National planning for a Jewish state
In the late 1920s the conflict between the Jewish and Arab communities escalated and the Jewish leadership in Palestine decided to concentrate on establishing a Jewish majority in Palestine.
The agrarian paradigm could not support this aim, because land acquisition and settlement were slow. Simultaneously, due to the rise of Nazism in Germany and spread of anti-Semitism and political unrest in Central Europe, a wave of middle-class Jews immigrated to Palestine and boosted the development of urban areas and private enterprise. The agrarian strategy was doubted and an alternative was sought (Krampf, 2010b).Following the “success” of planned economies during World War One and the failure of the market during the Great Depression, many European and American interwar economists adopted the view that, due to the changing nature of advanced capitalism, governments should play a much bigger role in producing sufficient demand and keeping the economy functioning (Yonay, 1998). This idea of demand-led growth was exploited by Zionist economists into the idea that immigration might stimulate development rather than be dependent on suitable conditions in the absorbing country (Halevi, 1983).
Following the establishment of the state and the 1948 war, the Jewish population in Palestine more than doubled to 1.5 million in less than two years, and continued to rapidly increase in the following years. The government faced huge problems of providing employment, housing, and other services to the newcomers. The government employed a policy of “employment at any cost,” paying little attention to economic constraints and efficiency considerations: direct involvement in the allocation of resources, subsidizing investment indiscriminately, and extensive professional training. This strategy could work for a short period but it soon created a huge problem in the balance of payments. In facing this challenge, economists played a more significant role than ever, which is why we turn now to the realm of ideas and theories at that period.