Is There a Link Between Ethnicity and Economics?

Does ethnicity influence economics? Knowledge@Wharton investigates this issue with Derek Penslar, professor of Israel Studies at Oxford University and also professor of Jewish History at the University of Toronto. He has written a book about the history of the Jewish people and the group’s strong association with commerce, Shylock’s Children: Economics and Jewish Identity in Modern Europe. Penslar argues that there is no monolithic “Jewish economy.” Rather, certain forms of economic behavior persisted throughout the Jewish world that tended to repeat themselves in many situations, enhanced by a sense of unity among Jews from different regions.

An edited transcript of the conversation follows.

Knowledge@Wharton: What do you think of pairing ethnicity with economics and looking at the two together? Because that can be a controversial idea.

Derek Penslar: It can be very controversial. No matter how you approach it, it is sensitive. The fact is that until the 1930s, 1940s, it was very common for scholars, including Jewish scholars who were really embedded in their communities, to write about the relationship between the Jewish religion or Jewish nationality and Jewish economic behavior. Nothing wrong was attributed to it.

Anti-Semites were making outrageous comments about Jewish economic behavior or domination but Jews considered it a completely acceptable thing to do. And then came the horrors of the 1930s, 1940s — Nazism, the Holocaust. And in the wake of that, a lot of the language that had been used to talk about Jews as a kind of an ethnic unit and an economic unit was discredited. It was considered no longer appropriate to talk about Jews that way.

Knowledge@Wharton: Even by Jews?

Derek Penslar: Even by Jews. And so, scholarship on the history of the Jews tended to focus on anything but economics. Religion was okay. Politics was okay. Culture was okay. But economics was taboo. Very few people wrote about economics — and just every now and then. In the last, decade or decade and a half, we now see young scholars two generations removed away from the Holocaust who are beginning to take the subject up again. After all, you can’t understand any kind of group behavior without economics.

“There’s not a monolithic thing called ‘the Jewish economy’ that marches across space and time.”

Knowledge@Wharton: So, enough time has passed it would seem.

Derek Penslar: I think enough time has passed. Although there are people who still are nervous about it because of the way that anti-Semites have made use of economic arguments to demean the Jews.

Knowledge@Wharton: Let’s get into what some of these characteristics or features of the Jewish approach are and how they may differ from other cultures or other countries.

Derek Penslar: There’s not a monolithic thing called “the Jewish economy” that marches across space and time. But there are certain forms of economic behavior or economic culture throughout much of the Jewish world that seem to repeat themselves in many different circumstances.

It’s hard to know how far back to go. But certainly, by the time we get into the later Middle Ages up through early modern times — 20th Century — the most important thing really is this one sentence, which is that Jews throughout most of history have not been peasants or aristocrats. Throughout most of human history, most people, until recently, were peasants. They worked the land. They often couldn’t leave the land. And that doesn’t encourage economic innovation. It doesn’t encourage literacy. It doesn’t encourage numeracy. It doesn’t encourage entrepreneurship. And aristocrats are lords of the land. And they tended to be a warrior elite. And that also does not encourage innovation.

So, who innovates in a society? The middle classes, the townspeople, the bourgeois or the burghers. Well, Jews have been for millennia primarily a people of townsmen. It might be a small town; it might be a large one. And they’ve worked in a mixture of crafts but also in commerce. When people are doing that generation after generation, they develop certain comparative advantages, whether it’s literacy or numeracy. And let’s not forget the fact that Jews are connected with each other across space. The Jew in one town in Poland has Jewish distant family from another part of Poland or from somewhere in Germany and so on.

Knowledge@Wharton: But the Israeli economy has changed a lot over the last 30 years. It’s gone from largely taking a socialistic approach to the economy to a much more capitalistic approach. Can you talk about that change and how it came about, why it came about?

Derek Penslar: The Jewish world in Central Eastern Europe primarily was just overwhelmed by the possibility of revolution in the 19th Century. Capitalist revolution, transformation of economic relations, but also socialism, Communism, various movements on the left, and national movements. Zionism is, after all, a classic form of Jewish nationalism.

“Scholarship on the history of the Jews tended to focus on anything but economics. Religion was okay. Politics was okay. Culture was okay. But economics was taboo.”

We’re caught up with this idea of a revolutionary change in the Jewish people. So, Zionism, when it realized itself in the [formation of the] state of Israel in 1948, was very strongly dominated by — I wouldn’t say a socialist ideology as such, but one that had socialist elements where the state played a very major role in the development of the country and in the promotion of the nation. There was a lot of state-owned industry. There were severe limits on wages. So, for example, wage differentials between workers and say, physicians or professors, in the early state of Israel were quite minimal. There was this egalitarian ethos, not socialism per se, but social democracy.

And that was one kind of Jewish economy in that it was influenced by the very strong role Jews had played in the revolutionary movements in the early 20th Century. But that was Israel of one era –1950s, 1960s. It already began to loosen up in the 1970s and the 1980s. Israel becomes an industrial powerhouse, manufacturing textiles, developing medical technology [and others.] It was no longer making money selling oranges and grapefruit alone. There was a lot more to the Israeli economy. And then comes the privatization wave that began in the 1980s and has really continued to this day. State-owned industries are sold off and there’s a neo-liberal economy where Israel is now one of the world centers for investment from abroad and of economic innovation.

Knowledge@Wharton: It’s seen as a world center for high tech innovation in particular, but also of all kinds of innovation. … I’m wondering to what extent the military in Israel has played a role in that development of high tech. How closely related are those two?

Derek Penslar: They’re very closely related [as] they are in pretty much any country. Take aerospace. It was developed in California in the United States from World War II on. … The internet came, after all, out of the U.S. military. So, that kind of connection is not unique to Israel.

The difference is that the United States has this massive economy. As big as the military is in the U.S., there’s also an enormous consumer-driven, business-driven economy. Israel’s a smaller country with a smaller economy and the military is far more pervasive. So, there’s a lot more direct applications of military technology to the private sector. [For example,] programming that was developed to help provide directional assistance to fighter aircraft might then become used in GPS for civilian automobiles. This sort of thing — the much more direct transfer of technology.

Knowledge@Wharton: Over history, there’s been other groups that have had prominent merchant classes that also went to other parts of the world and established beachheads. I’m thinking of particularly the Chinese throughout Southeast Asia, where they are often some of the chief merchant classes in some of the big cities even today, although they are a tiny percentage of the population.

India’s another example where there’s been a lot of merchant activity, some of which has gone overseas. So, there’s a diaspora from India of business people. How are these groups similar to what’s happened in Israel and to Jews over the years? And how do they differ?

“Israel shows every sign of continuing to be a world leader in many aspects of high tech.”

Derek Penslar: Well, there’s two different ways of answering the question. One is that Jews until really 1948 were almost like a periphery or a diaspora without a center. That is, spiritually, they had this notion of the land of Israel as their center but that wasn’t their physical demographic home. They were like a donut, as it were, but there’s no center in the donut. And they dealt with each other throughout the Jewish world. So, you’ve got that Jewish merchant in New York who’s got the colleague or relative in Cleveland and someone in Los Angeles. There’s a lot of horizontal integration.

Of course, something similar happened to, let’s say, Indian merchants throughout much of Africa, throughout British Africa. The difference is that there was a homeland. There was a homeland and although some of these Indian merchants never saw that homeland, some of them did. You have Mahatmas Gandhi, for example, who’s an attorney from Gujarat in India. But then he winds up making his career partially in South Africa. And then goes back to India. There is a center. There’s a place to go back to.

For the state of Israel, that only happened in 1948. … So, I’d say now the Israeli diaspora relates to Israel economically the way that the Indian diaspora or the Chinese diaspora of the past may have dealt with their homelands.

Knowledge@Wharton: Israel, as I mentioned, is well known for being innovative, and in high tech in particular. Are there attributes of the Israeli economy related to that, that can be adopted or adapted by other countries that see that success, just as they would look at Silicon Valley and say, “How can we develop something like that in our country?”

Derek Penslar: Well, theoretically, yes. But it might be difficult because there are national cultures — there are ways of behaving. And if you look at Israel and the way, for example, the high tech sector works in Israel, there’s tremendous informality. There are authority structures, but they’re very loose. And you can challenge authority. You can challenge your boss. And things are much less well-organized. There’s a lot more improvisation. So, the question is whether these corporate cultures in other parts of the world are frankly willing to loosen up the way that Israel has.

Israelis also bring into the project a lot of intellectual independence. And one has to be willing to listen to a lot of that. So, it has to be much more of a group sort of decision-making process than an individualistic one. What I don’t know whether it can be translated as easily is the Israelis’ … very strong [sense of] solidarity, which keeps them united despite the often lack of strong authority structures. Israel has a sense [that they are facing a] common threat, whether it’s real or perceived is not the issue. There’s that sense. And there’s a sense of certain Jewish solidarity.

Whether one can replicate that in other parts of the world, I’m not sure. But the actual chain of command, the way decisions are taken on a daily basis, the way brainstorming takes place, yes, of course one could try to replicate that.

Knowledge@Wharton: Any idea what the next iteration of the Israeli economy might look like? Are you seeing anything today that’s moving on, that’s a departure from what we tend to think about or think we know about the Israeli economy today?

Derek Penslar: Israel shows every sign of continuing to be a world leader in many aspects of high tech. But it’s not just that. The fact is, Israel does have competition and it’s not just from the United States and Canada; there’s the European Union. … And there is a concern in Israel that inadequate government funding — if the startup funding, for example, the investment funding that comes from venture capital, capitalists all over the world — if this were to dry up, then the Israeli startup economy would dry up. So, Israel in some ways is very vulnerable.

What I think might begin to happen is that Israel will become not only a leader in the development of new technologies, but the adoption of existing ones. Take desalination, which 30 years ago was considered outrageously expensive and simply impracticable. Israel is now adopting desalination that I think is providing up to 70% of the country’s drinking water – and it will actually have a water surplus in a few years. In the past, this would have been absolutely unheard of. And they’re using technology that is in part homegrown; a lot of it has come from elsewhere. So Israel’s innovation isn’t simply that they’re developing things at home. It’s also what they make use of what comes from the outside.

“Is it even appropriate to ask these questions about the Jewishness of an Israeli economy?”

Knowledge@Wharton: What haven’t I asked you that would be interesting for viewers to understand about the Israeli economy?

Derek Penslar: I think what would be really interesting to understand are two things. One is similarities and differences between the Israeli economy and its Jewishness — however we can define that — and American Jews. Because American Jews, by and large, are a very successful ethnic, religious minority. But it does not display, as an aggregate it seems, the same kind of thirst for innovation that one finds in the state of Israel. American Jews are by and large a comfortable and successful minority. And if anything, the innovative aspects of that community are being bled away by success. Fifty, 60 years ago American Jews were the first generations to go to university. They worked very hard. They had to be innovative to make it in the world. Whereas now they’re more comfortable and they can trod on well-established paths in business, in their professions. Whereas in Israel, there still is this kind of thirst to succeed.

The other thing I want to mention gets back to where we started: Is it even appropriate to ask these questions about the Jewishness of an Israeli economy? In other parts of the world — in China and in India — there’s much less embarrassment about talking about the relationship between culture and economics. Scholars of Indian studies simply do this all the time. What they’re careful about — and I would finish with this — is there’s a difference between saying that there can be a cultural influence behind economic behavior and some sort of determinant that people, because they belong to a certain ethnic community or identify with it, to be automatically blessed or cursed or pre-determined to succeed or to fail economically. There’s enormous parameters, enormous spectrum of possibilities. This is not an issue of race. This is not an issue of genetics. This is an issue of culture. Culture is fluid and organic and all we’re talking about is a field of possibilities, which in the case of Israel they’ve managed to realize.


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