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be sure, the rapid growth of the early years was a function of massive inputs — specifi cally, im-
migration, which expanded the labor force and imported capital that paid for the development
of industry and infrastructure. There was egregious waste and mismanagement that almost
certainly would have occurred on a far smaller scale if private enterprise had been given more
leeway. But given the immense pressures facing Israel in the early years — isolation from its
neighbors, its perpetual war footing, and mass immigration — it seems unlikely that private
enterprise could and would have met the challenge.
The economy of the nascent Israeli state emerged shattered from the 1948 war. Many in-
dustrial enterprises were destroyed or damaged, much farmland was now outside Israel's bor-
ders or laid to waste, and the country was cut off from its closest trade partners. The new
nation faced massive defense and rebuilding costs, but at the same time it opened its doors to
hundreds of thousands of immigrants, the great majority of whom were poor and unskilled.
Between May 1948 and the end of 1952, some 690,000 Jews arrived in Israel, nearly all of them
refugees from war-shattered Europe or from the underdeveloped economies of the Middle
East and North Africa. There were so many that the number almost equaled Israel's 1948 popu-
lation. The newcomers all required housing, basic necessities, and jobs.
In response, the government imposed rationing in 1949 on everything from food and
clothing for consumers to raw materials for industry. Known as the Tsena , the program was
mostly dismantled in 1953 (although some rationing continued as late as 1959) because it was
having the perverse effect of creating shortages and, consequently, a black market and infl a-
tion. But the bigger problem for Israel's leaders was how to undertake badly needed economic
development.
GROWTH YEARS
Israel did not have the fi nancial resources to pay for investment and development, particularly
when a population that more than doubled in a very short period needed housing. For hous-
ing, it turned fi rst to the Jewish communities of the United States and Europe, which provided
some $750 million in aid between 1949 and 1965. The U.S. government also helped by donating
agricultural surpluses and providing loans, but the biggest single contributor was West Ger-
many, which agreed in 1952 to compensate Israel for Jewish property plundered by the Nazis.
Over the next twelve years, German reparations provided Israel with $833 million, which was
used for everything from buying manufacturing equipment to underwriting a fl eet for the na-
tional shipping company, Zim. Driven by investment and immigration, Israel's gross domestic
product grew 10 percent annually from 1954 to 1965.
Although the State of Israel never formally adopted a socialist model, much less the expan-
sive social goals set out by Labor Zionist thinkers, the 1950s saw the gradual development of an
economy dominated by the state and allied Histadrut and kibbutzim institutions. Key indus-
tries, such as Dead Sea Works and the Haifa oil refi neries, passed from private to state control.
Other industries, such as the defense industries, were created by the government from scratch.
The state and the labor union - affi liated companies built homes — indeed, whole towns; oper-
ated the phone and transportation networks; and controlled access to credit and fi nance. The
state took over farmland and property left by the British Mandate authorities and Palestinian
 
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