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

1In Hebrew: meaning "gathering" or

"together". 2Which was established only in 1948.

3Was 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). 5Plural of Kibbutz.

6The 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 Israeli Kibbutz, 2008).

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

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


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%

1955 1960 1970 1980 1995 2000 2005 2006 2014 2015

% 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%

Kibbutzim 8%

Jerusalem 7%

Tel Aviv-Yafo 5%

Israeli Tourism in Israel by locality - 2012

Jerusalem

38%

Tel Aviv-Yafo 27%

Eilat 12%

Tiberias 10%

Dead Sea 7%

Kibbutzim 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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Israeli Coop. The Kibbutzim Then and Today by Isabel Husid

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