Intro. [Recording date: October 4, 2018.]
Russ Roberts: My guest is author and economist Ran Abramitzky.... He is the author of The Mystery of the Kibbutz: Egalitarian Principles in a Capitalist World.... What is a kibbutz? And why did you get interested in them enough to write on them?
Ran Abramitzky: That's a good question. So, kibbutzim, which is the plural of kibbutz, are communities in Israel that were based for many years on full equality in the distribution of incomes. And, as such, they are puzzling for economic theory. They are based on full equality of incomes and collective ownership of property, and yet they survived for over a century. Now, the first--just a brief overview was that the first kibbutz was established in 1910 by a dozen[?] of people from Eastern Europe; but the vast majority of kibbutzim were established in the 1930s and 1940s, just before the creation of the State of Israel. They first were established as communal farms. But, in the 1950s and 1960s when Israel went through industrialization process, kibbutzim participated in this process and since then they have a large industrial base alongside agriculture. So today there are like 120,000 people living in 268 kibbutzim, and they come from about two and a half percentage of the Jewish population of Israel. They vary in size from, say, like 100 to slightly over 1000. The average size of kibbutz is 440 members--which is like about 150 families or so. And so I got interested in them from a very young age. So, I myself did not grow up on a kibbutz, but all my family did--part of my mother's family did. So my grandparents were among the founders of a kibbutz, and my grandma lived there for 50 years; and then my mother grew up there and left; her sister stayed. And then later on my brother married a kibbutz member. And, as children, my brother and I loved to hang out on the kibbutz. It's a fabulous place: it's like this picturesque village with small houses surrounded by green paths; and we used to go play table tennis and soccer and football, and basketball; and we used to go and eat in the communal dining hall with kibbutz members. And it was a great place; and our parents didn't have to worry about us, because it's super-safe and there is no pollution and no cars and it was great. And, as I grew a bit older, I became even more fascinated with kibbutzim, because, not just I enjoyed there so much, but I thought that this is the idea of splitting everything equally and having no poverty. And no poor people. It's a very just way to construct society. But, as the cliché goes, when I was a bit older, especially as I started to study economics at the Hebrew University, I became more skeptical. So, as the cliché goes: If you are under 20 and are not a socialist, you have no heart; but if you are over 20 and you are still a socialist, you have no brain. I started to be more skeptical. And so I remember one day in particular when I was having a discussion with my uncle, and he described one of the path-breaking innovations of the kibbutz, say, it's a very good irrigation factory system in Israel, a very successful factory; and I decided to provoke him. So, I told him, 'Uri, you know, according to economic theory, the kibbutz should not exist. Actually, the factory shouldn't be as good.' So, you know, why would anybody work very hard if all they get is an equal share of the total resources? I explained to him the brain-drain problem that I learned at university. And then I said, 'And besides, Israel is the size of New Jersey. Why would any talented person ever stay in the kibbutz? Why wouldn't it be a great deal to move to Tel Aviv and earn a premium for your ability and efforts? Why would you stay and share your income with people who are less ambitious and talented than you?' So, I explained to him the brain drain problem. And then I told him, 'What about entry? I expect all the lazy people who can't make it outside to seek to enter a kibbutz, because what a great deal it is to enter a kibbutz and have other people subsidize your earnings.' And so I explained to him the adverse selection problem. And then I continued with my annoying speech and told him that I also worry about his kids a little bit, because why--they don't have very much incentive to study hard, because why would you study hard if a high school dropout and a computer science engineer get paid exactly the same in the kibbutz? Why would you study hard at all? And so--and of course he got upset, and we started to fight. And he explained to me how, 'You economists are so cynical, and all you can think about is the selfish person that only thinks about themselves. But everybody [?]--'
Russ Roberts: Smart man, your uncle.
Ran Abramitzky: He's a very smart man. And a big inspiration for writing that book, I should add. And he said, 'You are so cynical. Everybody that is familiar with the kibbutz knows that the founders of the kibbutz were anything but selfish people that cared only about themselves. They actually in fact wanted to create a new human being, the opposite of the homo economicus that cares only about himself. And they wanted people to care more about the collective than themselves and beside, if you are so smart, then how can you explain that the kibbutz survived so successfully for almost a century?' And he got me thinking. And that's what I've been doing for the last 20 years, is like trying to answer that question.
Russ Roberts: And, it's a fascinating book, and it's a fantastic example of applied microeconomics. There's so many interesting intuitions in the book about incentives and the role that preferences play--because incentives are not everything. Culture and other things do play a role in our decision making. And I think for readers, for listeners who don't know much about kibbutzim, about the kibbutz, you should give them an idea of what a radical utopian vision it was. So, not only is--and I learned all this from your book, as well as a little bit of personal experience, having spent a summer at Kibbutz Revivim in the Negev. I think I've mentioned this to listeners before--picking fruit and cleaning out irrigation lines with a pin. Squatting on the ground every 18". They are just far enough apart so that if you crouch down to get one, you can't reach the next one. So you have to get up, crouch down again. It's a fantastic motivator to actually stay in school. If you are not committed to the kibbutz. But the point is that, not only is there egalitarian--total, in the early days of the kibbutz--total egalitarianism in terms of consumption; there's no money. The children are not raised with the parents: they sleep separately, and parents see their children at separate times. You have no property that is your own. Talk about some of those rules, implicit and explicit that made kibbutz life very different than, say, just communal living.
Ran Abramitzky: Yeah, that's a great question. So, by the way, you were in good company because, you know, Bernie Sanders and Jerry Seinfeld also spent some time on the kibbutz and they have similar experiences to share like you do. So, you're exactly right. This is not just like living in a neighborhood where people, a bunch of people decided to split things a bit more equally than otherwise. This is a radical experiment in the sense that it started with people who came from Eastern Europe, and they wanted to bring with them some of the things they liked about Socialism: 'From each according to ability, to each according to needs.' They came to a country full of uncertainty and it made sense for them to group together. They also had, like, strong--not just strong--Socialist ideology but also strong Zionist ideology, and the idea that people can, the Jews can only be saved by working on the land, as opposed to learning Torah and avoid work like they often did in the Diaspora. But they also wanted this to be voluntary. So, they didn't want to force people to join there. And so the idea of voluntary Socialism. And, at first they set up these communes. And, as you said, based on full equality in the distribution of resources. No private property at all. So, all property belongs to the commune. And, as you said, for many years it was a non-cash economy. So, equality was taken so seriously that basically they would be allocated things in kind. So, there would be like a clothing budget; and then there would be like a food, clothing, travel; and each person would get an equal amount of those. You are not able to save anything. You cannot leave anything to your kids. If you leave, you can only take with you your brain, but you cannot take with you your share of the factory and all. And, they also, as you mentioned, they had communal dining halls. So, people did not eat in the comfort of their home, but they would eat their meals together with others in the communal dining hall. They took equality so seriously that they wanted to also raise kids communally. And so, the system of special residences for kids started around the 1920s--where kids lived outside of their parents' homes. They would only visit a couple of hours, maybe from 4 to 6, their parents; but otherwise they would live together. There would be a nanny that would take care of their needs. And the idea was to teach them the ideals of equality and to make sure that everybody gets the same opportunity, but at the same time follow a strict pressure to conform, and so on. And there is a big literature, by the way--this is a whole interesting issue--there is a big literature about these communal residences. At some point all kibbutzim decided that they were not a good idea, and in the 1980s all kibbutzim eventually shifted away from this system. There is a literature about whether it was good for the kids and parents; we can talk about this, if you are interested, later.
Russ Roberts: Impossible to measure accurately.
Ran Abramitzky: Impossible to measure accurately. Exactly. But maybe the insight from this literature is that it kind of depends on the kids.
Russ Roberts: No doubt.
Ran Abramitzky: There are like these sensitive kids for whom this was not a great experience. There are those kids who loved the independence and liked it; those kids, popular kids who loved living away from parents, and so on--
Russ Roberts: It's like summer camp from Day 1. Which is hell for some kids, and glorious for others.
Ran Abramitzky: You know what? [?] I think that's the best way to summarize it. And then, they did have tough early days, but in the 1970s, the thing that is quite amazing is that you can imagine why maybe dozen people creating one kibbutz may have very radical belief system can survive. But then think about, by the 1960s and 1970s, those are not--they are really like villages that are surrounded by green paths and gardens and swimming pools, and tennis courts, and basketball courts. And they are really like, many of them are quite successful. And so the amazing thing is--and the kibbutzim, unlike many other communes in history, they were never at the margin of society. They always influenced and were influenced by society as a whole. They always were perceived to be like the example of how voluntary Socialism can work, and then how you could, alongside, contribute to the country. A lot of the borders of Israel to a large extent were based on where kibbutzim were located at the time the state was created. So, this is like a radical experiment in many ways, but one that was lived very long; and that's why it's perceived to be one of the most important experiments in voluntary Socialism.
Russ Roberts: One of my advisors in graduate school was George Stigler. And George Stigler was--he was a scholar of Adam Smith, among many other things. And he particularly was a scholar of the Wealth of Nations part of Adam Smith, and particularly interested in the role, the power, of self-interest and incentives. And I often wonder what George would have made of Wikipedia. I think he would have been guilty--I have been guilty of this kind of crime in my--intellectual crime in my past, 'Well, I'm sure it doesn't exist,' because without any incentives, if it exists it's going to be horrible. And of course it's not horrible. It's quite good. And the kibbutz lasted successfully as social institution for multiple generations. And we'll talk about how they maintained--how the rules that they established helped maintain their survival for as long as it did. But we should also mention that, starting in the 1980s and 1990s, some of the more radical pieces of the kibbutz started to unravel. The first being the one you mentioned--children were no longer kept apart from their parents. But, then--I would say most, if I read your book correctly, of the kibbutzim have gotten rid of complete egalitarianism on income. And now they are smaller, and they've had trouble getting the second and third and fourth generations to stay on. You know: 'After they've seen Paree [Paris], how do you keep 'em down on the farm?' is the expression. And that's been the challenge for the kibbutz movement in Israel.
Ran Abramitzky: Yes. That's right. So, starting in the 1990s, many kibbutzim for the first time in their history started to shift away from equal sharing. Some kibbutzim only had minor deviations from the equal sharing models, but many have moved to market forces and now earnings, income, is based on people's earnings. Only 20% of kibbutzim maintain the egalitarian model. And so, that's right. It followed--I'm not sure if you want me to talk more about how it came about, but that's basically right, what you are saying. They did shift away from equal sharing, recently. And part of what I'm trying to do in the book is try to understand: Why did they shift when they did? Why did some kibbutzim shift away from equal sharing and others did not? And then, what are the consequences of the shift away from equal sharing?
Russ Roberts: And that's all interesting; and maybe we'll talk about it. But I'm more fascinated by what I think motivated the book from the beginning. Which is that it lasted as long as it did. And, just to give one more piece of the strangeness of these institutions, talk about what would happen if you received a gift from an outside relative. Or, as happened in quite dramatic fashion, the role of German reparations and how that was handled.
Ran Abramitzky: Yes. So, in early days, if you received a gift from an outside source, then the kibbutz would have you give the gift for the collective; or, [?] if the kibbutz had the resources, maybe they would, like buy--say, you got a radio, maybe they would buy a radio for the entire kibbutz.
Russ Roberts: It's fascinating.
Ran Abramitzky: It is fascinating. The reparations are interesting because they kind of put--it was kind of a test for kibbutzim. And the reason is that, one of the problems that I mentioned was brain drain. Yes? So, people--the tendency of the more skilled people to leave the kibbutz. And so, many of the kibbutz members were Holocaust survivors. And at some point in the 1950s, Germany paid reparations to Holocaust survivors. And many of them were in the kibbutz. And so now, they were paid for individuals, not for the entire kibbutzim. But they had to decide whether they leave--they take the money and leave--or whether they stay.
Russ Roberts: Fascinating. Incredible.
Ran Abramitzky: It is. And so, there is no real amazing data on this that I can tell you exact numbers here. But, the story is basically that some people left; but many people arranged with the kibbutz to give them like a one-time gift to ensure that their kid will go to university, but otherwise stayed in the kibbutz. I think most generally for your question about how they--the fascinating [?] of how they survived for so long--I would say there are a few ingredients for this. One is that--and you know, I have in the book this imagined conversation between what if the founders of the kibbutz went to an economist and they asked them, 'What do you think? I want to have full equality. Why? Because I think it's the right way to go. I'm Socialist. I think it's--I'm altruistic. I want to create a new human being. What do you think about it?' And if the economist had the foresight of what economics knows today, I think that what they would tell them is to basically create the kibbutz in exactly the way they ended up creating it, or, like, very close to how they ended up creating it. And I can elaborate more on this if you like.
Russ Roberts: Yeah; go ahead.
Ran Abramitzky: And so, I think the first thing the economist would say is, 'Well, there are also, beyond all these non-economic reasons that you give me for why it makes sense for you to create a kibbutz, I think there is also economic sense to create a kibbutz, in the sense that a kibbutz provides you with very valuable insurance.' So, it's a safety net: insurance against any sort of idiosyncratic shocks to your income. So, in the kibbutz you know that you and your family will always be getting paid the same, and especially in a world of undeveloped insurance markets in Israel--Palestine, Israel--at the time, this is a very attractive form of insurance. And of course, by the way, it remains a good insurance even when insurance markets are developed, because, for example there is no insurance against human incompetence. So, if for example, economics becomes obsolete, Russ, then you and I to be[?] in trouble. But in the kibbutz, people are working at various different occupations, and they know that even if there is less demand for their occupations, there are people working in other occupations and there is like full insurance, even against shocks to your human capital. But then, of course, he would point out that there are all these problems--free riding, and brain drain, and adverse selection--lack of incentives. And then, he will say, 'Well, the first thing that will be great for you is if you can make sure the people are really idealistic.' So, idealistic people, whether it's Socialist or just people who are very committed to the idea of a kibbutz, they don't share, they don't free ride, they don't leave. They just stay and work very hard. So, like, 'Make sure that you have an education system that convinces the later generations that this is great. Make sure you have idealistic people,' and so on. 'But, do not just trust the human nature of people to be like idealistic. Because as typically happens, second and third generations will typically become less idealistic, because for them, living in a kibbutz is a default rather than a choice, like it was for the founders of kibbutzim. And so, if you want to design a system that will make sure that they respond well to incentives, well, let's start with the free rider problem.' So, we know that there is not much motivation for people to work hard if they don't get the full monetary returns to their education. But, how about social sanctions and peer pressure? And everybody familiar with a kibbutz knows that they wouldn't sit next to you in the dining hall if you are perceived to be shirking. They can make your life sufficiently miserable that you might leave. But for that to work, you need to make sure that the communities are small enough, because social sanction, peer pressure, are more effective in small communities. You have to make sure that there is not much privacy, so everybody knows the coming and going of people. So, for example, you ask my mom--until this day, if you ask my mom, 'Hey, Mom, where are you going?' you know what her answer is? She says, 'No, I stopped answering this question 45 years ago when I left the kibbutz. Don't ask me where. I don't need to report to you what I am doing.' But, in the kibbutz, if you want the social sanctions to be effective, you need to make sure that people have not much privacy and that social sanctions are effective. Everybody knows everybody. They repeatedly interact with one another. They go to the same school. They work in the same place. They leave, and so on. They also want to have social rewards. So, rather than having one leader that will lead the kibbutz forever, they have rotation in leadership. And they rotate who is the Secretary, the Kibbutz Manager, the Farm Manager, to make sure that they reward people who are perceived to be bigger contributors to the community. And so, that's kind of free riding. What about brain drain? Well, you know, how about we make exit costly? So, for example, if all property belongs to the collective and there is no private property, that means that it's very hard to leave. Because, once you leave, you can only take with you your brain; but you can't take with you your share of the kibbutz. And so, lack of private property made it more costly for people to move away from the kibbutz. And then, similarly, letting you study agronomy rather than law--like, kibbutz-specific human capital--means that you are, your skills are more valuable within the kibbutz rather than outside the kibbutz. So, ways like that, and other things like this: You can only enjoy the swimming pool and the local public goods if you stay in the kibbutz. But if you leave, you can't. And so, the idea of making exit costly to deal with the brain drain problem. And, of course, they are well aware of the issue of adverse selection. So, the kibbutz knows that if they open their gates to everybody, they will get disproportionately people who didn't make it outside. And they are well aware of it. So, they have tough screening process if you want to join. They would not let you in if you can't get a job in the kibbutz, if you can't earn your own living, if you can't be a contributor. Even if they let you in they would have a probation period of a year or so, and only at the end they will decide whether you are a good fit for the kibbutz. And so on. So, things like that, I can talk more about.
Russ Roberts: That was fantastic.
Russ Roberts: We've talked on here--I think it's a Walter Williams quote; maybe it's somebody else--but, a family is a Socialist institution. It's a top down institution, as well. As I've said many times on the program: I don't sell the last cookie to the highest bidder among my children. I make an estimate of who got a treat more recently; I might decide who looks hungriest. I might let them chat for a bit and gain knowledge about it. But, that system works. It's stood the test of time--the family--although it's a little bit different today than it was 50 years ago, and certainly different than it was 5000 years ago. But that stood the test of time. The kibbutz is--it's an attempt--what's fascinating to me--there are a lot of things that interest me about the book, but one of the things that's fascinating is the idea that, in a way, you are trying to expand the size of the family--the extended family concept. But not too far, because those monitoring devices of lack of privacy start to break down in a larger society. A lot of those incentives start to become more important and destructive of the kibbutz as it gets larger. So, you extend the family--in fact, something close to the so-called Dunbar Number of 150--so you might have 150 families; and after that, it gets quite difficult. But, within that 150, you could imagine that there's something quite glorious about sharing your destiny with people that you come to care about deeply. Or, perhaps that you find really annoying to be around all the time. You know, it's obviously quite complicated. But those years--to me it seems like it was maybe 40 years from around the time of the establishment of the State of Israel in 1948 till the mid-1980s or so, which we might call the golden years of the kibbutz movement--it captured the imagination of, not everyone, but certainly about 5% of the Jewish population of Israel. And, as you say, it didn't just exist in isolation. They had a big impact on the country's development and on the military and on other aspects of society. And it's really a marvelous little laboratory experiment in how far you can push Socialist ideals.
Ran Abramitzky: Yes, thank you. These are great points. This is exactly the way I thought about the book. It's, in a world of rising inequality today, when, say, in the United States I think the last number I've seen is that the top 1% owns, maybe, 35, 40% of the total wealth, it's natural that many people start to think about whether and how we can create a more equal society, and what are the costs of doing so, and when such societies will succeed and when they will fail. And so, I think about the kibbutz as exactly a case study of a society that went all the way to the other extreme of having everything shared fully equally. Full equality. And exactly, it's exactly--and that shows us some of the conditions under which this can be successful. And I think you touch a few very important ones. So, extended family--that's exactly right. One way to think about the kibbutz is an extended family. And this is, and to a large extent just like you care about your family, you can create a system in which you care about your extended family. But then, it cannot go too large. And so, for example, there were discussions in the history of kibbutzim about whether to create, instead of many small kibbutzim, 268 today with an average of 400 people--whether it makes more sense instead to create one big kibbutz. There are many reasons why that will make sense. For example, there are returns to scale in the provision of--it's cheaper to provide laundry and food services in larger numbers. And so there are some reasons--and even the insurance aspects will be better where people will work in more occupations. There are reasons to believe that one big kibbutz is successful. But they always go back to, 'No, you know, let's have many smaller kibbutzim, because for this to work people need to know each other. People need to care about what each other is thinking.' And that's not only the kibbutz. There are other communes--Shakers, for example, used to split every time they reached a certain size. And so I think that it's the small nature is what allows them to work like you describe, like an extended family. And as you say, even though they were successful in many ways, it's important to remember two things, I think, to be more--I don't want to create a sense of how successful and great they were. One is that, even in the days, as you mention, even in the days that they were successful, at most, kibbutz members accounted for 7% of the Jewish population in Israel. And so, at some level you can think--if you think about this is like a limit to how many people were interested in a model like that, even when it is successful--at some level the way I think about the kibbutz experiment, if you want, is that if people were given the choice of where to live, and whether they want to live in an egalitarian society or whether they want to live in a less egalitarian society, who would choose the egalitarian option? And usually it's very hard to know. For example, if you take former Communist countries, they are not very useful because people could not vote against Socialism, and they could not exit at will. But the kibbutz provides you this experiment. And so, 7% is people would like to join there. And the other thing is in the background and we didn't talk about it, but I think it's important is that: Yes, they were successful, but at the same time, they did always get government support.
Russ Roberts: Oh, yeah. Thank you.
Ran Abramitzky: And so, it's not like they did--there was this implicit contract between the kibbutzim and the Jewish agencies before the creation of the State of Israel and the government of Israel afterward that, whereby kibbutzim contribute to nation-building but in return they get land and they get subsidies--water subsidies and other ways in which they get, like, tax breaks and other ways. And so governmental support also has always been important. And cynical people would say, 'Well, you know, it was successful as long as governmental support was high.' I don't think it tells the whole story, but it's definitely part of the story.
Russ Roberts: And so you say--you say, by the way, as a proportion of the Jewish population. The kibbutzim typically were not Arab citizens of Israel or Arab residents. These were Jewish, for whatever reason, Jewish settlers before the state was established in 1948. And, I don't know if you mention in the book, but, were they typically Ashkenazi--that is, Jews from Europe--rather than Jews from the Arab world's Sephardim?
Ran Abramitzky: Yep. I talk about this in the book, that this is--it's very interesting. Because, when you think about--to me, one of the general lessons of the kibbutz, if you want, is that homogeneity is important. So the founders of kibbutzim were, as you said, they were all Jewish. Not only they were all Jewish, but they were mostly if not entirely Ashkenazi Jews, people who came from Eastern Europe. And so, at some level: Yes; they created this society, a Socialist community. But they were not very inclusive of Arabs or other Jews. In fact, they--in the 1950s, when more people started to come from Middle Eastern countries to Israel and they lived in, like, transitional camps around kibbutzim and the Prime Minister at the time, David Ben-Gurion, asked them whether they can welcome some of these people to work with them, and to the dining halls. And you know what they report? They report that they were very welcome on the kibbutz fields, but not very much in the dining hall. And so, the idea is that this is--they were not very inclusive in some sense. The Arab--the Zionist and Socialist ideology oftentimes clashed with each other. So, for example, from Socialist perspective, the Arab is a fellow-worker. But from Zionist perspective, it is sometimes the enemy. And they did not accept Arabs to be members, of course. And so, I think the broader lesson here is that it's easier--one of the reasons why it's so challenging to create egalitarian society is that when people are homogeneous--in the case of the kibbutz members, Ashkenazi Jews--it's easier to agree. It's easier to have shared preferences and to agree on equality. It's easier to see how you could be in somebody else's shoes, and if something goes wrong with him, something could go wrong with you, than it is when people are coming from very different ethnic, social, and professional backgrounds. And so at some level if you think about it, it's easier to understand why in Norway and Sweden, where the population arguably is more homogeneous, it's easier to sustain a welfare state than it is in the United States--
Russ Roberts: A large--
Ran Abramitzky: Yeah. Than it is in the United States, for example.
Russ Roberts: It's a great point. I'm going to add another type of homogeneity I think is really important. You talk about it in the book, and I'm going to elaborate on it. Which is: When the State of Israel was established in 1948, when Jews were arriving before that, it was a very poor country. And, it was a very undeveloped country. And the people who came, came out of religious passion, or nationhood passion. And they came to try to create something. And that was an unbelievable idealism in those days, in the 1940s and 1950s in Israel. And it was primarily an agricultural place. So, there weren't a lot of choices in ways to express yourself, outside of farming, and services, of course. But, as Israel has become, by the 1990s, perhaps the premier high-tech, innovative country in the world, per capita, the idea of staying on the farm is radically less appealing. And so, if Israel had stayed a poor, agricultural economy, I think where the options were relatively homogeneous for the society, the kibbutz would have stayed closer to 7% or 10%--it could have risen, even conceivably. Right? But in today's world, really tough.
Ran Abramitzky: Exactly right. So, at first--and not only what you mentioned, but Israel was a relatively egalitarian society at first. So, yes, it is maybe easier to understand why, when people came to a country full of uncertainty, full of ideology, and the outside option of members were not that great, a kibbutz is something that is attractive. But once returns to skills increased in Israel, with the high-tech, as you mentioned, the high-tech boom, Israel in the 1990s, now, very skilled kibbutz members have great outside options. They might be lured to the city much more than they were before. And so, at some level these changes in the surrounding level of the kibbutz, in Israel as a whole, made living in the kibbutz less attractive. The part that is maybe the most difficult, that is most impressive in kibbutz survival, to me, is not the very beginning, and not the inevitable, if you want, shift away from equal sharing once the returns to skill increase so much in the rest of Israel; but it's those years--well, you see, by the 1970s, it's not the case that most of what kibbutzim are doing is agriculture. They have--
Russ Roberts: They had factories--
Ran Abramitzky: Each of them had--each of them at least has one successful factory; and they have large presence in industry. They produce more than their share of the product, say, in industry, in rubber and plastic. And at the same time, they are no longer as homogeneous as they used to be before. This is now second- and third-generation; and by the second and third generation, ideology wasn't as strong as the founding generation. And yet, kibbutzim at that point were still based on full, equal sharing. Many of them were still doing quite well. It is that period that is interesting. And one of the things that I find that help them in this period, is you see being rich is helpful. And so, if you become--when the kibbutz is rich, for example, then you can imagine why, even if people are very talented and they can earn more outside, why they might be tempted to stay. Because the average is good enough, and all the swimming pool, and the dining hall, and it's a great place to raise kids. There are reasons why staying is attractive, even for talented people. Once, even though the kibbutz--your, perhaps also have an outside option is relatively high. But it is exactly--so, if you can think about it, think about Norway, for example: Being rich is helpful, maybe, to maintain the--if, to the extent that the kibbutz is at all instructive for some, for other societies. If you think about Norway, it's easier to sustain a big welfare state and egalitarian, when you are rich enough. But, in the kibbutz, once there was a financial crisis that cheat them. And once some kibbutzim had to reduce their living standards, you can see that poor kibbutzim are the first to shift away from equal sharing. And so, it raises the question of to what extent being rich is helpful in maintaining the equality.
Russ Roberts: Yeah. I want to talk about a related point. Which is that, we're talking about the incentives, that if you could leave the kibbutz and go to the city, you might make a lot more money. There's also a non-monetary aspect to it that you don't stress much in the book, but I think it's a big part of it also. Which is: what I think of as the opportunity to flourish. To thrive. To apply your skills in creative and satisfying ways. And, again, speaking about my own, short, experience on kibbutz, which was my only agricultural experience of my life, by the way--you know, I found picking peaches to be remarkably boring. There was a box factory, by the way, that I could have worked at. But there wasn't a lot of economics instruction. So, if I wanted to be an economist, I would have to leave the kibbutz. So, if your skillset doesn't lend itself to what I would call , you know, aspects of manual labor, certain limited types of innovation--you point out there's some innovations in agriculture that the kibbutzim have led, and that's, you know, very nice. But if that's not your thing, you are kind of out of luck. And the other benefits of the kibbutz--raising children in nice ways and the egalitarian part of it, if that appeals to you--is what you are left with. So, what I want: React to that. Then I want to ask you a question about education.
Ran Abramitzky: Yeah. So I talk about it in the book a little bit. You are absolutely right. One of the things that might be troubling about living in the kibbutz, and one of the reasons that my mom left, for example, is exactly that. It's that, she felt that individualism was discouraged. And you are encouraged to conform to the norm. It is saying that the kibbutz education is like, it's kind of like a loan. When it below the average, they would pull you up. And when it's above, they will push you down. And so in this sense--and picking oranges is not something that is appealing to everybody. However, I would say that Israel, that the kibbutzim in recent years, and even like are not exactly like you remember them from your visit.
Russ Roberts: Sure. They've changed.
Ran Abramitzky: And, but, even more than just the shift away from equal sharing, there is a substantial: It used to be that all members worked inside the kibbutz. And it was useful--for, like, in an economic perspective, it's a useful lock-in device. You don't know what your outside option is, and so on. But they realize that this also discourages individualism and that some people just leave, because they think that they cannot--you know, you want to be an economic professor, then, if they wouldn't let you then maybe you will leave. And indeed the academia, and [?] is full of formal kibbutz members. But at some point, many members--it's no longer the case that everybody, all members work inside the kibbutz. There is substantial number--right now, it's about 20, 25% of people working outside of the kibbutz. They would--and so in the times before, when it was still equal sharing, it would be that the member would work outside of the kibbutz: Say, you are a professor in the Hebrew University, and then you bring your salary to the kibbutz and then it is shared equally among members. But you can work outside the kibbutz. What is true is that once kibbutzim started to let people work outside the kibbutz, now they are also more likely to leave. So, kibbutzim always had these tough tradeoffs to make, between, on the one hand, as employers they wanted people to be skilled on the one hand. But they also wanted to keep the mean[?] on the other hand. And as extended family, you want your son to go to study whatever they want, not just what you what you tell them to. And so they did, over time, become more, allowed more individual freedom in the choice of what to work in and what to do. It's not exactly like the early days when people would all pick oranges.
Russ Roberts: Yeah. I'm going to critique my view for a second. Which is that my son is currently in Israel on a gap-year program. And he spent some time this week on break, and was visiting a farm. And he said to me, he said, 'You know, maybe I'll work on a farm for a year.' And that's, of course--he's not alone. I know many children of our friends, who as now, teenagers or young adults, want to do something agricultural. Either out of the emotional returns and experience of where you do produce food, or because I think as they want to do it in a more sustainable way. I don't want to over-, I don't want to under-romanticize agricultural life, because I think there is--there always are going to be people who find that lifestyle appealing. And again, we are talking about a small group. But, what I want to turn to now is the idea of inculcation of ideology and the educational role of the kibbutz. And, one way to think about the changes that took place over the last 25 years, is that the educational system could not convince the children and grandchildren of the original kibbutzniks--the founders of the kibbutz movement--to find it appealing. And I want to describe it in a way that you describe it in the book, which I think is really powerful. Which is, when you stay in a kibbutz or when you go outside and work outside the kibbutz but keep your earnings within the kibbutz, you are voluntarily choosing a 100% tax rate. You are turning everything over--not the state, but to the organization that you've chosen to belong to. And, of course, you are also the beneficiary of anything that the other people bring in. And, you can think of--when I was reading your book, I was thinking of sort of two ideological appeals there. Two educational things that you can tell your children, if you wanted them to stay. One would be that the insurance aspect of it--you mention, if things go bad: If you get disabled, if you become poor, if your job becomes less profitable than it was, you'll be taken care of. And that's a nice. And, you'll have the opportunity to take care of others. And you'll be in this shared enterprise. The second part: this idea that we are all equal as human beings. There is something deeply appealing about that. And, Hayek talks about it in The Fatal Conceit. He says: We have this natural impulse to take the structures of the family, which are held together by love, and extend them into the larger society. He says that's the road to tyranny. And if we take the, what he calls the extended or the macrocosm, the market, and bring that into the family, we destroy the family. And, to me the beauty of the kibbutz, intellectually and philosophically, is that it recognized that. They were in a state--meaning Israel--where there was a huge Socialist philosophical bent already, but they wanted to do it in a way that was less ambitious. And they still failed. To some extent. And to me, the question is: They could not inculcate in their children and grandchildren a romance that would help overcome the incentives that make it challenging. In other words, you know: Incentives can be very powerful; but if you care deeply about the ideals of kibbutz, you'll be happy to turn your yourself, income over to the communal wellbeing of the group. But if you don't have that, it's hell. And obviously the Soviet system failed utterly. We're currently talking about In the First Circle, and Solzhenitsyn: for those who have been reading that book as part of our Book Club. That ideal of a new human being totally failed. But it seems that it even struggled to this modest extended family model of 100-200 families, in this Israeli setting. And they had total control over the education of these kids. They had limited understanding of what was going on outside. And yet they still struggled to make it appealing for those future generations.
Ran Abramitzky: So, there are many things you are right about. I think you are right that it's a--one of the reasons it has been so appealing to members and got so much attention in Israel in the world is that there is something about us humans that do want to care about people and find no poverty, and caring about others, very appealing. It's the practical aspects of it that are difficult. But, the idea of having, of caring about others--I'll just give you and example. My grandmother, over the last 7 years of her life, she had Alzheimer; and she died with the kind of care and compassion that money can't buy. And this is something that was amazing, the way that she was treated in the kibbutz. And there are many reasons for it. One is that it's all about caring about others, and so on. The other is more economics, a little bit: If you think about equal sharing, imagine that you are a person that has the tendency to want to do something that is to care about others--say, to become a nurse or become a teacher. But, you are also very talented. So, maybe in the city you will tell yourself, 'Well, becoming a derivative trader will be much more beneficial for me financially, even though I really want to be a nurse, or a teacher.' But, in the kibbutz, being a nurse or a teacher does not have negative financial consequence, so it attracts people that are very good to do these kind of jobs. And I would say that a lot of the education--the other thing I would say is that, while you are very right, and I discuss it in the book that the kibbutz education system, despite trying, was not able to instill the same strong idealism as the first generation to the second and third generation, and definitely ideology declined. And indeed, this was one of the reasons why kibbutzim eventually shifted away from equal sharing. I would say that, you know, you mentioned the word 'they failed.' I wouldn't call it that way. So, to me, it depends on how you define a kibbutz. If you define a kibbutz as a society in which community, in which everything is shared equally, then yes, maybe to a large extent they failed and only 20% of them are still based on full sharing; but the vast majority shifted away from equal sharing. However, even kibbutzim that shifted away from equal sharing, they are still based on much more equality than society around them--than a random neighborhood in Israel. And you should[?] add in assistance, and caring about others, and a sense of community is still very strong in kibbutzim. And so, even reform kibbutzim are nice communities where people care about--mutual aid is a building block. The other reaction I would have is that you are also right about--it's almost like you think about it in a more philosophical way--so you mentioned the Soviets. So, it's not surprising that when you try to do this on a very large scale, and you want to--even if you have good intentions and you want to have it [?] and it's the right thing to do, and it's great insurance, and whatever, because of all these incentive problems you kind of need to solve incentive problems. And so, one way to solve them is if you are living in a Russian kolkhoz, if you try to exit, they kill you. Well, that's a great incentive to never leave, but it's not very interesting; and so it's not surprising that often places that try to be like Socialists are often totalitarian and they put big restrictions on the ability of people to move and on how much media and knowledge they get from the outside world. What's nice about the kibbutzim is that they try to do it without such measures. But, as you pointed out, some by-products are there is not much privacy; and it can be a hell because it does not encourage individual freedom of choice. And so, these were--it points to cost that you have to somehow solve the incentive problems, and if you want to do it in a voluntary way, you have to construct mechanisms that will deal with these problems. And sometimes they are ones that most of us don't like--say, lack of privacy. And that's why it's only been 7% of the Israeli population and can only be found in Israel. Although, by the way, if you are me, you risk seeing kibbutzim everywhere. While you don't see them exactly as they are, to me, every time you see a revenue-sharing agreement, even if it's professional partnerships or village economies in developing countries, or economic departments, or--you see elements of kibbutzim.
Russ Roberts: Yeah.
Russ Roberts: I want to come back to something you said that I thought was very provocative about--if you could be a derivatives trader, that raises the cost of being a nurse or a teacher, if you live in, say, Tel Aviv. But, on the kibbutz, it's not such a big difference. So, the financial aspect gets taken out. The other part I think gets interesting, and I'd love your reaction to this, is the status part. We don't spend enough time, I think, talking in economics about status and some of the other nonmonetary aspects of life and work experience. So, if you become a derivatives trader, assuming you are a successful one, and you get a fancy car, and you live in a fancy house; and people look up to you. They envy you, perhaps. And you feel special and important. And I've always said that, having spent a good chunk of my life as a teacher--I always think I've been very blessed to be able to do that. And when I started doing it, it was very expensive. I gave up a lot of income in 1980 to be a teacher. Less so, now, although I'm not literally a teacher any more. But, through most of my career the amount, the cost of me staying as a teacher than rather, say, an industrial economist or a financial economist in the financial sector, got smaller over time; but I always enjoyed the non-monetary aspect of it. But it happens to be the case that college professors in the United States get a lot of honor. And they get a lot of prestige. And it's considered somewhat special. Maybe I'm deluding myself. I'm sure my listeners will correct me. But, I think schoolteacher, and sometimes nurse, doesn't quite get that status--a high school teacher, say, and nursing doesn't get the status. And I think there's something really interesting about the ability, again limited, of the kibbutz to instill respect across different occupations unrelated to the monetary compensation.
Ran Abramitzky: Exactly. So, the status--first of all, I would start by saying it's a shame that teachers and nurses don't get that status, because I think they should. They have some of the most important work that we have today. The other thing is that, yes, many of us do a lot of things for the nonmonetary returns aspect; and in some sense, one way in which kibbutzim were successful is exactly--it's a higher status to be a nurse that is so smart that you knew that she could have been a derivative trader, but chose to be a nurse instead. How amazing is that? As opposed to just go for something that is really only mostly beneficial for you. So, it's almost like--the way status works in the kibbutz is interesting. It's almost like being a big fish in a small pond: People who have leadership skills are really highly appreciated. In part, this is because you know that they can do other things, but they still chose to stay there and to contribute their time and their salary to the others. In fact, as kibbutzim shifted away from equal sharing, some of that started to disappear, because you are, 'Of course, now you earn a lot of money, but I don't respect you as much because you mostly get to keep it rather than share it with everybody else.' So, status is an interesting thing: Why do we have such high status for derivative traders and not for nurses? It's not clear. And in a kibbutz it's kind of like almost the other way around.
Russ Roberts: Although lately--since 2008--derivative traders aren't doing so well, either, on the status front, it's important to--
Ran Abramitzky: Right, right. As an example.
Russ Roberts: To remember.
Russ Roberts: I want to make an argument, for the economists who are listening, and I think that non-economists will understand it, I hope, understand as well. So, I loved your example: So, you are capable of being a financial and--some kind of trader, investor--and you choose instead to do the less lucrative, "more caring" profession. And, of course, some people in economics call that "inefficient"--meaning, it doesn't maximize the financial size of the pie. I just want to make the claim that that's a total misunderstanding, to me, of the human enterprise. The goal of life is not to make the pie as big as possible. It matters. Your standard of living matters. But, it's not the only thing. And I think a lot about one of the great minds--two of the greatest minds of all time--which would be Gauss and Newton. Gauss spent the last years of his life as a surveyor. His notebooks--which I think--the notebook he left had 16 pages and became one of the most fertile and incredible achievements of--that mathematicians studied for a long, long time. He created the normal distribution, which is also the Gaussian distribution. He made incredible contributions to statistics and math. And at the end of his life, he wanted to be a surveyor. Newton, at the end of his life, wanted to try to figure out what the celestial spheres--the music that they made when they rotated, which is the way he thought of planetary orbits--he was a mystic. And a lot of people say, 'Oh, here are these two great talents that were so inefficient. They should have been doing x, y, or z.' And the answer to me to that is: Well, that's not all that matters. It's really not all that matters at all. And, I think--I don't want to go the other way, and say that, you know, that Steve Jobs, just because he's rich didn't accomplish much. Or Jeff Bezos, or others. I think, at the same time, we often underestimate the human contribution that we do measure in financial terms that people make. LeBron James is very wealthy because he makes a lot of people happy. And I don't want to understate the value of his contribution to making the world a better place. At the same time, there's something really beautiful about the care your mother received. And I don't want to say that you can't put a price on it; but I'm close to saying that. I mean your grandmother.
Ran Abramitzky: Yeah; you're right that there is a lot more than just maximizing the total pie. I would say that there are a couple of things that I learned, at least from thinking about kibbutzim for a long time. And, one of them is that--you know, I started this whole project by just writing a series of papers, of like: Maybe economic incentives stop at the kibbutz gates. Maybe: Is there brain drain? Is there adverse selection? Is there free riding? Is there lack of investment in human capital? And so on. And the answer, the overall answer that I get is that basically, economic incentives matter. So, definitely, the more educated and skilled were more likely to leave, and people who earned less were more likely to seek to enter a kibbutz, and so on. But, at some level those negative economic incentives were not nearly as devastating as economic theory would suggest. Now, a big part of it is because the kibbutzim designed exactly social incentives to deal with them. But there are other things; for example, think about education. So, kibbutz members were never less educated than the population as a whole. Even in the period where there was full equal sharing. So, the idea that, for example, people study hard because of the financial returns to their investment is maybe--the kibbutz maybe would suggest that it's overstated. People studied--were not less educated than the population as a whole, even in the period of full equal sharing. Of course, they had different education; of course, maybe fewer of them went to advanced degrees and more of them didn't--but at the same time, more of them had basic education. So, there are certain aspects in which incentives matter, but it's not all about incentives. But I would make--another point I would make, and that's something that, again, this is more speculation than it is based on, you know, like data. But, imagine--it's not even clear 100% to me that when you want--even if you focus on maximizing the total pie, think about the following aspect of the kibbutz, the one we talked about with a nurse that is getting more. So, imagine that you think that some occupations have higher social values than others. So, imagine that you convince yourself that somehow nurses and teachers have higher social values than derivative traders--and by the way, I don't mean to pick on derivative traders at all. It's just like--the thing that's coming into my--
Russ Roberts: Let's call them computer programmers.
Ran Abramitzky: No! God, no. And, if that's the case, and in an egalitarian system would encourage people to study more, to go more for occupations with higher social returns but lower private returns, then even the total pie is--I'm not sure; I didn't think about this long enough--I think there is a recent paper by Glen Weyl trying to formalize, I think, that point. But it could be that--I can imagine a world in which encouraging you to study something with high social value but low private value actually increases the size of the pie.
Russ Roberts: Oh, and we used to always say, 'properly defined.' So, if you think the pie--whatever that means--is just the pile of stuff, the goods and services--obviously that isn't what we want to make as big as possible. We want to make human satisfaction, human flourishing--human experience is what matters. And so, if you define the love that your grandmother received as important--which, of course, it is--when she had Alzheimer's, that counts. We can't measure it. It doesn't get a monetary price on it. It could, if she had been hired out to a really expensive nurse. But as you point out, a lot of times the nurse that does the best job isn't the one that's paid the most. So, that's important.
Ran Abramitzky: It is important. The thing is, that we also have to think practically about, we all would like to live in a world where everybody is rich and everybody is equal, and so on. So, the book, I think, points to, on the one hand, the beauty and the things that are good about equal sharing. But at the same time tries to be practical about some of the costs that come along the way by trying to make sure that incentive problems are being solved.
Russ Roberts: And those incentive problems, by the way, reminded me a lot--I just want to mention this for listeners who might remember this--very similar to the work of Elinor Ostrom. Elinor Ostrom looked at the Tragedy of the Commons, where people had said, 'Well, if you have a commons, it's going to be over-grazed. If you have a fishing ground that doesn't have ownership, it's going to be over-used.' And what she showed is that in small societies, very similar to kibbutzim, there were monitoring devices that the people involved in this created to reduce the natural incentives of despoiling and overfishing and overgrazing that would be there in the absence--you know, I think the other aspect of the kibbutz that I really like, and of your book, is that it's a textbook example of what's wrong with textbooks. You know, the textbook says, 'This can't exist. They can't solve this. The incentives are all wrong.' Well, whether they knew it or not, they evolved such that they figured out ways to reduce the power of those incentives.
Ran Abramitzky: Yes; and, you know, it's interesting that you mention common property. This is one thing that, usually communal property and lack of private property is something that is associated with bad stuff. Interestingly, for the kibbutz, this turned out to be useful, because it solved the problem of--it served as a bond that made it costly for people to exit. At some level, that is one aspect that you can think of, if you want, cost, or having--if you want to really maintain a society that is fully functioning as the kibbutz, common property was very important there, because the fact that you couldn't take it with you once you exit, allowed the kibbutz to maintain a higher degree of equality without experiencing massive brain drain of the most talented members, because it helped as a locking device. But it is--
Russ Roberts: Explain.
Ran Abramitzky: another example like lack of privacy. So, imagine the founders of the kibbutz. Okay? Imagine you come to the kibbutz. You really want to have equality. You think it's fabulous. But, you worry that eventually people might--you are now young, and everybody shares similar prospects. But, you know that at some point, some people will turn out to be super-talented and productive; and they might want to leave, because they will have increased incentive to move to the city and earn a premium for their ability and efforts. What do you do? You say, 'Why don't we cancel all private property? Everything--we'll give everything we have to the collective. And when we exit, we can't take it with us.' You know, guess what happens? Now, when people realize they are talented and they want to leave: well, but at that point, they can't take their--there is no private property--
Russ Roberts: There is no savings--
Ran Abramitzky: they don't have savings. There is no savings. They have nothing. So, if they leave they can take only their brain with them. But they can't take their share of the kibbutz. And that makes exit costly, and allows kibbutzim to commit to a higher degree of equality without losing the most productive individuals. So, somehow, lack of private property as a bond--as a bond that allows a higher degree of equality without brain drain--is something that--but again, just like lack of privacy, something that many people find too costly, is too costly in order to maintain a high degree a high degree of equality.