Paving the way to neoliberalism: the self-destruction of the Zionist labor movement

The chapter adopts a historical and sociological perspective and institutional political economy to explain the inability of the Zionist labor movement to adapt to democratic conditions following Israeli sovereignty. In the 1970s and early 1980s the Histadrut (peak association of labor) and large private employers formed a distributional coalition against the state which eroded its autonomy and contributed to economic crisis. When the strong and stagnant labor institutions became a political burden on Labor Party leaders, they initiated the dismantling of the Histadrut economy and welfare state, including privatization of enterprises and pension funds, and the nationalization of health services. The chapter highlights the critical role of domestic political processes for explaining neo-liberalization of the economy and the rebuilding of state autonomy in Israel, and explains the irony that politicians on the Left played a more decisive role than those on the Right.