State-Led Economic Policies in South Term Paper

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Officials
in the newly formed Ministry of Finance drew from a talented pool of
economists from the Hebrew University in Jerusalem. Privileged positions
were filled from within the bureaucracy and were obtained through
exceptional performance instead of cronyism or nepotism. Of great
importance to their autonomy, officials were able to disconnect themselves
from total reliance on local funding thanks to financial assistance from
the international community and reparations from Germany. Two figureheads
within the government guaranteed a decisive and coherent economic policy:
Levi Eshkol of the Ministry of Finance, and Pinhas Sapir of the Ministry of
Commerce and Industry. They worked hand-in-hand to formulate a unifying
agenda that bureaucrats from both departments could pursue towards a single
common goal.
The end-product of this labor in both nations was a financial
structure in which banks, and by extension the government at large,
controlled the flow of capital. On one hand, banks in Israel were
autonomous only to the extent that the central bank's severe regulations
and restrictions allowed. The government used the banking system as a means
of regulating its own financial initiatives. Private domestic capital, of
which includes bonds and savings accounts, had restrictions enforced by the
MOF so that the government could quickly utilize these funds should the
state's budget deficit spiral out of control.

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The Bank of Israel, Israel's
central bank, also set high liquidity ratios to limit the amount of credit
banks could extend to keep monetary expansion at a safe pace. Banks were
also the major beneficiaries in the Israeli stock boom of 1962-1964, due to
their ownership of 22 of the 34 companies listed on the exchange. This
success was due to the fact that the central bank cherry picked which bank-
funded projects best coalesced with the government's most valued sectors of
development. This subject will be expanded upon further two paragraphs
down.
On the other hand, the banking system in South Korea was owned and
controlled by the government with an iron grip. Even after centralizing the
five major banks in 1961, South Korea failed to utilize private domestic
capital in the way that Israel had.
Instead of allowing the market to determine what sectors investment
monies were to be spent in, South Korea and Israel dictated investment
policies through plan-based initiatives. One instance where the state
formulated and guided a successful investment endeavor was in the case of
textiles. Israeli officials, in particular MOCI chief Pinhas Sapir,
envisioned in the Textile Industry Development Plan that by 1966, twelve
major textile manufacturing plants would be operational and ultimately
produce 26% of.....

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"State-Led Economic Policies In South" (2008, May 22) Retrieved April 26, 2024, from
https://www.aceyourpaper.com/essays/state-led-economic-policies-south-29677

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