The Economic Quarterly1994, volume 41, No. 2, pp. 263-289.

The Building of the Israeli State Sector:
Case Study: The Palestine Potash Ltd.


This study examines the factors behind the nationalization of the concession for the exploitation of natural resources from its private owners - The Palestine Potash Ltd.- to a state company, The Dead Sea Works. This case study makes possible a re-examination of the factors which determined the development of the state sector in Israel. This instance of the nationalization of the concession and its removal from the hands of one of the largest private entrepreneurs in the history of the Zionist movement Moshe Novemiesky is one of the most interesting chapters in the history of economic policy in Israel. Analysis of the public debate and the lively political controversy over the future of the concession provides us with a broad glimpse into the political and economic considerations of the decision makers in the early days of the state. The nationalization, which took place in October 1951, is one of the few, focal acts of nationalization in the annals of Israel economic policy.

Four alternative explanations - economic, security-oriented, power-oriented, and ideological - for the government's action in general and for the establishment of government companies in particular are examined. Through looking into the validity of these explanations, an interpretation is proposed illuminating the circumstances of the state's economic action in light of the economic dictates of nationalism (Zionism), the lack of an entrepreneurial class in possession of sufficient economic resources, and the instability of the security situation. These explanations provide an alternative both to the approach which stresses aspiring towards might and to the approach which emphasizes the social-democratic background of the decision makers who are taken to be the decisive elements in the building of the state sector in Israel.

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