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Israeli Coop. The Kibbutzim Then and Today by Isabel Husid

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Israeli Coop. The Kibbutzim Then and Today by Isabel Husid

  1. 1. Kibbutz members at Kibbutz Ein Harod in 1936. Photograph: Polaris/Eyevine The Israeli Co-ops – The Kibbutzim Then and Today 2015 Isabel Husid, LL.B, MPA JSGS 846 12/18/2015 The Israeli Co-ops – The Kibbutzim Then and Today
  2. 2. The Israeli Co-ops The Kibbutzim Then and Today Isabel Husid, LL.B, MPA, Public Administration, University of Saskatchewan ABSTRACT The kibbutzim, a special kind of Israeli cooperative, are collective communities based in equal sharing and common property created over a century ago. Responsible for the foundation of the first colonies in the Promised Land in the contemporary world, through the kibbutzim the State of Israel flourished. However, in mid-80 crisis rocked the kibbutzim, and their way of life had to adjust. Through this work, we analyze the life-cycle of the kibbutzim, which can be compared to other cooperatives around the world; the choices the kibbutzim leaders took to overcome the difficulties and the results achieved. We will then draw lessons for other organizations, especially cooperatives and decision makers. Key words: Kibbutzim – Cooperatives – Life Cycle – Transformation – Lesson Drawing
  3. 3. INTRODUCTION The first kibbutz1 , Degania, was founded in 1909. To develop the Jewish state2 , at a time when independent farming was not viable, a group of pioneers from the Bilu movement3 that came to Israel during the Second Aliyah4 , decided to start a collective community on land acquired by the Jewish National Fund. Delania was the first kibbutz of a present number of 275 kibbutzim5 . This group of young Jewish immigrants from Eastern Europe, fueled with revolutionary and socialist ideas (Gavron, 2000), decided to create a voluntary6 collective community based on a communal Socialist-Zionist ideology, that implemented sharing, direct democracy among members (Ben-Rafael, 2011), where all members are equal, realizing the Marxist principle of “…from each according to his ability, to each according to his needs.” (Schultz, 2013) (Abramitzky, The 1 In Hebrew: meaning "gathering" or "together". 2 Which was established only in 1948. 3 Was a movement from Russian emigrants whose goal was the agricultural settlement of the Land of Israel, prompted by the waves of pogroms and the anti-Semitic laws introduced by the Tsar Alexander III of Russia. 4 The Second Aliyah (means “ascent”, which has the idealistic connotation of returning to the ancient Jewish homeland) was an important and highly influential Israeli immigration movement that took place between 1904 and 1914, during which approximately 35,000 Jews immigrated into Ottoman Palestine, mostly from the Russia and Poland (Absorption). 5 Plural of Kibbutz. 6 The kibbutzim, compared to Yugoslavia, China and Cuba, are a voluntary, democratic, open society. Limits of Equality: Insights from the Israeli Kibbutz, 2008). Joseph Baratz, one of the pioneers of the kibbutzim, defines this ideology in the following statement from his book about his own experiences: (Baratz, 1956) "We were happy enough working on the land, but we knew more and more certainly that the ways of the old settlements were not for us. This was not the way we hoped to settle the country—this old way with Jews on top and Arabs working for them; anyway, we thought that there shouldn't be employers and employed at all. There must be a better way." The kibbutzim were supported from their beginning by Zionist and Israeli government agencies with long-term leases of national land, technical advice, development projects, and long-term financing (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). Since the mid-80’s, however, socio- economic crisis emerged, and the kibbutzim had to face deep and controversial changes, like individual and differential salaries, privatization of property rights over apartments, financial share in terms of invested capital, and absorbing non- members as residents or partial members. Although inconceivable decades ago, these changes are now the norm, and many critics advocate that the real kibbutz is long gone (Ben-Rafael, 2011).
  4. 4. Today there are about 275 kibbutzim, scattered throughout the country, with memberships ranging from 40 to more than 1,000. Most of them have between 300 and 400 adult members, and a population of 500-600. The number of people living in kibbutzim in 2015 totals approximately 161,900, about 1.95 per cent of the country's population. Interestingly, according to the Israeli Central Bureau of Statistics, approximately 80 per cent of the kibbutz population is concentrated in kibbutzim founded before the establishment of the state. When adding the kibbutzim founded during the first decade following the establishment of the state, we arrive at 94 per cent of the total kibbutz population. METHODOLOGY In this paper, using the framework developed by Michael Cook (1995), we aim to analyze the life cycle of the kibbutzim, from their formation to their transformation. We will see how ideology was important, but also how the need of welfare insurance and the lack of other resources played important roles. In Figure 2 we use Michael Cook’s framework to analyze the evolution of the Israel co-ops, the kibbutzim: Figure 1 STAGE 1 • Creation of the kibbutzim • comparable to the Nourse 1 STAGE 2 • Kibbutzim survive and grow. • They are more efficient than the market at the time STAGE 3 •kibbutzniks start to lose part of the ideology, members are wanting to consume more, etc. •Property rights problems arise, like: •Free rider; •Horizontal Problem •Influence Costs Problem STAGE 4 •Kibbutzim strugle to not go bankrupt. Government steps in to forgive debts. •At the end, kibbutzim have to decide weather they will continue being equalized coops, change or wait for the end. STAGE 5 • 25% retain traditional model, and a new model is introduced, which mainly allows members to receive proportional earnings.
  5. 5. Then, we see the “golden years” of growth, when the kibbutzim population and economy grew substantially, analyzing its economic changes from mainly agricultural to industrial. At that point, we analyze the problems the kibbutzim started to face, and what were the roots of them: Property rights and macro-economic issues, isomorphism, weak governance and loss of government support. These issues are not singular to kibbutzim. Through literature, we see many other co-ops around the world facing the same kind of issues. The consequences are evident, since the kibbutzim faced a decline in attraction and retention of people, and, finally, they needed to act. Reforms took place, and we analyze how they played out. Finally, this paper will draw lessons for co- ops and public institutions in general and a conclusion closes this broad survey work. THE FORMATION OF THE KIBBUTZ The need for the kibbutzim As Michael Cook (1995) stated, individuals have two mainly justifications to form co- ops: (a) Individual producers need institutional mechanisms to bring economic balance under their control, usually because of excess supply-induced prices; and (b) individual producers need institutional mechanisms to countervail opportunism and holdup situations encountered when markets fail. As stated by Sexton and Iskow (1988), co- ops must be “born of necessity”, in other words, there must be a market failure7 . In the case of the kibbutzim, there was no market. The land was a desert, and there was no State established. Ottoman Palestine was a harsh environment. The Galilee was swampy, the Judean Hills rocky, and the south of the country, the Negev, was a desert. Bad sanitary conditions were also present: Malaria, typhus and cholera were widespread (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Nomadic Bedouins raided farms and settled areas, sabotaging irrigation canals and burning crops (Gavron, 2000). Insurance was needed, kibbutzim founders were facing dangerous circumstances which brought income shocks, but insurance markets were underdeveloped. They needed to know that, at whatever situation, even with a low ability to work, they would always be provided with an average income and be taken care of when necessary (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). In the words of Itzhak Tabenkin, an early founder and leader: 7 Not satisfy all of the competitive market characteristics (Sexton & Iskow, 1988).
  6. 6. "in the conquest of work in town and country, in the conquest of the soil, the need for the kvutza [kibbutz] always appeared; for we were alone and powerless, divorced from our parents and our environment, and face to face with the difficulty of life - the search for employment, illness, and so forth." (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008) Moreover, most of the settlers had no farming experience, and no capital (Shalev, 1992). Establishing a farm was a capital- intensive project; collectively, the founders of the kibbutzim had the resources to establish something lasting, while independently they did not (Shalev, 1992). The Israeli pioneers had to collectively work to overcome all the early issues, living collectively was simply the most logical way to be secure in an unwelcoming land. The kibbutzim were born under an intense need for survival and defense of the territory. The kibbutz social ideology and its importance to the kibbutzim formation The first kibbutz was formed around ideas of social justice, equality, and Zionism8 . This ideology is what makes the kibbutz so singular, and it is what made it successful (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Identification with the ideology made the 8 Zionism is a movement for the return of the Jewish people to their homeland and the resumption of Jewish sovereignty in the Land of Israel. pioneers correlate themselves with the community, making them feel satisfied with the success of the kibbutz. This identification with a culture, ideology, brings to individuals organizational pride and loyalty (Simon, 1991). Identification with the cause was also present within the Jews who did not immigrate, but who wanted a Jewish State. The Jewish community around the world donated capital into the Jewish National Fund (JNF)9 to purchase the land from the Arabs in Palestine. Ideology, from a rational perspective, helps form institutions that, in their turn, help align individual and collective interests: rational interdependent individuals prefer to act independently with their own interest in view, and the pay-off is like a prisoners’ dilemma: the best option for each individual produces a suboptimal solution for the group as a whole (Holm, 1995). A strong linkage between ideology and performance is seen in the literature (Sheaffer, Honig, Zionit, & Yeheskel, 2011). An institution compels individuals to contribute (Bates, 1988). Following these arguments, it is easy to see how the strong socialist-Zionist ideology of the kibbutz was important to establish the early settlements, especially considering the harsh environment they were facing. 9 The Jewish National Fund was founded in 1901 to buy and develop land in Ottoman Palestine for Jewish settlement.
  7. 7. Abramitzky (2008) observes that, although through the generations ideology has declined, some degree of ideology has always played a role in kibbutzim. Considering organization structure and strategy, we can see ideology as a strong culture, a system of shared values and norms, which enhance organizational performance by energizing the members and by shaping and coordinating the members’ efforts (Chatman & Cha, 2003). Moreover, Bowles, Samuel and Herbert Gintis (2002) found that limited inequality among members was a key contributor to cooperation, and maybe equal sharing was one key factor for the successful development of the kibbutzim. However, as Simon (1991) observes, identification is not an exclusive source of motivation; it exists side by side with material rewards and enforcement mechanisms that are part of the employment contract. As we will see, the kibbutzim will suffer with the lack of material rewards and enforcement mechanisms (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade- off, 2011). Establishment of the Israeli State Playing a key role not only in Israel’s agricultural and industrial development, the kibbutzim were also important for the defense and political leadership at the time the Jewish State – Israel – was established: early kibbutzim were often placed strategically along the country’s borders and outlying areas in order to help in the defense of the country (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008) (Pavin, 2002). The kibbutzim served as bases for the Haganah defense force and later the Palmaḥ, its commando section. Most of the new villages established under emergency conditions during and immediately after World War II, especially in the Negev, were kibbutzim. When the Jewish State was established, there were 149 kibbutzim out of the 291 Jewish villages in the country. In 1950, more than 67,000 Israelis lived in kibbutzim, a total of 7.5 per cent of the population of the new state. Interestingly, many of the country’s top politicians and leaders in military and industry, particularly in the 1950s and 60s, came from the kibbutzim (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Figure 2 Kibbutz Gan Shmuel, 1950
  8. 8. THE KIBBUTZ EARLY ORGANIZATION One of the purest forms of egalitarian collective communities in which property and means of production were equally shared by members, the kibbutzim were, originally, self-governing rural organizations, intertwining facets of communal and business life in a voluntary- egalitarian framework (Sheaffer, Honig, Zionit, & Yeheskel, 2011). In other words, instead of earning individual incomes for their labor, all capital and assets on the kibbutz were owned and managed collectively. Moreover, life was collective: kibbutz members ate together in a communal dining hall, wore the same kibbutz clothing and shared responsibility for child-rearing, education, cultural programs, and other social services (Rosenthal & Eiges, 2013). Governance was based on direct democracy, and members were allocated an annual allowance typically determined by family size and needs, appropriate dwellings (that varied only by size of family rather by income) and a variety of services including welfare and education (Sheaffer, Honig, Zionit, & Yeheskel, 2011). Even the children were considered common property. To allow their mothers to work, and to train children to believe in the collective way of life their parents had chosen (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade- off, 2011), child-rearing was the kibbutz’s responsibility, and children did not sleep in their parents’ houses. The Children's Societies worked as a central child-care, where children were raised together. Even more striking, parents only visited their children during scheduled visits. This arrangement lasted until the mid-70, when children started sleeping with their parents (Palgi & Reinnharz, One Hundred Years of Kibbutz Life: A Century of Crises and Reinvention, 2014). Before the financial crisis, members of all kibbutzim had similar living standards, because assets and corporations were shared across kibbutzim through the Kibbutz Movement10 , and a system of mutual guarantees was in place11 (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Inspired by a desire of social justice, and externally forced into communal life, the kibbutzim developed a pure and unprecedented communal mode of living 10 Until the 1980’s, there was a multi-level structure established for the Jewish agricultural community, compromised of (Rosenthal & Eiges, 2013):  First order agricultural cooperatives - Kibbutzim and Moshavim (another type of Israeli co-op)  Second order regional agricultural cooperatives - regional enterprises and purchase cooperatives  Second order national agricultural cooperatives - Tnuva  Third order agricultural cooperatives - Kibbutz and Moshav movements 11 Created in the 1920s, through the system of mutual aid all kibbutzim were members of their movement funds, such that each kibbutz was liable for the total debt in addition to its private one (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008).
  9. 9. that attracted interest from the entire world. THE KIBBUTZIM PROPERTY RIGHTS In communal kibbutzim, all assets belong to the kibbutz and members have no private property. This is a key feature of the kibbutzim: not even the household is owned by the kibbutznik, and he can only enjoy his share of the assets as long as he stayed in the kibbutz. Because they do not own anything, Kibbutz members are not allowed to sell any of the assets they use (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). The kibbutz bylaws state that: "The property of the kibbutz cannot be distributed among members, both when the kibbutz persists and when it is dissolved," There is no distribution of profits either, as seen: "The kibbutz does not distribute profits in any way, and every surplus goes to the kibbutz." To enjoy the kibbutz assets, the bylaws suggest that besides having to live in the kibbutz, members have to work as hard as they can on the job the kibbutz management determines, and has to bring to the possession of the kibbutz any income and assets he owns and/or receives from any source. In exchange, the kibbutz takes care of all his needs including the needs of his dependents (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). These features of the kibbutzim made it harder for members to leave. Actually, kibbutzim members had their assets sunken in the kibbutz, and, although they could leave at any point, they would leave empty handed (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade- off, 2011). VOLUNTARY PARTICIPATION Differentiating the kibbutz from other equalized co-ops around the world, like Yugoslavia and China, is its voluntary participation. In other words, kibbutz members can exit at will (Abramitzky, Lessons from the Kibbutz on the Equality- Incentives Trade-off, 2011), and for the kibbutzim in the new model, as we will see, kibbutzniks can work and earn a wage premium for their ability outside the kibbutz. Nonetheless, they cannot take their share in the kibbutz upon exit, since, as seen, the kibbutzniks do not own the kibbutz’s assets (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Nevertheless to say, the exit at will characteristic makes it difficult for kibbutzim to preserve equal sharing since the most productive members have incentives to leave for places with less- equal compensation schemes, to earn a premium for their work (Abramitzky, Lessons from the Kibbutz on the Equality- Incentives Trade-off, 2011) (Abramitzky,
  10. 10. The Limits of Equality: Insights from the Israeli Kibbutz, 2008). THE KIBBUTZIM GROWTH Population changes While Degania was founded by twelve members, Eyn Harod, founded just a decade later, counted 215 members when established. Kibbutzim founded in the 1920s tended to be larger than the kibbutzim like Degania that were founded prior to World War I. Kibbutzim grew and flourished in the 1930s and 1940s (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). In 1922, there were 802 people living on kibbutzim in Palestine. By 1927, the number had risen to over 2,000. When World War II erupted, 24,105 people were living on 79 kibbutzim, comprising 5% of the Jewish population of Mandate Palestine. In 1950, the figures went up to 65,000, across 214 kibbutzim, accounting for 7.5% of the population. Table 1 depicts the growth of the kibbutzim before the State of Israel was established (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008): Table 1 The kibbutzim continued to thrive both economically and socially through the 1960s and 70s. In 1989, the population of Israel’s kibbutzim reached its first height at 129,000 people living on 270 kibbutzim, about 2% of Israel’s population. Tables 2 and 3 show the population growth from 1955 to 2015, and the percentage of kibbutz members among Jewish rural population, Jewish population and general population, respectively - data collected from Central Bureau Statistics of Israel (Statistics, 2015): Table 2 0 50 100 150 200 250 0 20000 40000 60000 80000 total population in Kibbutzim # of kibbutzim 0 50 100 150 200 250 300 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 total population in Kibbutzim # of kibbutzim
  11. 11. Table 3 Analyzing the tables, we can see a rebound after 2005 in kibbutzim population growth, and an increase of percentage of kibbutzim population compared to Jewish rural population, Jewish total population and total general population, which will be studied later. The kibbutzim economic activities and growth Agriculture in the kibbutzim, over the years, with their field crops, orchards, poultry, dairy and fish farming, and-more recently- organic agriculture, combined with hard work and advanced farming methods, achieved remarkable results, accounting for a large percentage of Israel's agricultural output to this day. Although most of kibbutzim still capitalize through agriculture, during Israel’s industrialization phase in the 1950s and 1960s, the kibbutzim developed a large industrial base. Today virtually all kibbutzim have also expanded into various kinds of industry, especially metal work, plastics and processed food. Industry today accounts for about 80 per cent of the kibbutzim income revenues (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade- off, 2011). Kibbutzim industry also includes textiles and leather; printing, paper and cardboard; electronics and electricity; construction materials; wood and furniture; and other branches. Although accounting for only 1.6 per cent of total Israel population in 2009, kibbutzim generated about 8 per cent of the total country’s industrial output, about 40 per cent of total agricultural produce and 8 per cent of total GDP (Sheaffer, Honig, Zionit, & Yeheskel, 2011). In consonance with co-ops in other parts of the world, kibbutzim had been pooling their resources with other kibbutzim, establishing regional enterprises such as cotton gins and poultry-packing plants, as well as providing a gamut of services ranging from computer data compilation to joint purchasing and marketing (Library). A new source of income, in addition to agriculture and industry, was salaried work outside the kibbutz. There is also a large inequality between kibbutzim wealth: in 2002, 75 kibbutzim earned more than IS 100 million compared with 108 kibbutzim earning less than IS 50 million. In other words, 30 per cent of the kibbutzim were responsible for 47 per cent of total kibbutz income (Library). 0% 10% 20% 30% 40% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 1955196019701980199520002005200620142015 % in Jewish rural pop % in Jewish pop % in general pop
  12. 12. Tourism is also a new industry that many kibbutzim have entered. With large and modern recreational facilities such as guest houses, swimming pools, horseback riding, tennis courts, museums, exotic animal farms and water parks, the kibbutzim are attracting tourists from around the world. Especially attracting Israeli-tourists, 67 per cent of the kibbutzim tourists in 2012 were Israeli. 6 per cent of foreign tourists chose kibbutzim to spend a night, while 7 per cent of Israeli tourists did. (Ministry of Tourism; Central Bureau of Statistics, 2015). Table 4 Table 5 THE SOCIO-ECONOMIC CRISIS Economic issues Economic environment In the mid 80’s, Kibbutzim started experiencing a turbulent and hostile environment (Ben Rafael, 1997), which induced a sustained multi-dimensional crisis (Heilbrunn, 2005), that affected about two- thirds of the kibbutzim12 at the same time (Rosolio, 1994). Diverse macro-economic forces within Israel’s fast changing economy13 , like high inflation of 450 per cent (Shalev, 1992), mass privatizations, reduced regulation and a decreasing state support, have forced kibbutzim to radically transform their business orientation. Shalev (1992) also points out that the 1973 oil crisis had a larger impact in Israel’s economy than in other OECD countries. For instance, in a couple of years, the rise in inflation in Israel was found to be about 270 per cent, while in the US was about 100 per cent. The high inflation and interest rates made the government step in and anti- inflationary policies were placed (Ben- 12 Both the religious and non-religious kibbutzim movements. 13 In the early 70’s the world was facing an economic crisis, derived by the oil-crisis that begun in 1973 after the members of the Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab members of the OPEC plus Egypt and Syria) proclaimed an oil embargo, which raised the price of a barrel of oil from U$3 to U$12 globally. Moreover, in 1973-74, Israel was facing the unexpected “Yom Kippur War”, which increased drastically spending with defense (Shalev 1992). Eilat 55% Dead Sea 16% Tiberias 9% Kibbutzi m 8% Jerusale m 7% Tel Aviv- Yafo 5% Israeli Tourism in Israel by locality - 2012 Jerusale m 38% Tel Aviv- Yafo 27% Eilat 12% Tiberias 10% Dead Sea 7% Kibbutzi m 6% Foreign Tourism in Israel by locality - 2012
  13. 13. Rafael, 2011), all of which led to more economic crisis for many kibbutzim. In the 1980s and 90s, many kibbutzim declared bankruptcy and thousands of kibbutz members defected (Schultz, 2013). Source: Shalev (1992) Markets also got more competitive, and the development of insurance markets in Israel gave members alternatives to the kibbutz. Moreover, Israel experienced a high-tech boom, which increased members earning possibilities outside the kibbutz (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). The new competitive market was an external pressure on the kibbutz from all sides – agricultural/industrial industries, and retention and attraction of skilled members. Availability of credit and overspending The kibbutzim enjoyed favorable loan conditions for years, because of the mutual guarantee system that was in place. Kibbutzim could take on loans without proper backing or even proof of necessity. This led to a moral hazard behavior, and kibbutzim went into debt to finance not only investment in production, but especially in consumption assets, like housing, vacations, etc (Rosenthal & Eiges, 2013). By the end of 1988, the kibbutzim owed almost U$8 billion (2012 adjusted prices). This was 5.5 times the size of the lending bank’s equity, which made the government step in to save the banking system as a whole. (Ben-Rafael, 2011) The loss of government support Government policy in Israel was initially very supportive of kibbutzim, investing considerable funds and positioning them as the main production channel for agricultural produce. This allowed kibbutzim to enjoy fast growth, expand activities and accumulate significant political power (Rosenthal & Eiges, 2013). However, in 1977, the Labour Party long- lasting government of four decades was defeated, as the right wing Likud part was elected, and the long-lasting left government who was supportive to the kibbutz was gone. A more liberalized policy was put in place, with steps attempting to increase competition were taken (Rosenthal & Eiges, 2013). It was evident that the government was not the same anymore. A loss in government interest in the kibbutzim was noted by kibbutzniks, and support through cheaper
  14. 14. credit and subsidies were no longer available (Mort & Brenner, 2003). Interesting to note that loss of government support was not unique to kibbutzim; other cooperatives around the world, inclusively in Canada, lost government support in the last decades (Fulton, 1995). Lack of leadership, control, insufficient monitoring and mismanagement From their formation, kibbutzim did not produce accurate, inflation adjusted financial reports. Therefore, it was impossible to ascertain the financial situation of the kibbutz (Rosenthal & Eiges, 2013). Managers in the kibbutzim were members that, usually, had not enough background and knowledge (Rosenthal & Eiges, 2013). Moreover, in the kibbutzim, firing was not possible. The best the “work organizer” could do was to assign a less desirable job to the member that was underperforming (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). Ideology defection Isomorphism Menachem Rosner (2004) points out that Israel itself had changed, and Israel society had become more consumerist, influenced by the Western countries. Pressures of the external environment influenced the kibbutzniks to distance themselves from their original ideologies (Palgi, Introduction: Changes that Occurred in the Kibbutz, 2004). In keeping with an increasing trend of individualism in Israel and world-wide, these kibbutz members sought new opportunities or demanded deep changes in the kibbutzim themselves (Ben-Rafael, 2011). These isomorphic trends, especially the diffusion of differential incentives and reduced intra and inter-kibbutz solidarity, notably contributed to the deep alterations and transformation of the kibbutz identity (Sheaffer, Honig, Zionit, & Yeheskel, 2011). Isomorphism made kibbutzniks more individualistic; therefore, those that were more productive were facing a choice: stay in an equal society or leave and earn more? Individualist and materialistic cultures are not fertile grounds for cooperatives, especially ones like kibbutzim that are based in equal sharing (Cornforth & Thomas, 1990). Financial problems and internal pressures The financial problems that the kibbutzim were facing led to substantial decline in living standards (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008), which in turn led to a wave of members’ ideology defection (Heilbrunn, 2005). Most of the leavers were more educated and skilled than the stayers (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008), many from managerial and professional echelons (Sheaffer, Honig, Zionit, & Yeheskel, 2011). It was found that kibbutzim that were more successful, therefore, had higher wealth,
  15. 15. and were able to retain the skilled workers, since the high wealth lessens the trade-off between insurance and incentives to stay by acting as a cost of exit (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Lower performance and free-riding Equal compensation schemes of kibbutzim bring embedded incentive constraints, especially concerning free-riding, lack of adverse selection, lack of incentives for high-ability individuals to stay and lack of incentives for members to work hard (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). Abramitzky also found that less-productive people had more desire to enter the kibbutz looking for risk-sharing, as they know they will receive less income in the regular market. It is to be noted, however, that the free- riding problem was a concern to the kibbutzim, as many mechanisms were used to combat it. A main mechanism was peer- review, in two different forms. One was social sanction and the other was social recognition (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). This kind of mechanism is widely used by organizations. THE REFORMS As Hall and Soskice (2001) observed, organizations at some point face a need to adapt to a new economy: “As a result, the firms located within any political economy face a set of coordinating institutions whose character is not fully under their control. These institutions offer firms a particular set of opportunities; and companies can be expected to gravitate toward strategies that take advantage of these opportunities. In short, there are important respects in which strategy follows structure.” The transformations in the Israeli society, along with the economic crisis (Palgi & Reinnharz, One Hundred Years of Kibbutz Life: A Century of Crises and Reinvention, 2014) that started in mid-70’s, led, in the early 90’s, to a consensus that the existing model had to be changed. Towards a model more suitable to the liberal market, changes to the totally equalized model started to be considered, like differential salaries for instance (Mort & Brenner, 2003). As with many organizations worldwide, kibbutzim have systematically reorganized while trying to adjust to increasing environmental instability. A market- oriented approach, keeping well- entrenched communal principles, with crisis management and restricting, was put in place. In late 1990s, kibbutzim introduced reforms, with various degrees, ranging from small deviations from equal sharing to substantial ones, with variable budgets based in the member’s earnings
  16. 16. (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). In 2002, the government of Israel appointed a committee of experts to redefine the kibbutz. A unanimous decision was reached, in which was decided that there should be created two new types of kibbutz which would replace the existing definition of kibbutz in the regulations of cooperative associations. A new type of kibbutz, called “renewed kibbutz”, reflected deep changes such as differential wages and private ownership of housing and property. The existing definition of kibbutz received the name “communal kibbutz”. One main purpose of the committee was to define a maximum range of reforms that a renewed kibbutz could take, since to keep being a kibbutz, a minimum meaningful basis of cooperation and equality had to exist Accepting the committee recommendations, in 2004, the government of Israel instructed the Minister of Industry and Commerce to assist various kibbutzim in the transition process from their classification as a communal kibbutz to classification as a renewed kibbutz in accordance with the following definitions (Ashkenazi & Katz, 2009): “A communal kibbutz – A settlement association which is a separate settlement, organized on the bases of communal ownership of assets, individual labour and equality and cooperation in production, consumption and education. A renewed kibbutz – A settlement association which is a separate settlement, organized on the basis of cooperation of the general public in assets, in individual labour, and equality and cooperation in production, consumption and education, maintaining mutual guarantees for its members, in accordance with the regulations of cooperative associations (mutual guarantees in the kibbutz), 2005, and in its Articles of Association, there are provisions for one or more of the following: 1. Distribution of allowances to members according to the extent of their contribution, their position or their seniority on the kibbutz; 2. Personal ownership of apartments according to the Cooperative Association Regulations (Apartment ownership on Kibbutz), 2005. 3. Ownership of means of production by members, except for land, water, and production quotas, on condition that control of these means of production will not be passed on to individual members, according to regulations in the Cooperative Association Regulations (Ownership of means of production), 2005.”
  17. 17. Two-thirds of kibbutzim by 2010 were deeply privatized, with members receiving wages related to amount of work, and a few kibbutzim even transferred ownership of houses to their members (Palgi & Reinnharz, One Hundred Years of Kibbutz Life: A Century of Crises and Reinvention, 2014). Distribution of shares had been used by several kibbutzim, granting members with property rights over factories and services (Ben-Rafael, 2011). Kibbutzim that maintain equal sharing are called shitufim (Hebrew for "full sharing") and the ones that have shifted away from equal sharing are called reshet-bitachon (Hebrew for "safety net"), emphasizing that even a widely reformed kibbutz provides substantial insurance (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Heilbrunn (2005) found that between 1997 and 2004, organization culture changed deeply: “Whereas the organizational culture of the sample kibbutzim in 1997 was extremely homogeneous, in 2004 two groups of kibbutzim emerge, different as to the way they allocate income. “ A shift in organizational culture and structure of all kibbutzim between the years 1997 and 2004 towards more individualism, business orientation and managerialism is seen. Some kibbutzim introduced organizational tools such as control, human resource management, cost calculation and managerial professionalization. (Rosenthal & Eiges, 2013) Changes were also seen in the internal governance, especially with the transition from direct to representative democracy. The general assembly, which worked as the direct democracy of the kibbutz, now is less frequent and has been partially replaced by a council of elected members and board of directors (Palgi & Reinnharz, One Hundred Years of Kibbutz Life: A Century of Crises and Reinvention, 2014). Once done collectively, financial decision making also changed hands, and now is made separately by each of the production branches in the kibbutz (Rosenthal & Eiges, 2013). THE RESULTS OF THE REFORMS AND THE REVIVAL OF THE KIBBUTZIM As seen, after the reforms, around 2005, we have seen a rebound in demographic growth within the kibbutzim. The kibbutzim became stronger than ever: started to attract more young people, that are looking for a collective-community quality of life, with a praiseworthy educational system where people has the ability to work and make a living according to one’s own talents and interests, topped with a revived ideology. As Ben Rafael stated, the truth is that living in a kibbutz nowadays does not require sacrifice; on the contrary, it offers a rural environment and a quality of life not easily obtained elsewhere.
  18. 18. Efficiency and demographic - economic growth Abramitzky (2011), using comprehensive data on high school students in kibbutzim, found that once their kibbutzim shifted away from equal sharing, students began to take school more seriously—as measured by higher grades and a lower likelihood of dropping out. This results shows that the reforms are correcting some of the horizon problem, as students start to find reason to apply more in school to gain more knowledge. The share of kibbutzim in the Israel economy also increased after the reforms, as can be seen in the following table: Table 6 An intensive demographic growth has been seen in kibbutzim since 2005 of 27 per cent, as seen on table 2. As well, more Israelis are choosing kibbutzim to be their homes, as the percentage of the population in the kibbutzim increased by 15 per cent, as seen on table 3. Especially young people are being once again attracted to the kibbutzim. Attraction of young people More young people are attracted to kibbutzim every day. But, why is that? Interest in an egalitarian distribution An experiment conducted with young children from kibbutzim and regular cities by Kroll and Davidovitz (2003) shows that, in general, an egalitarian distribution was preferred to a non-egalitarian one. However, when the price (in the case of the experiment was reward to give up) to have an egalitarian distribution was too high, the children chose not to do so. Risk Aversion Do people chose to live in a kibbutz because they seek egalitarian distribution of income or because they seek the to decrease the risk of living in a city, since the kibbutz has a range of “safety net” products, like elderly support, education and medical care (Kroll, 2003) (Rosenboima, Shavitb, & Shohamb, 2010)? Rosenbolma, Shavitb and Shohamb (2010) had a hypothesis that since a collectivist society provides the member with a safety net, an individual living in a kibbutz, for instance, would be less risk averse and discount the future less. Conversely, they found that Kibbutzniks were more risk averse than city residents, and they claim that this finding is pertinent with kibbutz 32.00 33.00 34.00 35.00 36.00 37.00 38.00 39.00 40.00 41.00 6.00 6.20 6.40 6.60 6.80 7.00 7.20 7.40 7.60 7.80 8.00 2002 2009 % of total Israel's Industry % of total Israel's GDP % of total Israel's Agriculture - second axis
  19. 19. members having less financial knowledge and experience, as most of their financial transactions and decisions are made by the kibbutz. However, probably the kibbutz members live in a kibbutz because they are more averse to risk; therefore, they prefer to live in a community where there is a “safety net”. Nonetheless the authors had considered this explanation, they would prefer further studies to accept this conclusion, in which individuals with same financial skills are tested. Giving support to this logic, a survey conducted in the late 1960s (Rosner, David, Avnat, Cohen, & Leviatan, 1990) with over a thousand members of the first and second generations shows that the insurance element of the kibbutz played a strong role in the formation of them, only losing to the importance of social justice. The most important objective pointed was “establishment of a just society”, but other factors, linked to insurance of a safety net, were also important, like "guaranteeing full social security," "freedom from economic concern and competition," and "guaranteeing an adequate standard of living." Some other ideological objectives listed as important were "collectivity and equality," "developing a model socialist society," and "fostering fellowship among members" (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Quality of common property The kibbutzim are known by having great members’ goods, better than what regular cities have to offer. Swimming pools, gymnasiums, public schools, and etc, are great mechanisms to attract people, especially young adults (Abramitzky, Lessons from the Kibbutz on the Equality- Incentives Trade-off, 2011). LESSON DRAWING Most of the issues the kibbutzim went through offer opportunities from which other types of organizations can draw lessons (Rose, 1991) to other types of organizations, like partnerships, labor- managed firms and academic departments, and other cooperatives, since they are based in some level of equality by sharing inputs and outputs, which encourages shirking, adverse selection, and brain drain (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). Strong Culture and Strategy Strong culture, in the form of ideology, is what made the kibbutzim survive for over a century and rebound from a deep socio- financial crisis. Those kibbutzim that had more ideological members were able to maintain a higher degree of equal sharing (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). Therefore, even with deep reforms that established more individualistic division of income, the kibbutzim were able to overcome the issues and “resurrect”.
  20. 20. Also, ideology was found to relax the need for higher consumption and increased the value of a member staying in a kibbutz instead of leaving (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008). But what is a strong culture? How can co- ops duplicate such strong ideology that kibbutzniks share? Leadership must be strong and must be able to show members, or employees, what is important, what is valued and how intense are these values’ importance, and these members must agree upon the values (Chatman & Cha, 2003). Chatman and Cha (2003) strongly defend that both need to be present: intensity from leadership and agreement from members. Nonetheless, a study carried by Zachary Sheaffer, Benson Honig, Shaul Zionit and Orly Yeheskel (2011) showed that kibbutzim that were more ideologically oriented had a more turbulent adjustment to the reforms. The reforms have exacerbated characteristics that challenge organizational identity. Organizations with strong culture, in the process of privatization, have to be extremely cautious with changes that fundamentally alter previous ongoing organizational identity, since they may either fail to achieve their intended results, or further aggravate the process by which organizations are forced to restructure when facing new environmental constraints (Sheaffer, Honig, Zionit, & Yeheskel, 2011). With careful attention to certain parameters, an organization can alleviate some of the repercussions of radical change. In strong culture organizations, managers should refrain from drastically altering organizational identity even when facing crisis and a more gradual approach is desirable (Reger et al., 1994). In addition, a too much embedded ideology, although important to formation of an organization, is maybe counterproductive in case of inevitability of change. Moreover, the possibility of members exiting during reforms calls for managers to carefully monitor members’ defection (Sheaffer, Honig, Zionit, & Yeheskel, 2011). Correct strategy implementation is also important. When the kibbutzim first attempted changes, different ill planned and deficient strategies were attempted, which yielded failure. Once a new strategy is decided, an organization must stay on the strategy track (Sheaffer, Honig, Zionit, & Yeheskel, 2011). Reinforcement of Institutions Holm (1995) finds that power processes that institutions face are taken for granted, but eventually stop being taken for granted. That is to say that, within his nested- systems perspective, which analytically differentiates actions guided by institutions and actions aimed at changing or defending institutions, we can visualize the double nature of institutions, as both frames for action and products of action.
  21. 21. However, as he notes, in practice, the "practical" and "political" modes of action are not completely separate, and actually, most of the: “…dynamics of institutional processes can be traced to the interconnections between these two levels of action: the ways in which an innocent event at one level, through feedback processes through the next level, can generate completely unexpected results. Together with the double-edged relation between ideas and interests, in which interests form ideas and ideas constitute interests, this means that a nested-systems perspective leaves much room for endogenous change.” Therefore, as Holm concludes, although institutional change may be forced upon the institution by externalities, the result will be shaped through internal processes structured by the institutions themselves. Moreover, since institutions are created by actions, statutory or otherwise, that create formal institutions and their operating procedures, and repeated historical experience builds up a set of norms that shapes the institutions actors actions, institutions that are central to the operation of the political economy are not unchangeable, and should not be seen as entities that are created at one point in time and can then be assumed to operate effectively afterwards. As Hall and Soskice (2001) states, to remain viable, the shared understandings associated with them must be reaffirmed periodically by appropriate historical experience, they cannot be taken for granted, and must be reinforced by the active endeavors of the participants. Therefore, institutions, like the kibbutzim, when faced with the need for change, forced by external and internal pressures, have to reinforce their ideology/culture, their strategy, their norms and governance to stay strong and lasting. At first, the kibbutzim vacillated (Sheaffer, Honig, Zionit, & Yeheskel, 2011), however, after these processes were revisited, the changes the kibbutzim went through were successful. Government support Government support, especially through investments in cooperative activities, tax reductions, subsidies and lenient credit terms - are important for developing and maintaining successful cooperatives (Rosenthal & Eiges, 2013) (Fairbairn, Fulton, Ketilson, Krebs, & Goldblatt, 1993). Moreover, public policy towards cooperatives must be stable and last in the long term to allow cooperatives to organize growth plans and not impair decision making. Moreover, following the debt crisis faced by the kibbutzim, where a false knowledge of unlimited government credit backing led to unproved loans, government should specify which terms the state will use intervene if needed (Rosenthal & Eiges, 2013).
  22. 22. Governments that wish to promote cooperative development, must keep in mind the importance of culture, and foster ideas that are cooperative friendly (Cornforth & Thomas, 1990). Organizations can also influence government to care for them. Leaders in organizations, especially cooperatives, can actively work with policy makers to harmonize competitive practices across the various institutional environments in which they operate (Delios, 2010). Governance, monitoring and management Proper monitoring translates into efficient management and investment strategies by cooperatives (Rosenthal & Eiges, 2013). Proper monitoring and management is also of extreme importance when changes are placed upon an organization. For instance, monitoring and management of human resource during changes is of the most importance. Kibbutzim participation, as seen, is voluntary, since any member can leave at any time. This labour mobility gives the most productive members a choice to either stay and participate in equal sharing, or leave the kibbutz and seek a premium pay in the regular market. It also gives the opportunity to the member to think what is out there, and seek it. At a broader level, this labor mobility brings a potential challenge for all modern democracies, since it limits the ability of governments and organizations to redistribute wealth, given that their members or population can leave at any time to seek better income (Abramitzky, The Limits of Equality: Insights from the Israeli Kibbutz, 2008) (Abramitzky, Lessons from the Kibbutz on the Equality- Incentives Trade-off, 2011). Organizations seeking changes and/or taking redistributions efforts must be aware of these challenges. Within the reform, the kibbutzim hired salaried managers as they look for a leadership that was dissociated from ideological or had personal-emotional considerations, aiming to establish new rules of behavior that responded to universal criteria and changed longstanding kibbutz practices (Ben-Rafael, 2011). Notwithstanding that these moves can lead to a detachment from the kibbutzim ideology, with establishing of firing for instance, proper management leads to higher performance. Reward and sanctions systems Peer-review mechanisms are a great tool to reward members. They are effective in decreasing free-riding and in incentivizing higher performance (Messmer, 2004) (Bruna & Dugas, 2008). In addition, social sanctions reduce monitoring costs and an organization can improve the effectiveness of its social monitoring system in several ways, like making effort more observable, improving information flows among members, and maximizing interactions between members (so everyone else finds out if someone shirked and making it more unpleasant for the shirker) (Abramitzky, Lessons from the
  23. 23. Kibbutz on the Equality-Incentives Trade- off, 2011). Members that perform at higher levels will also usually seek financial rewards. However, this can be of greater difficulty for non-profit organizations and governments where outcomes are more difficult to measure and capital is limited. Sunk Assets Another solution to avoid migration of skilled members is to use sunk assets. In the kibbutzim it was made through the lack of private property. Upon exit, the member couldn’t take anything, since everything was the kibbutz property. Exist was intended to be costly, thus, incentivizing the member to stay (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). Trade-offs To attract and retain members a co-op must provide benefits that are greater than what the market offers. If the income level a member will receive inside the co-op is not greater than what the market is offering, a member may tempted to leave; community ideology will not necessarily be enough to keep the member. Taking the kibbutzim as example, common property can be used as consumption mechanisms to retain and attract members. For instance, provision of local public goods (public to members only), like swimming pools, basketball and tennis courts, cultural centers, and parks was much higher in kibbutzim than in most other communities (Abramitzky, Lessons from the Kibbutz on the Equality-Incentives Trade-off, 2011). CONCLUSION As Sexton and Iskow (1988) conclude, for a collective organization to prosper, it has to have a genuine economic role to play, and it must be able to provide benefits for its members in excess of what is available through other market channels. As Co-ops face more competitive markets, both of these features start to face risks. Managers have to always keep the co-op mission in mind, and seek to deliver to its members benefits that they cannot achieve in the regular market. And, for those cooperatives that were founded in market failure environments that face a need to change and restructure toward more offensive strategies and structures, more defined and better property rights, better governance and strong new culture are the best recipe (Cook, 1995).
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