation in Gaza, arguing that Hamas is arming itself with the intention of emulating Hezbollah. Meanwhile, the political echelon is paralyzed by the fallout of the Lebanon defeat, and looks content in waiting for Fatah to finally deliver the Palestinian civil war Israel has been dreaming of for the last twenty years. The “convergence plan,” Olmert’s proposal to formalize a unilateral apartheid system in the West Bank and Gaza, is clinically dead. The most interesting news, however, comes from Steph Wertheimer, who unofficially suggested launching an expensive reconstruction project in Gaza’s refugee camps. While the half-baked political balloon floated by Israel’s richest oligarch is not important in itself, the intervention may suggest a revival of the internal conflict within Israeli elites over the role of the military. That is bad news for the army and may be one more incentive for precipitating the next war. The Lebanon War also laid bare the government’s abdication of responsibility for civilian defense and the dismal conditions of poor Israeli border communities. There was no plan for even supplying water to northern residents caught in stinking and badly maintained underground shelters. The affluent residents escaped to Tel-Aviv and the care for the mostly Mizrahi population was left to charity and individual initiative. The exposure of the government’s callousness is feeding the anger against the neo-liberal policies of the last decades. But it is the nationalist right, not the left, who is best able to capitalize on this anger, recasting social solidarity as essential ingredient of national security. Additionally, the war exacerbated tensions between the Jewish majority and the sizeable minority of 1948 Palestinians. The latter suffered a significant death toll from Hezbollah rockets, due to lack of shelters in Arab communities and the military penchant for placing military installations in their proximity. Many of the community leaders criticized the war from its inception (practically alone in Israel), blamed the casualties on Israel and sympathized with Lebanon and even with Hezbollah. That has incensed most Israeli Jews, who resent the refusal of many 1948 Palestinians to reconcile themselves to their second-class status. Already, the mood of the Jewish electorate shifted decidedly to the extreme right, with Netanyahu’s Likud and Lieberman’s “Israel Beiteinu” the major winners. If the financial elites shift, as could very well happen, to a more dovish position that would also be bolstered by a more realist US, the center will not hold. But that is far from given. An alternative compromise that would soften the internal rivalry could involve, for example, a privatization of the non-combat functions of the army. The internal polarization, both within the Israeli elite and between the elites and the larger society, may end the honeymoon of Zionist unity created by the second Intifada. Its fate, however, depends as much on the future of the larger circles of conflicts that have all been intensified by the Lebanon War: in the Occupied Territories; in Lebanon between nationalists and capitalists; in the Middle East between the Saudi-Egypt-Jordan Axis and the Syria-Iran-Hezbollah alliance; and globally, between the US and Iran, Russia and China. The second Lebanon War cut across and hardened these layered conflicts. While nobody can predict the exact future interaction between all these tensions, the likelihood that they will all pan out in Israel’s favor seems low. ABOUT THE AUTHOR Gabriel Ash is an activist and writer who writes because the pen is sometimes mightier than the sword and sometimes not. He welcomes comments at: g.a.evildoer(at)gmail.com