Economics Lessons from the Kibbutzim

In March 2023, I visited Ma'agan Michael Kibbutz and had a meeting with a former Israeli government official charged with managing the government bailout of about 200 kibbutzim.  Both offered empirical lessons about the challenges of communal living.

 

Background and Description

Ma'agan Michael was one of the few kibbutzim not bailed out.  It is one of the wealthier and more populous kibbutzim, with approximately 2000 residents. (Kibbutzim is the plural of kibbutz, which is described in more detail below but might be briefly described as a voluntary socialist community in Israel.)

 

In an earlier era, this kibbutz and the others followed a more egalitarian model.  For example, children were once raised communally in dormitories and would visit their biological parents for only three hours each day.  This alone was a big sacrifice for families for the sake of ideology, not to mention harmful actions that adults might occasionally take against children knowing that their parents were not around.

 

Now nuclear families live together in their own residence.  Every family receives an income that varies only according to the age and structure of their family.  As of 2023, that was about $3,500 per month.  Dining and laundry are in common. Rent, healthcare, formal education, and those two services are "free" -- not taken out of the $3,500.  A family can purchase and own household appliances for their residence.  Some get a washer and dryer because the community laundry takes too long.

 

Part of the kibbutz is something like a car rental agency.  They have a fleet of cars.  A central office holds the keys.  A member could pick up a car key and use a car for the day.  I believe that this was charged against their $3,500. Much of the accounting is done on computer with a fab system.

 

Some of the members are employed outside the kibbutz, but nonetheless must surrender all of their earnings to the community.  A partial exception would be earnings during periods of sabbatical.  One three-year sabbatical is permitted per lifetime.

 

Forty-five hours per week of work is required from all adults, with some categorical exceptions.  Mothers are required only 37.5 hours per week.  Retirees do not work at all; their Israeli-government pensions go to the community.

 

More than 90 percent of the land in Israel is government land, including the land allocated to Ma'agan Michael since at least the 1940s.  It is a prime seaside property, as you can see in this photo.  They once fished in the Mediterranean but now operate a couple of different kinds of fish farms on their property.  They also have a couple of factories for manufacturing.  The plastics factory they founded in 1963 has annual sales approaching $100 million, which helped them avoid the financial crises experienced by most other kibbutzim.

 

 

The common areas of the kibbutz can be compared to a college.  The dining room resembles the college cafeterias from my own college days, which are not as upscale as modern college dining facilities.  The grounds are less neatly kept than college campuses are (the beach photo is not typical in that regard).

 

Problems with communal living, even on a small scale

 

As Ran Abramitzky discusses in his book The Mystery of the Kibbutz, and labor economists have observed with employment contracts, work effort can be a problem when pay is not tied to performance.  The kibbutz, where members have often known each other since birth, tries to police this by watching each other.  They can expel a member from the kibbutz for poor performance, which is a serious punishment.

 

The kibbutz also looks hard at the work ethic of persons applying for membership.  However, membership in the kibbutz is voluntary, and individuals cannot be compelled to stay.  The most productive members have a significant financial incentive to leave.

 

Perhaps a more serious problem is occupational choice and human capital accumulation.  With uniform pay, members have little financial incentive to excel in their jobs, particularly in roles they find unfulfilling.  While the kibbutz covers the cost of formal education, much of human capital development in conventional labor markets occurs after formal schooling is completed.

 

Too much is democratized on the kibbutzim.  First, there is the challenge of reaching agreement, leading to significant and frustrating indecision.  Second, incentives are lacking to acquire and utilize information relevant to collective decision-making.  An individual could work hard to determine the right answer, but his vote hardly counts (the paradox of voting).

 

Financial decisions are a prime example.  Few kibbutz members have an incentive to learn about, say, present values.  About fifty years ago, numerous kibbutzim initiated projects that seemed viable if the time value of money were ignored, but were big losers from an NPV perspective.  The abundance of failures among those projects was a major reason that kibbutzim would later be bailed out.

 

Equality, including gender equality, was an important ideal of the early kibbutzim and, to a large extent, still today.  Nevertheless, despite the ideology, gender segregation by occupation seems just as strong as it is off kibbutz.  All but one of the laundry employees I saw were female.  All of the tractors and heavy machinery were operated by men.