According to both a new UN survey and a Knesset study, the State of Israel boasts a society with one of the greatest economic disparities between rich and poor in the Western world. According to the statistics, the wealthiest tenth of Israeli society earns 23 times what the poorest tenth of the population earns. What?s more, the study also found that 20% of the Israeli population lives below the poverty line. Second worst only to Russia. The rich are getting richer and the poor are getting poorer. And forecasts are for the situation only to get worse. These facts are made all the more shocking when taking in to account that Israel was founded on socialist principles of equality. Based on these statistics, some Israeli politicians have called for a return to the socialism of earlier years.
Before we rush back to the good old days of socialism, however, it would be prudent to recall why society rejected it in the first place. Socialism robs society of its urge to progress. The communist East fell to the capitalist West because it had no chance of keeping up with the West's massive advances in technology, medicine, etc. Socialist countries, while not suffering as acute problems as communist ones, also could not ultimately keep up. By helping the poor, socialism actually hurt them. Those who got free hand outs became lazy and this weakened their ability to support themselves, just as unused muscles atrophy. Not to mention that, by handing out money to the poor, socialism steals people's pride. Socialism also lead to annual inflation of hundreds of percentage points a year.
The answer to all these ills seemed obvious - free market capitalism. Capitalism creates competition, which leads to harder work and greater progress. Sounds great! The problem is that capitalism eventually turns society into a jungle, where the privileged elites use their position of strength to gain more. Fewer and fewer people eventually control more and more of the wealth as the larger fish swallow the smaller ones. The poorer elements of society find it increasingly hard to get on their feet in a world where the bar of entry continuously rises. The result of such an economy we see today, where the disparity gap grows ever wider. The final outcome is the type of reaction we saw in Argentina, where a public uprising eventually occured and the majority demanded their share of the wealth.
Between these two extremes, there seems to be no way out. Either you help the underprivileged and weaken their ability to support themselves, or you don't help and allow the wealthy to crush them outright. The dilemma seems unsolvable.
There are some who say, however, that a simple idea preserved in some ancient Jewish laws thousands of years old could very well prove to be the answer to modern society's economic debacle. The halacha referred to is known in English as a "free loan." That is, a loan that is interest-free. How does a free loan help solve the above problems? Many people could get up on their economic feet, if they only had the financial means to do so. The free loan provides them with the means to start their own business (especially when they can?t get a loan from a bank), to buy their own home, to pay for medical treatment, etc. However, at the end of the free loan transaction the borrower returns all the money received to the lender. That means, at the end of the equation, the borrower has received absolutely nothing, but the loan itself has helped him enormously. The free loan helps people to help themselves.
In fact, Judaism outlaws the taking of interest completely. Why? What makes interest so evil in the eyes of Judaism? Interest acts as a radicalizing factor on any transaction. If a person is successful, interest increases his profit far beyond the effort and risk undertaken. The same is true if a person fails - interest increases his loss way beyond the actual cost of the failure. Interest also enables profit from non-productive activity. People who earn money on profit do not produce anything.
Some might say that banning interest on loans may be all right on the individual level, especially if people donate money for the specific purpose of loaning without interest, but what about on the public level? Surely, companies and large conglomerates could not operate on such a system. Why would a bank agree to loan money if it could not profit from the interest?
The answer is the heter iska. The heter iska is a formula whereby the lender becomes a partner in the enterprise to which he is lending, thereby circumventing the law of lending on interest. Instead of taking interest on the loan, the bank takes a portion of the borrower's profits.
It's tempting to look at this as a loophole and scoff at it - another trick of conniving rabbis to get around a law too tough to follow. But a closer look at the heter iska shows the enormity of its power. The ban on interest forces the lender to become a partner in the borrower's business, this in turn forces him to take an active interest in the economic success of the borrower. This is as opposed to the 'buyer beware' attitude that characterizes modern financing techniques. Now, the lender will be encouraged to offer the borrower business advice and assure that he succeeds in his dealings if he wants to make a profit. This sea change in a key business relationship could prove enormously beneficial to the business world by transforming a win/lose paradigm into a win/win paradigm. Far from damaging the economy, a ban on interest would present a tremendous boon.
Will the Jewish people willingly accept an interest-free society? Based on experience, probably not. A fanatic allegiance to communism and socialism has been replaced by a fanatic allegiance to capitalism. As a people, we seem incapable of finding the middle path. Unfortunately, we seem to learn only by making mistakes. But, as the economic crisis brought on by capitalism deepens, the Jewish people will have no choice but to give up on extremist economics. Then, they will find that a centrist answer has been waiting for them all the time - in their own culture.
-----------------------------------------------------------------------
Yehezkel Bin-Nun, a marketing writer and editorialist, lives in Jerusalem.
Before we rush back to the good old days of socialism, however, it would be prudent to recall why society rejected it in the first place. Socialism robs society of its urge to progress. The communist East fell to the capitalist West because it had no chance of keeping up with the West's massive advances in technology, medicine, etc. Socialist countries, while not suffering as acute problems as communist ones, also could not ultimately keep up. By helping the poor, socialism actually hurt them. Those who got free hand outs became lazy and this weakened their ability to support themselves, just as unused muscles atrophy. Not to mention that, by handing out money to the poor, socialism steals people's pride. Socialism also lead to annual inflation of hundreds of percentage points a year.
The answer to all these ills seemed obvious - free market capitalism. Capitalism creates competition, which leads to harder work and greater progress. Sounds great! The problem is that capitalism eventually turns society into a jungle, where the privileged elites use their position of strength to gain more. Fewer and fewer people eventually control more and more of the wealth as the larger fish swallow the smaller ones. The poorer elements of society find it increasingly hard to get on their feet in a world where the bar of entry continuously rises. The result of such an economy we see today, where the disparity gap grows ever wider. The final outcome is the type of reaction we saw in Argentina, where a public uprising eventually occured and the majority demanded their share of the wealth.
Between these two extremes, there seems to be no way out. Either you help the underprivileged and weaken their ability to support themselves, or you don't help and allow the wealthy to crush them outright. The dilemma seems unsolvable.
There are some who say, however, that a simple idea preserved in some ancient Jewish laws thousands of years old could very well prove to be the answer to modern society's economic debacle. The halacha referred to is known in English as a "free loan." That is, a loan that is interest-free. How does a free loan help solve the above problems? Many people could get up on their economic feet, if they only had the financial means to do so. The free loan provides them with the means to start their own business (especially when they can?t get a loan from a bank), to buy their own home, to pay for medical treatment, etc. However, at the end of the free loan transaction the borrower returns all the money received to the lender. That means, at the end of the equation, the borrower has received absolutely nothing, but the loan itself has helped him enormously. The free loan helps people to help themselves.
In fact, Judaism outlaws the taking of interest completely. Why? What makes interest so evil in the eyes of Judaism? Interest acts as a radicalizing factor on any transaction. If a person is successful, interest increases his profit far beyond the effort and risk undertaken. The same is true if a person fails - interest increases his loss way beyond the actual cost of the failure. Interest also enables profit from non-productive activity. People who earn money on profit do not produce anything.
Some might say that banning interest on loans may be all right on the individual level, especially if people donate money for the specific purpose of loaning without interest, but what about on the public level? Surely, companies and large conglomerates could not operate on such a system. Why would a bank agree to loan money if it could not profit from the interest?
The answer is the heter iska. The heter iska is a formula whereby the lender becomes a partner in the enterprise to which he is lending, thereby circumventing the law of lending on interest. Instead of taking interest on the loan, the bank takes a portion of the borrower's profits.
It's tempting to look at this as a loophole and scoff at it - another trick of conniving rabbis to get around a law too tough to follow. But a closer look at the heter iska shows the enormity of its power. The ban on interest forces the lender to become a partner in the borrower's business, this in turn forces him to take an active interest in the economic success of the borrower. This is as opposed to the 'buyer beware' attitude that characterizes modern financing techniques. Now, the lender will be encouraged to offer the borrower business advice and assure that he succeeds in his dealings if he wants to make a profit. This sea change in a key business relationship could prove enormously beneficial to the business world by transforming a win/lose paradigm into a win/win paradigm. Far from damaging the economy, a ban on interest would present a tremendous boon.
Will the Jewish people willingly accept an interest-free society? Based on experience, probably not. A fanatic allegiance to communism and socialism has been replaced by a fanatic allegiance to capitalism. As a people, we seem incapable of finding the middle path. Unfortunately, we seem to learn only by making mistakes. But, as the economic crisis brought on by capitalism deepens, the Jewish people will have no choice but to give up on extremist economics. Then, they will find that a centrist answer has been waiting for them all the time - in their own culture.
-----------------------------------------------------------------------
Yehezkel Bin-Nun, a marketing writer and editorialist, lives in Jerusalem.