The Institutional Dynamics of a Developmental State: Change and Continuity in State-Economy Relations in Israel

This paper examines the institutional dynamics of the Israeli developmental state, focusing on its transformation since the mid-1980s, when a deep and far-reaching process of liberalization began. In contrast to the conventional stance concerning the withdrawal of the state from the economy and the decline of its political and institutional capabilities to shape the structure of economic relations, our analysis suggests that the state has not retreated from the economic sphere. The important shift in state-economy relations lies not in the extent of the state's involvement in the economy, but rather in the mode of its involvement. That is, institutional changes have to do first and foremost with the definition of the state's objectives in the management of the political economy and the way it uses particular institutional instruments to attain those objectives. As we show, state agencies continue to play a crucial role in the economic arena. While certain institutional traits and practices of the classic developmental state have indeed vanished, there are also very significant lines of continuity in place that keep imprinting on state-economy relations. It is this combination of change and continuity that determines the modes of action of developmental states under conditions of neoliberal globalization.