This paper examines the institutional dynamics of the Israeli developmental state, focusing on its transformation since the mid-1980s, when a deep and far-reaching process of liberalization began. In contrast to the conventional stance concerning the withdrawal of the state from the economy and the decline of its political and institutional capabilities to shape the structure of economic relations, our analysis suggests that the state has not retreated from the economic sphere. The important shift in state-economy relations lies not in the extent of the state's involvement in the economy, but rather in the mode of its involvement. That is, institutional changes have to do first and foremost with the definition of the state's objectives in the management of the political economy and the way it uses particular institutional instruments to attain those objectives. As we show, state agencies continue to play a crucial role in the economic arena. While certain institutional traits and practices of the classic developmental state have indeed vanished, there are also very significant lines of continuity in place that keep imprinting on state-economy relations. It is this combination of change and continuity that determines the modes of action of developmental states under conditions of neoliberal globalization.
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The state also assists the private high-tech industry through a myriad of direct support programs that have been essential to its development and its integration within global professional, business and financial networks (O Riain 2004). Significant tax benefits and exemptions and extensive direct financial assistance in the form of investment grants are awarded to both local and foreign firms. Notable in this respect are the special grants that the government has provided to Intel since 1996 to support the establishment of manufacturing plants, which total more than US $1.5 billion. In addition, Intel was granted special tax benefits worth hundreds of US $ millions. The importance of state support for the growth of high-tech in Israel, which is based, to a large extent, on innovation, is also reflected in figures on government financing of research and development. Between 1991 and 2003, direct government funding contributed 27.5% of all civilian research and development expenditures, representing around 1% of the GDP, higher than in all other OECD countries (Central Bureau of Statistics 2007:25, 40). In the last two decades, the state has set up several programs of financial and organizational assistance targeted specifically at high-tech research and development, becoming an important instrumental factor in the growth of Israeli high-tech (Avnimelech and Teubal 2004; Breznitz 2007a). In 1991, for instance, the Office of the Chief Scientist in the Ministry of Industry, Trade and Labor initiated a program of technological incubators to provide new entrepreneurs with physical facilities, financial resources, professional guidance and administrative assistance, with the aim of turning innovative technological ideas into exportable commercial products and setting up business ventures.
- Developmental state
- Israeli political economy
- State-economy relations