Israel is neither capitalist nor socialist - it is a kleptocracy | Prof. Yaron Zelekha

In Israel's economic discourse, the words "capitalism" and "socialism" are thrown around in almost every political debate. The right presents itself as representing the free market, while the left prides itself on caring for the weak and striving to reduce gaps.

However, as in accounting, in economics it is sometimes true that substance prevails over form. The question is not how politicians define themselves, but how they act in practice. And when examining the Israeli reality of the last twenty years, it turns out that it is very far from both capitalism and socialism.

Capitalism is not just private ownership. It is an economic system based on free competition, open access to markets, entrepreneurship, protection of private property, and as little government intervention as possible. In such a system, new businesses can compete with established ones, prices are determined by supply and demand, and the state does not pick winners and losers.

Is this the Israel of recent years? Far from it.

Instead of open markets, we got markets controlled by monopolies, duopolies, and exclusive importers. Instead of competition, we got import barriers, cumbersome regulation, licenses, and protections that allow narrow groups to control entire sectors — from food to vehicles, from raw materials to consumer goods. The result is one of the highest costs of living in the developed world, not because Israelis are less talented or less efficient, but because competition is blocked again and again.

Even small businesses, which are the natural growth engine of any capitalist economy, do not enjoy freedom of action. They face heavy bureaucracy, complex regulation, credit difficulties, the burden of indirect taxes, and unfair competition against business groups that enjoy government protections. Instead of encouraging entrepreneurship, the state has turned it into an obstacle course.

In other words, right-wing governments did not build a capitalist economy in Israel. They built a centralized system where the state intervenes constantly — but not to increase competition, but often to protect existing power holders.

And what about the left?

Socialism, or at least social democracy, is not limited to slogans about social justice. Its goal is to reduce gaps, strengthen public services, and ensure a fairer distribution of the fruits of growth. However, here too it is difficult to argue that the Israeli reality reflects these ideals.

Israel is one of the countries with the highest inequality in the developed world, and its poverty rates are among the highest in the OECD countries. But more importantly, even when parties identified with the left held the centers of economic power or led the Ministry of Finance, they did not dismantle the centers of concentration, did not cancel most of the benefits for interest groups, and did not create more competitive markets.

Many times they preserved the same power structures and even expanded them. At the same time, strong labor unions, which were once perceived as an integral part of the economic left, found themselves identified precisely with right-wing governments. Reality again refused to align with the slogans.

If so, how is it correct to define the economic system in Israel?

In economic literature, there is a concept that describes such a reality well: Crony Capitalism. This is a system where business success does not rely primarily on innovation, efficiency, or competition, but on proximity to political power centers. The government does not reduce its involvement in the economy, but uses it to grant advantages to pressure groups, monopolies, protected importers, strong unions, and capital owners connected to the political system.

When this phenomenon becomes deep and persistent, it approaches what political science calls a kleptocracy — a regime where those in power use state institutions to transfer resources from the public to crony groups.

This is why the economic debate in Israel has largely become a mock debate. The right accuses the left of socialism, and the left accuses the right of predatory capitalism. In practice, both camps have adopted the same basic method of operation over the years: using state power to reward support groups and cronies. The difference between them is mainly in the identity of the beneficiaries, not in the mechanism itself.

As long as public discourse continues to be conducted around ideological labels instead of the essence of policy, Israel will be neither capitalist nor social-democratic. It will continue to be a crony economy — and the entire public will continue to pay the price in cost of living, low productivity, and a sense of injustice.

The solution to Israel's economic situation is not more of the same, nor is it a move from one ideological extreme to another. Israel does not need more crony capitalism and not more crony socialism.

It needs a truly competitive economy, where the state dismantles monopolies instead of protecting them, cancels exclusive imports instead of perpetuating them, reduces unnecessary regulation for small and medium businesses instead of burdening them, and gives every entrepreneur an equal opportunity to compete.

At the same time, it must focus its resources on strengthening public services that truly create equal opportunity — education, health, personal security, and infrastructure — and not on distributing benefits to pressure groups.

The role of the state is not to pick winners but to ensure that every citizen can compete on fair terms, enjoy the fruits of competition, and know that their tax money serves the entire public and not a handful of cronies. Only an economy based on real competition, equal opportunity, and the rule of law will be able to restore growth to Israel, lower the cost of living, and restore public trust in the economic system.

In other words, capitalism is not the rule of capital owners. Socialism is not the rule of politicians. Both, each in its own way, are intended to serve the public. Once the government serves the cronies instead of the citizens — this is no longer an ideology. It is simply a kleptocracy.