DIVERSIFY OR PERISH

Moving away from their agrarian roots, Israel's fabled kibbutzes shed socialist principles for capitalist success

By Robert Sarner, America Israel Business magazine, Fall 1995

This fall, Kibbutz Deganya Alef celebrates the 85th anniversary of its founding. As Israel's first and oldest communal farm village, it has endured countless challenges and changes but none more far-reaching than those faced by all kibbutzes in recent years.

Today, life at Deganya Alef - and the kibbutz movement it helped spawn - bears little resemblance to its austere, agrarian beginnings and socialist ideals.

Situated on the southern shores of Lake Kinneret, Deganya Alef's acres of cultivated fields and fruit trees are what first greet visitors. Less evident and less expected is the driving force of the community's economy - a large modern factory that produces heavy-duty cutting tools for the construction industry. It's also, by far, the single largest employer on the kibbutz. Other residents leave the kibbutz every morning to work elsewhere as lawyers, accountants, and in the case of Eli Goldschmidt, as a Labor Party Knesset Member.

A product of pre-state ideology, kibbutzes still enjoy a pride of place in Israel as one of the pillars of Zionism and the pioneering spirit. The portrait of kibbutz residents as tireless, noble farmers working the land in an egalitarian community may still have a tenacious hold on Israeli and foreign perception of the venerated kibbutz reality, but it's a false picture.

To be sure, the kibbutzes play a pivotal role in Israeli farming, accounting for 45 percent of the country's agricultural output. But increasingly, the kibbutzes rely on sectors far removed from farming for their economic sustenance.

Kibbutz Shefayim, on the Mediterranean coast just north of Tel Aviv, attracts tens of thousands of tourists every year, in part, due to its water park, the largest in the country. In addition, to its thriving guest house, Shefayim manages a lucrative banquet hall, a business center and successful pharmaceutical and plastic factories.

Kibbutz Hatzerim, situated a few kilometers west of Bersheva, is one of Israel's wealthiest kibbutzim, thanks to its Netafim factory. Netafim is a world leader in drip-irrigation technology and ranks 42nd among Israel's largest companies. The kibbutz also runs a professional law office.

Next to the chicken coop and donkey stable at Kibbutz Migdal Oz, 25 km southeast of Jerusalem, is the unlikely home of Maoz, Israel's leading designer and manufacturer of illuminated plans for control systems in jets, helicopters and tanks. Last year, Maoz, whose factory also makes buttons for elevators, had a profitable sales revenue of close to $500,000.

Today, many kibbutzim have shed their socialist principles in favor of capitalist success to help pay for a higher standard of living. Most of Israel's 265 kibbutzim have undergone an industrial revolution so profound it has greatly transformed the social fabric and daily life of these fabled communities.

Long gone are the days when most kibbutz members toiled in the fields planting, sowing and harvesting. Those now working in agriculture are a distinct minority among the country's 125,000 kibbutz residents. In an effort to make the kibbutz more self-supportive, there has been a major push towards diversification, pursuing activities unconnected to the traditionally agriculture-based economy.

Kibbutzes are home to only 2.5 percent of Israel's population, but kibbutzim produce 9 percent of the country's national industrial output. In 1994, kibbutz industrial sales amounted to $2.5 billion (including $860 million in exports), representing a 5 percent growth over the previous year.

The leading sources of revenue for kibbutzes breaks down as follows: Industries 65 percent; agriculture 20 percent, tourism 10 percent and miscellaneous 5 percent.

Industry has become the most lucrative activity, driven by myriad factories which produce metal and electronics, plastics, rubber, processed food, optics and glass, textile and leather, medicine, chemicals, office supplies, building materials, toys, jewelry and musical instruments.

At the same time, kibbutz schools and kindergartens have been opened to outside children for a fee, swimming pools are settings for catered weddings, rooms are rented to tourists, without mentioning any of the diverse business ventures launched in the last few years.

On Kibbutz Beit Hashita, members launched a marital agency for people in the region. Kibbutz Mizra is now home to a store selling delicatessen food. Kibbutz Hagosherim, like several others around the country, runs a commercial discotheque on its premises. Kibbutz Givat Haim staffs architectural and engineering offices while Kibbutz Kuvetzat Yavne has inaugurated an economic consulting firm.

Another example of the kibbutz movement's efforts to create profitable small businesses is a new chain of cosmetics institutes called Synergy. Plans call for a nationwide network situated on 23 kibbutzes. The first opened last August on Kibbutz Hasharon.

On Kibbutz Sadeh Nachum, Yael Geites, a professional fortuneteller, charges outside clients $20 to read coffee grinds and $25 to read their palms.

On Kibbutz Yifat, a law office offers professional consultation to people in the region.

On Kibbutz Yagur, residents manage an alternative health clinic.

Some kibbutzes are paying salaries and floating stock on the Tel Aviv Stock Exchange. Austere communal living is a thing of the past. Such innovations would have been considered blasphemous to the legendary pioneers from eastern Europe who founded the first kibbutzes with the hope of returning Jews to agriculture and envisioned Israel as a socialist state.

The founding fathers of Deganya Alef would rub their eyes in disbelief if they were to see how kibbutzes have forsaken many long cherished ideals and socialist practices in order to not only pay the bills but offer residents the consumer comforts they desire.

Many kibbutzes are now in transition toward privatized economies in which members manage their own household budgets and workers are paid according to their productivity. These changes have radically altered the original framework of life on kibbutzes, once seen as idyllic collective farming communities.

For all their agricultural prowess and internationally acclaimed farming techniques, most kibbutzes would cease to exist without their industrial and business base.

"I predict that agriculture will continue to decline in its proportion of kibbutz revenue," says Micha Hertz, chairman of the Kibbutz Industries Association (KIA), comprised of 415 enterprises.

According to Hertz, whose organization is based in Tel Aviv, the various industries generate 31/2 times more revenue than agriculture. He says the kibbutzes must further diversity their industrial base, think on a larger scale and expand into the sectors of high-tech, electronics, chemistry and bio-technology.

KIA recently published a catalogue featuring an impressive array of products for export. The glossy 220-page document showcases everything from silver jewelry made on Kibbutz Kabri to accessories for sewage water systems manufactured on Kibbutz Kfar Haruv to baby-care products from Kibbutz Hafetz Hayim and contact lenses from Kibbutz Hanita. Kibbutz Hulata produces shoes, slippers and boots for the whole family while Kibbutz Kfar Glikson makes office supplies. Kibbutz Beit Alfa manufactures firefighting equipment, armored trucks and riot control vehicles. At Kibbutz El-Rom in the Golan Heights, residents run a thriving state-of-the-art film-dubbing and subtitling business.

In recent years, one of the fastest growing sectors for kibbutzes as a group has been the tourist and leisure area. With more than 3,500 rooms in hotels and country lodges scattered over 63 kibbutzes, the Kibbutz Hotels Chain is the country's largest resort network. In 1994, the company took in more than $4 million in revenue, based on a 67 percent occupancy rate.

"I'm very optimistic about out future," says Shlomo Ron, managing director of the Kibbutz Hotels Chain. "We plan to add another 1,000 rooms within the next three or four years. There's a growing demand from both Israelis and foreign tourists to spend at least some of their holiday on a kibbutz. They like the fact that we're unique, situated away from the city, and that they get a different view of Israeli life that is famous around the world."

In addition, many kibbutzes have opened their recreational facilities, especially swimming pools, to the paying non-kibbutz public. Near Jerusalem, Kibbutz Ramat Rachel and Kibbutz Ma'ale Hahamisha both do a brisk trade in renting their grounds for weddings, bar mitzvahs and other events, which they also cater.

For all their success stories, the kibbutzes as a group have had to struggle to retire old debts. Last spring, the Rabin government agreed to ease their economic plight that dates back to the hyper-inflationary days of the 1980s when kibbutzes borrowed heavily from banks and accumulated massive debts that still bedevil their existence. The government and banks agreed to write off $1.3 billion of debt as part of a package deal which also entailed richer kibbutzes selling some of their land to aid the poorer kibbutzes.

The ability to change, albeit sometimes reluctantly, has enabled the kibbutz movement to survive the circumstances in which it was born. Clearly one of the biggest changes has been in the nature of work of kibbutz members.

In the early years, kibbutz society regarded work in agriculture as an ultimate test of true righteousness as a kibbutznik (resident). When the first kibbutzes were founded, the concept of life on the land was accomplished by draining swamps and transforming the deserts into fertile farmland.

KIA's Micha Hertz cites several factors that transformed the kibbutz's agriculture-driven economy to one that depends largely on advanced industry. The modernization of farming techniques freed up people for other work. This, coupled with a natural growth in the kibbutz population meant new opportunities in other sectors had to be created. At the same time, a new generation came of age that did not see working the land as its modus vivendi for self-fulfillment.

The large-scale shift of kibbutz economies from farming to industry and business can be viewed against the larger transformation in Israel's economic and business culture, from socialistic and inward looking to entrepreneurial and international.

"The future economic potential and prosperity of the kibbutzes is in the heads of people, and no longer in their muscles," says Zvili Ben-Moshe, in charge of economic development of the United Kibbutz Movement.

In contrast to their parents, the new generation of kibbutz leaders sees the original ideology as anachronistic and irrelevant. They are more pragmatic in orientation, trained in management courses and inclined to give maximum weight to economic considerations in decision-making. Increasingly, kibbutz leaders recognize what it takes for their business to succeed in a capitalistic economy.

"At one time, there was a direct connection between a kibbutz's economic success and its standard of living and the amount of work put in by its members," says kibbutz activist Yehuda Harel. "But that's no longer true. Today, the most crucial factor is the quality of its management and entrepreneurship."

Clearly, entrepreneurship is behind the multitude of recent ventures. Many of the new enterprises spring from a conscious decision to cater to the needs of the market, from the cradle to the grave - literally.

Kibbutz Bachan and Kibbutz Gilgal Yam are two of many that have opened their day-care centers to outside children whose parents are willing to pay. For $275 per month, the children can continue through elementary school on the kibbutz. Some kibbutzes have even opened apartments and houses to outside families who pay between $1,000 and $1,400 in monthly rent. Food, laundry services and electricity are part of the deal.

Relatively new diversifications are homes for senior citizens. Since their inception, kibbutzes have always had residences for their senior citizens. In recent years, several kibbutzes realized they could make money by opening them up to outside retirees. For $1,500 per month ($2,000 for a couple), a person receives meals, medical supervision, laundry services and social activities.

And finally, reflecting the sense of entrepreneurship to its fullest, kibbutzes are opening up their cemeteries for business. Kibbutz Ananivm, near Jerusalem, is now selling burial plots to outside people, especially those who want a non-religious funeral.

There's nothing like old socialists who renounce their former ways to enter the capitalist fray. So far, it bodes well for Israeli business.