Sources of state discipline: Lessons from Israel's developmental state, 1948-1973

Both the classic literature on the developmental state and more recent accounts of rapid-innovation-based (RIB) development highlight the importance of the state's capacity to discipline underperforming firms. Although long acknowledged, the sources of this capacity remain relatively understudied, and existing knowledge draws almost exclusively on the East Asian experience. To address this lacuna, I examine the successful industrialization experience of Israel in the two and a half decades following its independence (1948-1973). Drawing on archival materials and other original sources, I identify a novel path to state discipline. Whereas East Asian developmental states became disciplinarian through their engagement with export competition, in Israel, state elites generated discipline by leveraging their embedded relations with collectively owned enterprises to foster a competitive domestic market. In the conclusion, I explore the relevance of this model for more contemporary cases of RIB development in both developed and late-developing economies.