Bread and the dilemmas of socialist paternalism in Israel, 1948–1977

Abstract

This is the first study of bread regulation in a post-World War II democratic country. Under Israel's Labor Socialist regime, bread was mostly privately supplied. In setting prices, policymakers faced tradeoffs between producer profits/viability of small-scale producers and consumer welfare, and between producer profits and minimizing inflation and real appreciation. Subsidization entailed a tradeoff between producer profits and consumer welfare on one hand, and fiscal responsibility and exchange rate unification on the other hand. We study the regulatory changes that took place as the industry structure evolved, and document the changes that occurred in the revealed weights of producer profits, consumer welfare, fiscal responsibility and exchange rate unification. Over 1952–1977, regulatory reforms accelerated the process of technologically-based rationalization, and policy was strongly pro-consumer. This process did not unfold smoothly: Regulatory changes occurred in four phases, with (sometimes) sharp fluctuations in consumer welfare, producer profits, fiscal policy and exchange rate policy.