Israeli Coop. The Kibbutzim Then and Today by Isabel Husid

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

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

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).

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.

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).

"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
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.

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
Kibbutz, 2008).
Figure 2 Kibbutz Gan Shmuel, 1950

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
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
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

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
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
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
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
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,
Incentives Trade-off, 2011) (Abramitzky,

The Limits of Equality: Insights from the
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
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
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

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
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

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

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
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

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
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
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
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
from the Israeli Kibbutz, 2008), many from
managerial and professional echelons
It was found that kibbutzim that were more
successful, therefore, had higher wealth,

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
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 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
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

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.”

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
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.

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

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
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,
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
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
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”.

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
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
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.

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).

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
from the Israeli Kibbutz, 2008) (Abramitzky,
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

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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