Capitalist Kibbutz or from Marx to Rawls

by on October 26, 2011 at 7:38 am in Economics, History, Philosophy, Religion | Permalink

The Israeli kibbutzim are surprisingly successful examples of voluntary socialism. Even today about 2% of the Israeli population lives on a kibbutz and they account for a significant share of output; about 4% overall (using data from 2004 from here and here) and much higher in some industries such as agriculture where the kibbutzim account for some 40% of Israeli output.

Nevertheless, the kibbutzim aren’t growing and, under economic and social pressure, many are privatizing in various ways. Most notably, beginning in 1998 many kibbutzim lowered the marginal tax rate from 100% (!) to about the same level as in the rest of Israel, 20-50%. The reduction in taxes meant that for the first time there were large wage differences for members of a kibbutz and, most importantly, there were large potential wage differences for those who increased their productivity.

In How Responsive is Investment in Schooling to Changes in Redistribution Policies and in Returns (free here) Ran Abramitzky and Victor Lavy look at the acquisition of human capital for high school students living on kibbutzim before and after the reduction in taxes (using a dif and dif strategy on early and late adopters). The authors find (from an NBER summary):

…The effects of the reforms were relatively small for students from highly educated families, in contrast to relatively large effects for students from families with lower parental education who had been covered by the pay reform for all of their years in high school. This group’s high school completion rates increased by 4.4 percent, their mean exam score went up by 8.3 points, their qualification rate for the Bagrut diploma increased by 19.6 percent, and the fraction of students with university qualifying scores increased by 16.8 percent….boys were most strongly influenced by the change.

The pay reform produced larger increases in educational outcomes than monetary bonuses for Bagrut diploma qualifying scores, a school choice program that allowed students to choose their high school in seventh grade, or a teacher bonus program that paid teachers of math, English, and Hebrew bonuses when their students did well on the Bagrut.

The authors argue that there are general lessons to be learnt:

Our findings have important implications beyond the Israeli context. First, they shed light on the educational responses that could result from a decrease in the income tax rate, thus are informative on the long-run labor supply responses to tax changes. Second, they shed light on the educational responses expected when the return to education increases. For example, such changes might be occurring in many countries as technology-oriented growth increases the return to skills.

I am less confident that the numerical results can be generalized, although of course the general point that incentives matter is well-taken.

The results, however, raise another issue. The original kibbutz were inspired by a combination of Marxism, socialism and Zionism. In the capitalist kibbutz, there is an opportunity for a new principle. Taxes can be set not according to Marx but according to Rawls and his second principle of justice: inequalities are to be allowed so long as they benefit  the least-advantaged members of the society/kibbutz.

Thus, it would be interesting to know if any of the kibbutz have tried to adjust taxes so as to implement a Rawlsian approach to inequality (if not, perhaps Israeli taxes are already above Rawlsian levels.)

Richard Ebeling October 26, 2011 at 9:24 am

Surely a problem, Tyler, with your concluding statement is the issue of defining what is a “benefit” for the “least-advantaged,” and who is “least-advantaged” and by what standard and in whose eyes?

How much of an income differential is allowable or “necessary” to obtain the desired contribution from those not “least-advantaged,” and, again, by what standard and in whoses eyes?

It seems that all of this falls under Hayek’s general critique of the “mirage of social justice.” And requires a social order that focuses on “end-dependent” rules, rather “end-independent” rules that permit each to set his own goals in free association with others, without imposing someone’s “perferred outcomes” on all.

It is amazing (and frustrating) how people just won’t let go of the urge to make the world over in their own desired image. The spirit of Adam Smith’s “man of system” (the social engineer) keeps creeping in.

Richard Ebeling

Richard Ebeling October 26, 2011 at 9:25 am

Oh, my mistake, and apologies. I mean “Alex,” not Tyler.

Richard Ebeling

dearieme October 26, 2011 at 9:45 am

“the general point that incentives matter is well-taken”: well taken? It’s a ruddy tautology: if the thing in question doesn’t matter, it’s clearly not an incentive.

Lou October 26, 2011 at 11:02 am

That’s not a tautology. An incentive doesn’t always have to induce action. If you offered the Kibbutz members a lifetime’s supply of pork, that would be an incentive, but it probably wouldn’t affect their behavior. Money, apparently, significantly affects their behavior when used as an incentive. That may seem like a trivial observation to those of us living in the west, but it is a novel concept on the Kibbutzim of Israel. That is the point of this article.

Right Wing-nut October 26, 2011 at 3:25 pm

Many (most?) of the kibbutzim are not religious at all. The response would depend on the kibbutz.

Lou October 26, 2011 at 4:12 pm

Irrelevant.

Dan October 26, 2011 at 6:57 pm

I don’t know how big of an incentive pork is in Israel

dearieme October 26, 2011 at 9:50 am

“Rawls and his second principle of justice: inequalities are to be allowed so long as they benefit the least-advantaged members of the society/kibbutz”: don’t inequalities always benefit the least-advantaged since they introduce a bracing dose of reality? Or is Rawls just a materialist, discussing only income and wealth?

Torrey Byles October 26, 2011 at 10:41 am

Richard Ebeling and Alex Tabborok,
I suggest Michael Sandel’s political philosophy is the most coherent for framing the issues around economic structure and common good. He shows how Rawls’ and Hayek’s notion of the self prior to its involvements in community is a mirage, and that in any event, it does not adequately support the necessary moral commitment to the polity that gives it “rights” and “freedoms” in the first place.

Richard Ebeling October 26, 2011 at 11:10 am

The fact that I am born into American society — and that I have had opportunities that I would not have had if I had been born and lived in, say, Somalia — does not mean that I “owe” the “society” something.

“Society” is only a composite of individuals who may share certain values, belief systems that enable people to live and cooperate in various ways.

What I “owe” my fellow Americans is to respect their life, their liberty, and their honestly acquired property, and the political and legal institutions that enables the cooperation to generate numerous planned and unplanned mutually beneficial outcomes.

Other than this, my concern and support and charity, and assocations with others are those I choose to participate in and take on as a matter of individual choice and my personal beliefs and values.

Otherwise, some others decide what they think I “owe” to society and use the coercive power of the state to make me “deliver” to them.

I find nothing, moral or “socially good” about the latter arrangement.

Richard Ebeling

karl October 26, 2011 at 12:17 pm

It’s a general sentiment that we each owe a debt to the family that raised, fed, and educated us; how we engage this obligation is usually determined by social norms (influenced, perhaps, by a biological imperative). Our debt to society is the familial obligation writ small, and being a weaker bond requires greater ‘coercion.’ If we no longer wish to live with our families we can still leave them fairly easily; could the standard libertarian disavowal of societal obligations reflect the relative difficulty of leaving the community now that there are no frontiers?

Andrew' October 26, 2011 at 12:34 pm

Do I owe a debt to my parents? Maybe, but that’s between me and them.

Do I owe a debt to dead people? Probably not. Maybe we owe those living who work to preserve the society that provided us that which we feel obliged to. But then the progressives have some ‘splainin’ to do. And then how much does one really owe? Once you start paying in, pretty shortly you become the people that other people owe. Why the middle man? I know why.

karl October 26, 2011 at 12:53 pm

No, progressives have no ‘splainin’ to do; no more than anyone else, anyway. All legal societal obligations (laws, that is, including taxes) are arbitrary and these arbitrary decisions are made by the people’s representatives (yeah, that’s another topic) — you have as much ‘splainin’ to do as I. Then the voters decide which of us has the better argument.

And if you think that’s fantasyland then try to change it; I would, but that kind of work is too hard for me.

Floccina October 27, 2011 at 10:14 am

I think that we also have a some obligation to attack those how attack our fellow citizen. Thus we fund national defense and the police and courts.

D October 26, 2011 at 11:16 am

Interesting that they say the teacher bonus program was not as effective. I didn’t purchase the paper, so it’s not clear to me what “higher investments” in education actually means. Higher baseline wages to teachers? Bonuses to students? Better facilities?

And since the effect is less noticeable on highly educated families, does that suggest they can shoulder a higher tax rate?

Wonks Anonymous October 26, 2011 at 2:43 pm

Rawls explicitly rejected “welfare state capitalism”. His preference was for “democratic socialism” or “property owning democracy”. What exactly the latter is I’m not entirely sure, but it involved the means of production not being concentrated with the wealthy so the pre-tax income was relatively equal rather than trying to equalize post-tax income.

Richard Ebeling, your dog owns your house.

Richard Ebeling October 26, 2011 at 7:12 pm

“Wonks Anonymous,”

I agree my dog does “own” my house. My dog, “Ludwig von Mises,” passed away after 13 years this past August. And he certainly behaved as if I was the “guest” in “his” house.

Now, my new dog, “Friedrich Hayek,” (“Fritzie” for short), a one-year-old standard Poodle, has taken over “title” of the premises!

Richard Ebeling

The Anti-Gnostic October 26, 2011 at 9:39 pm

Israel is the most amazing place on earth. No barriers to entry, no religious or ethnic bias by government, free movement of peoples across borders, pacifistic. Truly, Israel is an example to the world of just how great a secular, borderless, egalitarian state can be.

Dougie B October 27, 2011 at 1:32 am

The basic effect of a Rawlsian approach to the kibbutz seems to be the best economic method of dealing with them. The kibbutz based on the above data, and information, as well as further research, appear to be working in a theory which is an introverted version of basic Marxism, which is similar to the justice theory of Rawls. In the Marxist theory the capitalist society would fall into socialism before drifting into the policies of pure communism. However in this situation the socialist network of the kibbutz are being privatized into the benefit of the business owners and reinforcing capitalism, while disproving the theories surrounding socialism.
To address the concern of having inequities to benefit the lower class in this situation, I believe that by working in the public interest to reduce the poverty rate would help the economy especially in these tougher times. By implementing policies which would benefit the lower class citizens of a county, the economy would be at first a little bit strained due to the initial effect of the funds allocated towards enforcing such a program. However in the long run it would allow the lower class citizens who would be typically the most at risk for losing the jobs they have to have a safety net instead of automatically becoming unemployed and having to rely on state unemployment benefits. The net benefit of the state, and thus the public would have a positive gain since a safety net would be in place to lift the lower class citizens up when a recession would hit, and job lay-offs would be on the rise. The drain on the economy that an increased reliance on unemployment benefits would cause would be aided by the loss of GDP for the nation, as well as the potential earnings of the individual citizens. By observing the overall loss of earning potential, the drain of unemployment benefits, and the loss of overall GDP would be prevented by a safety net Rawls proposes in his political theory.

J. Otto Pohl October 27, 2011 at 7:32 am

The “voluntary” socialism of Israel is based upon the involuntary removal of the Palestinians from the land in 1948. Something that was heavily influenced by the Soviet model of deporting the Volga Germans. But, what I do not understand is why so many “right wingers” support what is after North Korea one of the few remaining socialist states in the world. The average Israeli tax rate of up to 50% not to mention the earlier kibbutz one would be denounced as a communist plot if Obama tried to implement it in the US. Israel is just another East European socialist state. Complete with the ethnic cleansing that made places like the Czech Republic, Poland, and Hungary monoethnic states after 1946. Like other socialist states it has finally had to do what Poland, Hungary, and Yugoslavia did in the 1960s and move towards a more liberal model. Big deal, even China and Vietnam have made great strides in this direction since teh 1980s. Let me know when Palestinians can freely buy land in Israel on a capitalist basis. Currently 93% is reserved for Jews only through state and quasi state ownership. That is not capitalism.

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