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Neoliberalism as a State Project
Neoliberalism as
a State Project
Changing the Political
Economy of Israel

Edited by
Asa Maron and Michael Shalev

1
OUP CORRECTED PROOF – FINAL, 23/3/2017, SPi

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Acknowledgments

The publication of this volume would not have been possible without the
goodwill of both longtime colleagues and new acquaintances.
Among the latter, John Campbell has been a source of both intellectual
inspiration and wise practical advice. He was kind enough to join the editors
and contributors in April 2015 at a workshop in Beersheva, Israel, where we
deeply benefited from his detailed commentary and friendly encouragement.
We are also indebted to Adam Swallow, the Commissioning Editor for
Economics at Oxford University Press, for his support and encouragement.
In addition, it has been a pleasure to work with OUP’s editing and production
teams.
We owe a great debt to the contributors to this volume for their patience
with our rather heavy-handed editorial style. They drafted and redrafted with
good humor, and were always ready to help out in any way they could. We
specifically wish to thank Zeev (Andy) Rosenhek who, as chair of the
Sociology, Political Science, and Communication Department at the Open
University, arranged for the group to have an initial get-together in an inspir-
ing setting at Zikhron Yaakov in February 2014; Lev Grinberg for generously
inviting John Campbell to cooperate with us and arranging his visit; and
Daniel Maman, who as chair of Sociology and Anthropology at Ben Gurion
University generously hosted our workshop with John Campbell.
A. M., Haifa
M. S., Berkeley
November 2016
Foreword
Israel, Neoliberalism, and Comparative
Political Economy

John L. Campbell

Western scholars in the fields of comparative political economy, sociology,

and political science have ignored Israel. This is both surprising and terribly
unfortunate. It is surprising because, according to the United Nations, Israel
ranks among the top twenty most developed countries in the world—higher
than several Western European countries studied routinely by comparativists
(United Nations 2013). It also ranks among the thirty most competitive econ-
omies in the world and is the third most innovative of all (World Economic
Forum 2015). But the lack of attention paid to Israel is also unfortunate because
it is a country that has much to teach us about the formation of nation-states,
social conflict and nationalism—issues that bear directly on the rise of neo-
liberalism, the subject of this volume.
During the 1960s and 1970s comparativists such as Andrew Shonfield
focused on the large North American and Western European countries such
as the USA, Germany, the UK, and France. This was an effort to understand
how these countries responded differently to the devastation of the Second
World War and how they contributed to the formation of the post-war
advanced capitalist political economy (Shonfield 1965). Later, thanks to Peter
Katzenstein’s research, some smaller European countries were added to the mix
in efforts to see how countries coped with the stagflation crisis of the 1970s and
early 1980s (Katzenstein 1985). Soon thereafter comparativists grew interested
in the leading East Asian countries, notably Japan and South Korea, as emergent
competitors to western capitalist economies. South American countries began to
draw some attention in the wake of the debt crises of the 1980s and 1990s as did
a few more East Asian countries (Haggard 1990; Haggard and Kaufman 1992).
With the collapse of the communist regimes in Eastern and Central Europe,
several comparativists turned their attention to these countries too (Campbell
Foreword

and Pedersen 1996; Haggard and Kaufman 1995). Most recently, the ascendance
of the BRICs (Brazil, Russia, India, and China) among other developing econ-
omies has attracted the gaze of comparativists (Campbell and Hall 2015; Guillén
and Ontiveros 2012). But Israel, not to mention the Middle East more generally,
has never received much attention from them.
North America, Western Europe, and South America also received the lion’s
share of attention as scholars became interested in the globalization of the
international political economy and the rise of neoliberalism. Much of this
work focused on the various mechanisms by which neoliberalism diffused
from one country to another; how powerful political and economic actors,
such as the International Monetary Fund and World Bank, pushed neoliberal-
ism in the guise of the Washington Consensus on to various countries; and
how national institutions mediated the degree to which different countries
embraced neoliberalism or not (Harvey 2005; Simmons, Dobbin, and Garrett
2008). But, again, Israel never received much attention.
Why has Israel been relegated to the sidelines so often by comparativists?
The answer is not obvious but several possibilities come to mind. One is that
Israel did not join the Organisation for Economic Co-operation and Develop-
ment (OECD) until 2010. As a result, data on Israel were not available in a form
that facilitated easy comparisons to other OECD countries.
Furthermore, for whatever reason, comparativists have not been interested
in the Middle East more generally. This is doubly ironic. On the one hand,
much of their research focused on how the stagflation crisis of the mid-1970s
was a watershed moment for the rise of neoliberalism and a game-changer for
the international political economy. But after all, this was a crisis sparked in
the first place by the Organization of the Petroleum Exporting Countries
(OPEC) oil embargo in response to US support for Israel during the 1973
war. On the other hand, Israel and the rest of the Middle East have received
a tremendous amount of attention from scholars interested in international
relations. So how Israel can be a focus of their work but not that of compar-
ativists is curious indeed.
Another reason why comparativists may have neglected Israel is that it is a
very difficult case for them to understand because its complexities challenge
some of their most basic assumptions about how national political economies
operate. There are two reasons for this. First, most comparativists have focused
on class struggles rather than nationalist struggles to explain differences
among national political economies. For instance, many comparativists have
shown that so-called liberal market economies like the USA and the UK have
weak unions, poorly organized employer associations, and little corporatism
so they work much differently than co-ordinated market economies like
Sweden and Germany that have strong unions, well-organized employer
associations, and much corporatism (Hall and Soskice 2001). Of course, this

viii
 Foreword

emphasis on class stems from the fact that the societies they often studied—
North America and Western Europe—tended to be relatively homogeneous
culturally for various historical reasons, not all admirable or pleasant. Put differ-
ently, the question of nationalism had long been settled in the West but not in
Israel. As Ernest Gellner argued, class conflict inside a common culture is rela-
tively mild because it is not mixed up with ethnic, linguistic, religious, or other
forms of nationalist conflict. For him the real political dynamite in modernity
results from the combination of nationalist and class politics (Gellner 1983: chap.
7; Dahrendorf 1957: chap. 6). Although largely absent in the postwar advanced
capitalist countries, such dynamite has been common in Israel where since
its founding in 1948 tensions between Muslims and Jews from a variety of
class, religious, ethnic, and linguistic backgrounds have festered continuously
and often exploded violently. Class and nationalist divisions have also been
commonplace among the Jews with important effects on the Israeli political
economy. Nationalism is not something with which most comparativists are
concerned or that fits neatly into their analytic framework even though recent
scholarship suggests that the degree to which countries are culturally homoge-
neous does affect national economic performance—even in the relatively
homogeneous Western countries (Patsiurko, Campbell, and Hall 2013).
Second, the Israeli state is a stark and contradictory combination of what
Michael Mann called infrastructural and despotic power (Mann 1984). It is a
democratic state affording some of its inhabitants, including Muslims, Christians,
and Jews, citizenship, the right to vote, the obligation to pay taxes, and other
opportunities to participate in the well-ordered functioning of society. But it
is also an oppressive state subjecting a significant proportion of the Arab
population to strict and sometimes violent control, including the suppression
of free movement within the country and access to labor markets and social
services. This too is ironic insofar as much of what is now Israel was once
under British colonial rule yet Israel practices a form of internal colonialism
vis-à-vis the Palestinians living in the occupied territories in Gaza, the West
Bank, and the Golan Heights. The complexities involved are mind-boggling
insofar as some Palestinian Arabs are citizens of Israel but others are not.
Furthermore, beginning with the dismantling of the military government
that controlled Arab citizens toward the end of the second decade of Israeli
sovereignty, state regulation of and discrimination against Palestinian citizens
became less despotic and more contradictory. Yet raw despotic power, unme-
diated by any liberal rights of citizenship, continues to be exercised over the
residents of the occupied territories.1 Nevertheless, the more important point
is that this blending of infrastructural and despotic state power also makes

1
A partial exception are the residents of East Jerusalem, which was unilaterally annexed by Israel
and who have a kind of halfway status as permanent residents of Israel.

ix
Foreword

Israel much different from the West where infrastructural power typically
supersedes despotic power. As a result, the nature of state power in Israel
does not conform to that assumed analytically by most comparativists given
the countries they study.
A final reason for the omission of Israel from comparative analysis is likely
that some of the important studies of the Israeli political economy were
written in Hebrew rather than English. In this sense Israel has suffered the
same fate as Denmark, for instance, another small state that was ignored by
comparativists for a long time because most of the literature available in
English about Scandinavian political economies was only about Sweden.
Thankfully, this problem has diminished somewhat since the 1990s because
of pressure on Israeli academics to publish internationally (See for example,
Shalev 1992; Nitzan and Bichler 2002b; Grinberg 2010, 2014; Maman and
Rosenhek 2011; Ram 2008, 2011). This volume contributes to that effort and
presents a wonderful opportunity for English-speaking comparativists to learn
much about the Israeli case. But there are other reasons too that it should
receive wide readership among comparativists—reasons that bear directly on
our understanding of the rise of neoliberalism.
To begin with, as the editors explain in their Introduction, neoliberalism in
Israel would not have been possible without the state. This, of course, is
paradoxical to the extent that neoliberalism is ostensibly a political and
ideological prescription for reducing the state’s role in the economy and
unleashing market forces. As this volume makes abundantly clear, the rise of
neoliberalism in Israel was driven by state actors seeking in many instances to
enhance and reorganize rather than reduce the state’s power—or at least the
power of certain state agencies. Notable among them were the Ministry of
Finance and the central bank, whose power and autonomy increased signifi-
cantly over the last few decades thanks to various neoliberal reforms. This flies
in the face of much conventional wisdom, which argues that the rise of
neoliberalism was driven by external actors like the IMF and World Bank
wielding conditionality agreements to force governments into neoliberal
reforms; the maneuvering of multinational corporations threatening capital
flight if their neoliberal demands were not met; and the diffusion of neoliberal
ideology from the USA via intellectual networks, notably professional econo-
mists trained in American universities who then returned to their home
countries as disciples of the neoliberal creed.
If Israel sheds new light on the motivations driving the rise of neoliberalism, it
also sheds light on the mechanisms by which neoliberal reforms were achieved.
Much has been written lately about the mechanisms of institutional change,
such as layering, conversion, and drift as articulated by Wolfgang Streeck,
Kathleen Thelen, and James Mahoney (Streeck and Thelen 2005a; Mahoney
and Thelen 2010a). What this volume adds, however, is that neoliberalism does

x
 Foreword

not necessarily follow an ever escalating trajectory—an inescapable march

toward more and more neoliberalism—as their work sometimes implies
(Streeck 2009).2 That is, despite their incremental development reforms taken
in the name of neoliberalism do not always and inevitably produce more
neoliberalism on the ground. What may seem to be neoliberal reform at the
level of appearances and rhetoric may turn out to be something quite different
at the level of concrete political practice. Moreover, sometimes reforms may be
undertaken that actually reverse neoliberal reforms made previously. This
makes sense in light of the basic argument of this volume—that states make
neoliberalism. What the state giveth the state can taketh away! After all, if
neoliberal reform is a project involving political struggles over state power,
then we should not be surprised to learn that these struggles may sometimes
roll back earlier reforms. Nor should we be surprised that these struggles may
involve the mobilization of neoliberal symbols and discourse as legitimizing
cover for ulterior motives. All of this becomes clear in this volume.
Finally, the evidence is mounting particularly in light of the causes of the
2008 financial crisis and since then the failed austerity policies of Western
Europe that neoliberalism has not delivered on its promises. Yet it remains
the dominant policymaking paradigm in many countries. Several scholars
have tried to explain neoliberalism’s resilience. Peter Hall and Michèle
Lamont, for instance, argue that its resilience boils down to political, eco-
nomic, and cultural resources that different groups mobilize at the family,
neighborhood, local, regional, national, and transnational levels to pursue
or defend against neoliberalism (Hall and Lamont 2013). Similarly, Vivien
Schmidt and Mark Thatcher maintain that neoliberalism lives on because it
is a malleable set of principles with few alternatives that can be as easily
articulated; because it has powerful supporters; and because it has been
institutionalized over a long period of time thus making it difficult to
dislodge (Schmidt and Thatcher 2013a). And Colin Crouch suggests that
neoliberalism’s resilience stems from the fact that multinational corpor-
ations, which have a vested interest in neoliberal reforms, dominate the
state in ways that tend to lock neoliberalism into place (Crouch 2011). For
all of these reasons it is said that neoliberalism will continue to dominate
policymaking regardless of how much evidence accumulates to contradict its
claims. While there is truth to these arguments, they all neglect one of the
seminal insights of this volume: the state itself is perhaps the most import-
ant source of neoliberal resilience. State actors have a vested interest in
supporting it and defending it against its critics.

2
Streeck’s discussion of globalization and the rise of neoliberalism in Germany is an example of
an argument about the more or less relentless march to ever more neoliberal outcomes.

xi
Foreword

In short, if we want to understand the origins, mechanisms, and resilience

of neoliberalism, we need to grasp the state’s role in all of this. This volume
does just that in rich historical and analytic detail. In doing so it presents a
case—Israel—that comparativists ought to take much more seriously going
forward than they have in the past.

xii
Contents

List of Figures and Tables xv

Notes on Contributors xvii

1. Introduction 1
Asa Maron and Michael Shalev

Part 1. Transformations of the Key Actors

2. Paving the Way to Neoliberalism: The Self-Destruction
of the Zionist Labor Movement 29
Lev Grinberg

3. Big Business and the State in the Neoliberal Era:

What Changed, What Didn’t? 46
Daniel Maman

4. The Reconfigured Institutional Architecture of the State:

The Rise of Fiscal and Monetary Authorities 60
Daniel Maman and Zeev Rosenhek

5. Institutionalizing the Liberal Creed: Economists in Israel’s

Long Journey Towards Political-Economic Liberalization 74
Ronen Mandelkern

Part 2. Neoliberalism and Social Policy Reform

6. Pathways to Neoliberalism: The Institutional Logic
of a Welfare State Reform 93
Michal Koreh and Michael Shalev

7. “Wisconsin Works” in Israel? Imported Ideas, Domestic

Coalitions, and the Institutional Politics of Recommodification 109
Sara Helman and Asa Maron
Contents

8. Bureaucrats, Politicians, and the Politics of Bureaucratic

Autonomy: Reforming Child Allowances and Healthcare 122
Sharon Asiskovitch

Part 3. Neoliberalism and The Casualization of Employment

9. Precarious Employment in the Public Sector: How Neoliberal
Practices Preceded Ideology 139
Michal Tabibian-Mizrahi and Michael Shalev

10. Contradictions in Neoliberal Reforms: The Regulation of

Labor Subcontracting 153
Guy Mundlak

11. Conclusion 172

Asa Maron and Michael Shalev

Bibliography 189
Index 217

xiv
List of Figures and Tables

Figure
5.1 Economists and Politics in Israel since the 1950s 89

Tables
3.1 Israeli Big Business 48
9.1 Gradual Institutional Change in Hiring Practices in the Health System 147
10.1 Regulating Mediated Employment Arrangements—The State of the Law 166
Notes on Contributors

Sharon Asiskovitch holds a PhD in Political Science from the Hebrew University of
Jerusalem and is a researcher in the Research and Planning Authority of the National
Insurance Institute of Israel, and an adjunct lecturer at the School of Social Work,
Ruppin Academic Center. He is the author of a book on the politics of Israel’s healthcare
system, Price Tag for Life [Hebrew] (2011) and articles on Israel’s welfare state and social
politics in journals that include Social Policy and Administration, Policy and Politics, and
Global Social Policy.
Lev Grinberg is Professor of Sociology at Ben Gurion University (Israel). He has taught as
a visiting professor at UCLA, UC Berkeley and Dartmouth College. He specializes in Israeli
politics, the history of the Zionist Labor Movement, Israel’s political economy, and the
sociology of the Israeli–Palestinian Conflict. His books include Split Corporatism in Israel
(1991), The Histadrut Above All [Hebrew] (1993), Introduction to Political Economy (1997),
Politics and Violence in Israel/Palestine (2010), and Mo(ve)ments of Resistance (2013). His
current research is a comparative study of “occupy” movements of resistance.
Sara Helman is Senior Lecturer in the Department of Sociology and Anthropology, Ben
Gurion University (Israel). She specializes in political sociology, with an emphasis on
the sociology of state–society relations and citizenship, and the sociology of social
movements. She has published in journals including The British Journal of Sociology,
Constellations, Social Policy and Administration, Social Politics, and the Journal of Culture,
Politics and Society, as well as in several book collections. She is currently researching
active labor market policy in Israel, and the ways it redefines the relations between
individuals and state agencies.
Michal Koreh is a Lecturer in the School of Social Work at the University of Haifa.
Previously she was a Postdoctoral Fellow at the Taub Center for Israel Studies, New York
University. As a political economist of the welfare state, her research relates to broad
questions of welfare state development as well as contemporary processes of restruc-
turing. Her research also addresses specific social programs in the areas of social insur-
ance financing, pensions, and poverty amelioration. Her articles are published or
forthcoming in journals that include Socio-Economic Review, Journal of European Social
Policy, Health Policy, and Social Policy and Administration.
Daniel Maman is Associate Professor in the Department of Sociology and Anthropol-
ogy, Ben Gurion University (Israel). His areas of interest include economic sociology,
sociology of finance, comparative political economy, and institutional change. He was
coeditor of The Military, State and Society in Israel (2001), and with Zeev Rosenhek he
Notes on Contributors

coauthored The Israeli Central Bank: Political Economy, Global Logics and Local Actors
(2011). He has published in journals including Socio-Economic Review, Review of Inter-
national Political Economy, Organization Studies, and The British Journal of Sociology. He is
currently studying the emergence and development of financial literacy in Israel.
Ronen Mandelkern is a Lecturer in Political Science at Tel Aviv University. Previously,
he held Postdoctoral Fellowships at the Polonsky Academy at the Van Leer Jerusalem
Institute and at the Max Planck Institute for the Study of Societies (MPIfG), Cologne.
His main research fields are comparative and international political economy, with
a focus on economic liberalization processes in Israel and other developed economies.
He has published in World Politics, New Political Economy, and Comparative Political
Studies.
Asa Maron is a Lecturer in the Sociology Department at the University of Haifa.
Previously he held postdoctoral positions at Stanford University, the Hebrew University
of Jerusalem, and Ben-Gurion University of the Negev. He is a political sociologist
specializing in the sociology of the welfare state and neoliberalism, with an emphasis
on the transformation of the state, its politics, institutional dynamics, and conse-
quences for state–society relations. He has published in Law & Society Review, Adminis-
tration & Society, Social Policy & Administration, and Mediterranean Politics.
Guy Mundlak is Professor of Labor Law and Industrial Relations at Tel Aviv University,
with a joint appointment in the Law Faculty and the Department of Labor Studies. His
interests span diverse areas of labor and social law, including social rights, welfare, and
immigration, as well as industrial relations. He has published extensively on inter-
national, comparative and Israeli labor norms. He is the author of Fading Corporatism
(2007), and co-editor of Comparative Labor Law (2015). He serves on the editorial board
of the International Labour Review, chairs the advisory committee to the Equal Oppor-
tunities Commission in Israel, and is also a social activist.
Zeev Rosenhek is Associate Professor in the Department of Sociology, Political Science,
and Communication at the Open University of Israel. He is a political and economic
sociologist, and has conducted research on the political economy of the welfare state,
labor migration, and the politics of institutionalization of the neoliberal regime in
Israel. He is the co-author with Daniel Maman of The Israeli Central Bank: Political
Economy, Global Logics and Local Actors (2011). He has published numerous articles in
journals that include Ethnic and Racial Studies, Journal of Ethnic and Migration Studies,
Social Problems, Acta Sociologica, Journal of Social Policy, European Journal of Sociology,
Review of International Political Economy, and Socio-Economic Review.
Michael Shalev is a political sociologist, formerly at the Hebrew University of Jerusa-
lem and currently Visiting Professor at the University of California at Berkeley. His
primary research interests are in the political economy of Israel and rich democracies
generally, focusing on the politics of social and economic policy, social stratification,
and the socio-economic underpinnings of political action. He is the author of Labour
and the Political Economy in Israel (1992) and editor of The Privatization of Social Policy?
(1996). He has published in World Politics, Socio-Economic Review, Social Forces and other
journals. Shalev’s recent research is on the mass protests of 2011 in Israel and Southern
Europe.

xviii
 Notes on Contributors

Michal Tabibian-Mizrahi completed her PhD in Sociology at the Hebrew University of

Jerusalem, and her contribution to this volume is based on her dissertation, Dynamics
of Gradual Institutional Change–the Development of Precarious Employment in the Public
Sector. She has served as Senior Researcher in the Research and Information Center of
the Israeli Knesset (parliament) and Senior Division Head in the Department of Gov-
ernance and Society of the Prime Minister’s Office, and is currently Director of Strategy
and Planning in the Ministry of Education.

xix
1

Introduction
Asa Maron and Michael Shalev

This book offers a gallery of recent scholarship exploring the politics, institu-
tional dynamics, and outcomes of neoliberal restructuring in Israel. The focus
is on the political economy broadly defined, with a particular interest in social
and labor market policies. However, our ambitions are nomothetic as well
as idiographic. In the struggle for theoretical primacy between the master
explanations of political economy, power and interests have lost ground in
recent decades as Marxian analysis based on class conflict and the power of
capital gave way to a growing emphasis on ideas and culture on the one hand,
and institutions on the other. This had a significant impact on the study of
neoliberalism, understood as the driving force behind the destabilization of
postwar state–economy–society settlements in economically advanced dem-
ocracies, via a growing primacy of markets and market logic. The main goal
of the volume is to explore neoliberal reforms from a neo-institutional per-
spective which, while attentive to the role of both ideas and institutions in
shaping the role of the state, attempts to reassert the interests and power of
state institutions and actors as pivotal to the success of the neoliberal project.
We seek to understand neoliberalism as a contentious political project which
may be—and in Israel was—advanced and nurtured mainly by engaged state
actors, via arrangements and coalitions with other state and non-state actors.
We contend that the political study of the emergence of neoliberalism has
not been sufficiently attentive to the role of states. While scholars have
explored the role of politicians, particularly in the emblematic cases of Britain
and the United States but also in other countries and regions (Geddes 1995;
Pierson 1994; Swarts 2013; Prasad 2006), this has not generally been coupled
with consideration of the role of state bureaucracies. In addition, most studies
adopt a tipping-point, “one-way” understanding of the transition to neo-
liberalism, neglecting the fact that at least some elements of such transitions
Asa Maron and Michael Shalev

are potentially contentious, mobilizing resistance and possibly even leading

to policy reversals. This volume offers to overcome these limitations, first
by adopting a state-centered perspective on the politics and outcomes of
neoliberal transformations, and second by offering a historical perspective
focused on the capacity of reformers to translate their temporary achieve-
ments into entrenched strategic advantages. The role of the state is not the
only explanation for the ascendancy of neoliberalism, but it is more than just
one of many equally significant interpretive approaches. The scarcity of pre-
vious attention by scholarship on neoliberalism to the role of the state,
coupled with the specific need to correct earlier interpretations of the Israeli
case which neglected its role, justify our decision in this volume to give theor-
etical and empirical primacy to the state.
This volume puts forward a bold proposition, that the very creation of a
neoliberal political economy may be largely a state project. Correspondingly,
the key political conflicts surrounding the realization of this project may occur
within the state. These struggles engage state actors—bureaucrats and their
agencies even more than politicians and their parties—advancing different
policy projects and following distinct interests and logics that in many cases
only partly or tenuously reflect social and economic forces outside of the state.
Neoliberal restructuring and the institutionalization of permanent austerity
are dependent on reconfigured power relations between these actors and are
manifested in a new institutional architecture of the state. This architecture,
in turn, is the context in which intra-state conflicts and coalitions are formed,
and efforts to change social and employment policies play themselves out.
A further guiding principle of this volume is that while neoliberalism is a
compelling political phenomenon with clear trans-national commonalities, it
is neither omnipotent nor universal. Contextually sensitive case studies are
essential to advance scholarly understanding of both the general and particu-
lar features of the contemporary neoliberal order and its underpinnings.
Radically transformed from a developmental political economy to a neoliberal
regime in only a few decades, Israel has experienced vast increases in the
executive power of fiscal and monetary authorities committed to radical
neoliberal reform, alongside sea changes in the structure and capacities of
both labor and capital. The extraordinary powers of organized labor were
swiftly and sharply curtailed, while Israel’s already highly concentrated econ-
omy became dominated by a small number of capitalist “tycoons.” Given the
extent of these transformations, their rapidity, and the relative transparency
of a small country, Israel is an ideal setting to study the constitution of
neoliberalism as a contested state-driven project.
Neoliberalism is not a coherent package of ideas, models and formal insti-
tutions applied identically in all locations and contexts (Campbell and
Pedersen 2001; Schwartz 1994; Manzetti 2010; Veltmeyer, Petras, and Vieux

2
 Introduction

1997; Fourcade-Gourinchas and Babb 2002; Schmidt and Thatcher 2013b).

Varieties of neoliberalism emerge because the new order does not steamroll
everything in its path, but rather interacts with existing institutional and
cultural characteristics of national political-economic regimes, altering or
eliminating some of their illiberal underlying principles and practices while
allowing others to survive and even flourish. Illiberal elements are perpetuated
not simply by institutional inertia, but by the political influence and agency
of segments of society which benefit from arrangements protecting them
from the full force of neoliberal reform—or compensate them for its costs
(Etchemendy 2011). The uneven and localized adoption of neoliberal policies
and practices also reflects resistance and obstacles in the form of institutional
veto points or ad hoc coalitions, many of them inside the state itself.
The remainder of this introduction is divided into three sections. The first
section surveys key contributions of existing scholarship which have shaped
the understanding of the editors and contributors to this volume of the
mechanisms underlying the ascendancy of neoliberalism. The next section
contextualizes the Israeli political economy and welfare state, sketching the
broad lines of their evolution into the neoliberal era. This is followed by an
overview of the chapters to follow.

Theoretical Inspirations

Considerable scholarship on the role of the state in developed political econ-

omies debates the extent to which states have been constrained by the mater-
ial and ideational dictates of globalization and neoliberalism. Both our
theoretical orientation, and the evidence presented in this volume for Israel,
align with the view that contemporary states continue to be extensively
engaged with the economy and society and maintain significant steering
capacities, though they may deploy new policy instruments and pursue new
goals (Block 2008; Campbell and Pedersen 2001; Levy 2006; Schmidt and
Thatcher 2013b; Weiss 2010). However, this book is less concerned with
specifying the role of the state under neoliberalism, than with exploring the
potentially decisive contribution made by states to its rise and consolidation.
Investigating this problemstellung can be justified not only by the importance
of understanding neoliberalism’s past, but also its present and future. The
financial crisis of 2008 and its aftermath have focused attention on the puzzle
posed by the “strange non-death of neoliberalism” (Crouch 2011), its surpris-
ing endurance in the face of real-world failures and growing popular critique.
This is often explained by the persisting ideational hegemony—or resilience—
of neoliberalism and the lack of a coherent alternative theory, ideology and
policy paradigm (Block and Somers 2014; Centeno and Cohen 2012; Schmidt

3
Asa Maron and Michael Shalev

and Thatcher 2013b). However, by tracing the centrality of the state—

particularly state agencies—in advancing, nurturing, and entrenching a neo-
liberal transformation of the political economy, this book implies that the
current resilience of the neoliberal project may also be explained by the
success of neoliberalism as a state project that succeeded in institutionalizing
neoliberal policies and practices in the everyday routines of states.
Taking the seminal volume edited by Campbell and Pedersen (Campbell
and Pedersen 2001) as a starting point, we observe that while it provided
substantial evidence that the various agencies and actors of the state played
prominent roles in the rise of neoliberalism, the state as a distinct field of
institutional actors was not identified explicitly, nor was it theorized. The
formal, normative and cognitive components of the new neoliberal institu-
tional order appeared to have been superimposed on the state, rather than
originating from within it. Questioning this seemingly passive understanding,
the present volume shifts the spotlight to what Leibfried and colleagues
describe as the role of the state as “an active and effective mover of its own
transformations” (Leibfried et al. 2015: 9). This is not a new perspective. More
than two decades ago Barbara Geddes wrote that “To understand the politics
of economic liberalization, analysts need to start by thinking in a more careful
and concrete way about the state and the interests of the officials who consti-
tute it” (Geddes 1995). By deepening our understanding of the state, its
internal power struggles and the interests which they reflect, much can be
learned about the politics that shape neoliberal projects, the actors that build
and sustain them, and the consequences they invoke.

State Theories Revisited

According to some theories, the state is an arena of political struggles over
governmental power between social groups, while others depict it as a mere
instrument in the hands of societal groups (Alford and Friedland 1985). The
missing elements in both approaches are the active and comprehensive role
that states play in society and politics, and the fact that the state is “a structure
with a logic and interests of its own” (Skocpol 1979: 27). Skocpol (Skocpol
1979, 1985) explicitly articulated these two essential aspects of the role of the
modern state: as a structure and an actor. The state as a structure refers to the
institutional features of states—for example, whether they are unitary or
federal or the type of party system—and asks how they affect the strategies,
identities and opportunities of both state and non-state actors.
What determines the role of the state as an actor? An elementary but powerful
analytical distinction has been made between the autonomy and capacities
of states. As Amenta puts it, the power of states to make and implement policy
is dependent, respectively, on their “ability to define independently lines

4
 Introduction

of action” and “to carry out lines of action” (Amenta 2005: 100). Clearly,
capacities like revenue extraction and centralized administrative control are
critical for states’ ability to make their decisions matter. But it is often impossible
to maximize both autonomy and capacity. States lacking resources may have to
sacrifice autonomy in order to cover their resource deficit. On the other hand,
those enjoying capacities without autonomy tend to the opposite tradeoff,
since lack of autonomy means subordination to non-state actors who exploit
state capacities for their own ends.
State autonomy can never be absolute, and coalitions with societal
interests and other states are essential. As a result autonomy is always
contingent, varying both across policy domains and over time. Classic
formulations of the state-centered approach attributed changes in auton-
omy mainly to domestic and international challenges exterior to the state,
coming at a time when its authority, military power and infrastructural
power are underdeveloped or in decline (Trimberger 1978; Skocpol 1979;
Krasner 1984; Mann 1984). This emphasis was accompanied by neglect of
the “internals” of the state itself. Due to the historical growth of states
and diversification of their functions and roles in society, modern states
are polymorphous rather than monolithic (Mann 1984). The state is an
ensemble of institutions, a heterogeneous and unequal field in which
institutional actors with different bureaucratic and professional logics and
organizational interests compete for power, resources, autonomy, and legit-
imacy (e.g. Bourdieu 1999; Carruthers 1994; Chibber 2002; Schmidt 2009;
Martin 1989; Major 2013).
While the highly aggregated conception of the institutional interests of
“the” state proposed by Skocpol and other protagonists of the state-centered
approach tended to overlook the internal institutional fragmentation of
states, their specification of state interests is a valuable starting-point for
understanding what drives the actions of individual state agencies. The
insight that states have primal interests in both capacities and autonomy,
and that tradeoffs may be necessary between the two, is relevant to a disag-
gregated as well as an aggregated perspective on states. And here too a shifting
balance is likely between contestation and cooperation vis-à-vis other actors,
including not only actors from non-state fields, but also—and possibly even
more importantly—other state agencies.
Beyond these general influences, the actions of particular state actors are to
a large extent shaped by their position and function in the state field, and their
corresponding agency-specific interests and professional expertise. These nur-
ture a certain set of goals, interests, responsibilities, and modus operandi (Hall
1986: 19) that are internalized by bureaucratic and professional elites that play
a proactive role in formulating agency-specific policy lines. As a result, the
structured relations between subunits of the state, and the conflicts and

5
Asa Maron and Michael Shalev

coalitions to which they give rise, strongly influence which of the state’s
multiple interests and logics come to the fore.

Explaining Transitions to Neoliberalism

Scholars agree that the rise and establishment of neoliberalism is associated
with changes in the institutional architecture of the state. In order to adopt
neoliberal principles, states must transform. Marxist perspectives link the
transformation of the state to the changing interests of capitalists, the reflec-
tion of a wider shift from a Fordist to a Post-Fordist accumulation regime in the
1970s (Amin 2011). The regulation approach focused on explaining the con-
tingent adjustment of the state to the new demands of capital, by being
attentive to variations in class struggles (Boyer 1990). However, this approach
still falls short in recognizing the lasting importance of domestic structures,
politics and institutions, while remaining mute on intra state variation, and
the dynamics and struggles that can emerge around attempts to replace
entrenched policy goals and instruments (cf. Jessop 1999, 2002 on the tran-
sition from welfare to workfare).
Insightfully embracing a disaggregated perspective, Jayasuriya (2001, 2005)
and Major (2013) have argued that the internal architecture of states, their
subdivision into agencies with varying resources, capacities, and autonomy, is
critical for understanding the transformation of states and their embrace of
neoliberalism. Both authors point to the rise of macroeconomic agencies
within states, and the subsequent development of new relations between
them and other subunits, as central features of the transition to a neoliberal
political economy. Yet notwithstanding the importance of these institutional
reconfigurations, it is essential to recognize both components of the structure/
agency couplet. Changes in internal state architecture, such as the rise of
autonomous central banks and the growing authority and autonomy of eco-
nomic technocrats over budgeting, have indeed provided essential institu-
tional preconditions for the rise of neoliberal relations between state,
society, and economy. But the other side of the same coin is that the experts
who run the state’s economic bureaucracies have actively engaged in political
action designed to promote these very institutional changes, using them to
aggrandize the power and autonomy of their agencies vis-à-vis rival centers of
power. These rivals, at the extreme veto players, may be located outside as well
as inside the state. In the non-state arena they include powerful segments of
capital, labor, and civil society; and within the state, other state agencies,
courts, and elected governments and legislatures.
State agencies in pursuit of autonomy strive to guide and if necessary
discipline powerful societal actors and their organized representatives. The
guiding role of economic bureaucrats in the pre-neoliberal era was evident in

6
 Introduction

the so-called developmental states of East Asia (Johnson 1982; Evans 1989),
but it was also integral to Shonfield’s claim in the 1960s that some form of
planning was essential to the continuing success of the most advanced capit-
alist economies (Shonfield 1965). Neoliberalism has often been understood
from this perspective as a necessary corrective to the emergent contradictions
of postwar settlements that empowered labor and the left. It has been
argued that, as a result of profit squeeze and fiscal crisis in the 1960s and
1970s (Glyn and Sutcliffe 1972; O’Connor 1973), the autonomy of the
state vis-à-vis capital shrank. On top of domestic pressure to increase profit
margins, globalization was said to enhance the leverage of market actors—
especially multinational corporations, international finance, and domestic
business groups—over states, further undermining their capacity to maintain
postwar commitments to labor and society (Cerny 1997; Held 1999). Thus,
states were obliged to reinstate conditions for capital accumulation and the
re-empowerment of capitalist elites (Harvey 2005).
Our focus on the state does not preclude the influence of societal interests
and powers, including the role of capital, international financial institutions,
and domestic civil society organizations in neoliberal restructuring. Neverthe-
less, we follow a significant body of research which rejects the idea that there is
a direct and imperative causal link between economic forces and domestic
policy change. Much of this work has highlighted the critical mediating role
of state institutions and domestic politics (e.g. Swank 2002; Brady, Beckfield,
and Seeleib-Kaiser 2005; Weiss 2003b; Levy 2006), contending that states “can
block, adapt to, mediate, and in some cases even reverse neoliberal tenden-
cies” (Campbell and Pedersen 2001: 1). Moreover, while changes in the inter-
national environment and the financialization of capitalism have imposed
constraints on some state activities, they have also stimulated and enabled
new roles and activities (Levy 2006; Weiss 2003a, 2010).
Even when responding to intense economic pressures for liberalization
and fiscal austerity, states have not simply been passive victims of domestic
and international forces. In his study of state reorganization in small trade-
dependent countries that were in the vanguard of neoliberalism, Schwartz
(1994: 529) emphasized how state actors strategically “pushed institutional
changes that enhance central state autonomy.” It is this state-centered
moment of the relationship between states and neoliberal capitalism that
the present volume seeks to privilege. Accordingly, turning around the
conventional perception, we adopt the view that globalization and the rise
of monetarism and supply-side economics helped to empower monetary and
fiscal state agencies by making it “imperative” for them to impose discipline
on both private economic actors and other units of the state. Increasingly
embedded in international networks of experts and technocrats, the
state’s economic managers have buttressed their professional authority to

7
Asa Maron and Michael Shalev

become national guardians of austerity and competitiveness (e.g. Fourcade-

Gourinchas and Babb 2002; Major 2013; Jayasuriya 2001; Wanna, Jensen,
and Vries 2003).

How and When is Transformative Change Possible?

If it is indeed true that self-interested state actors have played pivotal roles in
neoliberal transformations, how did they succeed in overcoming the conser-
vative institutional biases of state structures and practices?
From a path dependence perspective, major changes are expected to
occur “when new conditions disrupt or overwhelm the specific mechanisms
that previously reproduced the existing path” (Pierson 2000: 266). This type
of disruption is especially likely at critical junctures, “moments when the
freedom of political actors and impact of their decisions is heightened”
(Capoccia and Kelemen 2007: 343), and consequently institutional equilibria
are “punctuated” and dramatically reconfigured (Baumgartner, Jones, and
Mortensen 2014; Krasner 1984).
This perspective, which leads naturally to a focus on crises and radical
responses to them, has been challenged by scholars with an interest in gradual
and cumulative transformation. It is claimed that by paying greater attention
to the agents responsible for the ongoing maintenance of institutions, it can
be discerned that incremental institutional change takes place even under
conditions of apparent institutional inertia (Crouch 2005; Streeck and
Thelen 2005a; Mahoney and Thelen 2010a). Nuanced mechanisms, like fail-
ure to adapt to new conditions or the stepwise accumulation of modest
innovations, may result in a structural break but one that is not necessarily
noticed along the way. Thus, gradual reform assists politicians and bureaucrats
seeking to obfuscate the intended outcomes and effects of the institutional
changes they promote (Pierson 1994). Incrementalism has become widely
recognized as a key means of overcoming the institutionalization of embed-
ded liberalism in the postwar era, which constrained entrepreneurs of liber-
alization (Ruggie 1982).
While a number of the substantive chapters of this volume draw attention
to the role of mechanisms like layering, drift and displacement, the contribu-
tors also utilize complementary theoretical insights into how barriers to insti-
tutional change may be overcome by state actors.
First, change agents within the state form coalitions in the hope of offset-
ting the power of veto players. The coalition partners can be other agencies,
politicians, civil society actors or market actors. These networks of govern-
ance and change aim to circumvent resistance from both within and outside
the state (Newman 2001). They may exploit new ideas in order reinterpret
institutional rules and goals in ways that justify their efforts at institutional

8
Another random document with
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allowance, and they went gaily down the stream with the people who
thought evil of Lady Perivale.
"We never were really intimate with her, don't you know?" they
explained, to acquaintance who had seen them in her barouche or in
her opera-box three or four times a week.
Her opera-box had been one of her chief splendours, a large box on
the grand tier. Music was her delight, and, except for a scratch
performance of Il Trovatore or La Traviata, she had seldom been
absent from her place. It was at the opera that Colonel Rannock had
been most remarkable in his attendance upon her. She liked him to
be there, for it was pleasant to have the sympathy of a fine musician,
whose critical faculty made him a delightful guide through the
labyrinth of a Wagnerian opera. Their heads had been often seen
bending over the score, he explaining, she listening as if enthralled.
To the unmusical, that study of Wagner's orchestration seemed the
thinnest pretext for confidential whispers, for lips hovering too near
perfumed tresses and jewelled throat.
"No need to inquire for the Leit-motif, there," said the men in the
stalls; and it was generally supposed that Lady Perivale meant to
marry Colonel Rannock, in spite of all that the world had to say
against him.
"If she hadn't carried on desperately with him last year one might
hardly believe the story," said the people who had accepted the truth
of the rumour without a moment's hesitation.
She occupied her opera-box this year, resplendent in satin and
diamonds, radiating light on a tiara night from the circlet of stars and
roses that trembled on their delicate wires as she turned her head
from the stage to the auditorium. She had her visitors as of old:
attachés, ambassadors even, literary men, musical men, painters,
politicians. Coldly as she received them, she could not snub them,
she could not keep them at bay altogether; and, after all, she had no
grudge against the foreigners, and her box scintillated with stars on a
gala night. It pleased her to face her detractors in that public arena,
conspicuous by her beauty and her jewels.
There were waverers who would have liked to go to her, to hold out
the hand of friendship, to laugh off the story of her infamy; but the fiat
had gone forth, and she was taboo. The bellwether had scrambled
up the bank and passed through the gap in the hedge, and all the
other sheep must follow in that leading animal's steps. Life is too
short for individual choice in a case of this kind.
She had half a mind to go to the May Drawing-room, and had no fear
of repulse from Court officials, who are ever slow to condemn; but,
on reflection, she decided against that act of self-assertion. She
would not seem to appeal against the sentence that had been
pronounced against her by confronting her traducers before the face
of royalty. The card for the Marlborough House garden-party came in
due course, but she made an excuse for being absent. She would
not hazard an appearance which might cause annoyance to the
Princess, who would perhaps have been told afterwards that Lady
Perivale ought not to have been asked, and that it was an act of
insolence in such a person to have written her name in the sacred
book when she came to London.
But June had not come yet, and the royal garden-party was still a
thing of the future.

As yet Lady Perivale had taken no trouble to discover how the

slanderous story had been circulated, or who the people were who
pretended to have met her. She could not bring herself to search out
the details of a scandal that so outraged all her feelings—her pride,
her self-respect, her belief in friendship and human kindness.
She had made no attempt to justify herself. She had accepted the
situation in a spirit of dogged resentment, and she faced her little
world with head erect, and eyes that gave scorn for scorn, and the
only sign of feeling was the fever spot that burnt on her cheek
sometimes, when she passed the friends of last year.
She had been living in Grosvenor Square more than a month, and
her drawing-room windows were wide open on a balcony full of May
flowers, when the butler announced—
"Lady Morningside," and a stout, comfortable-looking matron, in a
grey satin pelisse and an early victorian bonnet, rolled in upon her
solitude.
"My dear, I am so glad to find you at home and alone," said Lady
Morningside, shaking hands in her hearty fashion, and seating
herself in a capacious grandfather chair. "I have come for a
confidential talk. I only came to London three days ago. I have been
at Wiesbaden about these wretched eyes of mine. He can't do
much," name understood, "but he does something, and that keeps
my spirits up."
"I am so sorry you have been suffering."
"Oh, it wasn't very bad. An excuse for being away."
"You have been at Wiesbaden, Marchioness? Then you haven't
heard——-"
"What? How handsome you are lookin'. But a little too pale."
"You haven't heard that I am shunned like an influenza patient, on
account of a miserable slander that I am utterly unable to focus or to
refute."
"Don't say that, dear Lady Perivale. You will have to refute the
scandal, and show these people that they were fools to swallow it.
Yes, I have heard the story—insisted upon as if it were gospel truth;
and I don't believe a word of it. The man was seen, I dare say, and
there was a woman with him; but the woman wasn't you."
"Not unless a woman could be in Italy and Algiers at the same time,
Lady Morningside. I was living from November to April at my villa in
the olive woods above Porto Maurizio."
"And you had English visitors comin' and goin', no doubt?"
"Not a living creature from England. I use up all my vitality in a
London season, and I go to Italy to be alone with my spirit friends,
the choicest, the dearest—Mozart, Mendelssohn, Shakespeare,
Browning. I think one can hardly feel Browning's poetry out of Italy."
"That's a pity. I don't mean about Browning, though I do take half a
page of his rigmarole sometimes with my early cup of tea, my only
time for reading—but it's a pity that you hadn't some gossiping
visitors who could go about tellin' everybody they were with you in
Italy."
"I have my old servants, who travelled with me, and never had me
out of their sight."
"Very useful if you wanted their evidence in a court of law; but you
can't send them to fight your battle at tea-parties, as you could any
woman friend—that clever Susan Rodney, for instance. You and she
are such pals! Why wasn't she with you part of the time?"
"She cannot leave her pupils."
"Poor creature! Well, it's a hard case."
"It is less hard since I know there's one great lady who believes in
me," said Grace, holding out her hand to the Marchioness in a gush
of gratitude.
"My dear, I never believe any scandal—even against a woman I
detest, and when I want to believe it—until I have had mathematical
proof of it. And I don't believe this of you, even if twenty people are
going about London who swore they met you honeymooning with
that wretch."
"Twenty people! Oh, Lady Morningside! Susan Rodney spoke of
three or four."
"That was some time ago, perhaps. There are at least twenty now
who declare they saw you—saw you—in Algiers—Sardinia—on
board the Messageries steamer—Lord knows where. And they all
swear that they thought you one of the nicest women in London—
only they can't go on knowing you, on account of their daughters—
their daughters, who read Zola, and Anatole France, and Gabriele
d'Annunzio, and talk about 'em to the men who take them in to
dinner, and borrow money of their dressmakers? I have only one
daughter, and I'm never afraid of shocking her. She has worked for a
year in an East-end hospital, and she knows twice as much about
human wickedness as I do."
"And you don't believe a word of this story, Marchioness?"
"Not a syllable. But I know that Rannock is the kind of man my
husband calls a bad egg; and I think you were not very wise in
having him about you so much last season."
"You see, he wanted to marry me—for the sake of my money, no
doubt—they are so much more persevering when it's for one's
money—and I refused him three times—and he took my refusal so
nicely——"
"One of the worst-tempered men in London?"
"And said, 'Since we are not to be lovers, let us at least be pals.' And
the man is clever—likes the books I like, and the music I like, and
plays the 'cello wonderfully, for an amateur."
"Oh, I know the wretch is clever. A fine manner, the well-born
Scotchman, polished on the Continent, what women call a magnetic
man."
"I liked him, and thought people were hard upon him—and I had
been warned that he was dangerous."
"Oh, that was enough! To tell a young woman that a man is a villain
is the surest way to awaken her interest in him. It is only at my age
that one comes to understand that the man everybody abuses is no
better than the common herd."
"And I let him come and go in quite an easy way, as if he had been a
cousin, and we played concertante duets sometimes, in wet
weather."
"And people found him here, and saw him with you out-of-doors, and
they were talking about you last season, though you didn't know it.
You are too handsome and too rich to escape. The women envy you
your looks; the men envy you your income."
"You are not to suppose I ever cared about Colonel Rannock. I liked
his playing, and his conversation amused me—and the more people
told me that the Rannocks were unprincipled and disreputable, the
more determined I was to be civil to him. One gets so tired of the
good people who have never done wrong; and one doesn't take
much account of a man's morals when he's only an acquaintance."
"That's just what my daughter would say. Goodness and badness
with her are only differences in the measurement of the cerebrum.
She'd consort with an escaped murderer if she thought him clever.
Well, my dear child, you must come to my ball on the fifteenth of
June. I am told it will be the event of the season, though there's to be
no ruinous fancy-dress nonsense, not even powdered heads, only a
white frock and all your diamonds. I am asking everybody to wear
white, and I shall have a mass of vivid colour in the decorations,
banks of gloxinias, every shade of purple and crimson, and orange-
coloured Chinese lanterns, like that picture of Sargent's that we once
raved about. You will all look like sylphs."
"Dear Marchioness, it will be a delicious ball. I know how you do
things. But I can cross no one's threshold till my character is cleared.
My character! Good Heavens, that I should live to talk of my
character, like a housemaid!"
"Won't you come—in a white frock—and all your diamonds? They
would cringe to you. I know what they are—the silly sheep! You see,
they are good enough to call me a leader, and when they see you at
my party, and Morningside walking about with you, they'll know what
fools they've been."
"Dear Marchioness, you have a heart of gold! But I must right myself.
I must do it off my own bat, as the men say."
"You're a pig-headed puss! Perhaps you'll think better of it between
now and the fifteenth—nearly a month. I want to have all the pretty
people. And you are a prime favourite of my husband's. If duelling
weren't out of date I should fear for his life. I'm sure he'd be for
shootin' somebody on your account."

We are weak mortals, when we are civilized, and live in the best
society, and that visit of Lady Morningside's, that hearty kindness
from a motherly woman who had fashion and influence, exercised a
soothing and a stimulating effect on Grace Perivale.
"I am a fool to sit quiet under such an atrocious calumny," she
thought. "There must be some way of letting the world know that I
was spending my winter alone in my Italian villa, while some short-
sighted fools thought they saw me in Africa. It ought not to be
difficult. I must get some one to help me, somebody who knows the
world. Oh, how I wish I could go to law with somebody!"
That word "law" reminded her of the man whose wisdom Sir Hector
had believed infallible, and whose advice he had taken in all
business matters, the management of his estate, the form of his new
investments. Mr. Harding, the old family lawyer, was Hector's idea of
incarnate caution, "a long-headed fellow," the essence of truth and
honesty, and as rich as Crœsus.
"Why didn't I think of him before?" Lady Perivale wondered. "Of
course he is the proper person to help me."
She sent a groom with a note to Mr. Harding's office in Bedford Row,
begging him to call upon her before he went home; but it was past
five o'clock when the man arrived at the office, and Mr. Harding had
left at four.
He had a sumptuous modern Queen Anne house at Beckenham,
moved in the best—Beckenham and Bickley—society, and amused
himself by the cultivation of orchids, in a mild way. He did not affect
specimens that cost £200 a piece and required a gardener to sit up
all night with them. He talked of his orchids deprecatingly as poor
things, which he chose for their prettiness, not for their rarity. He
liked to potter about from hothouse to hothouse, in the long summer
afternoons, and to feel that out of parchment and foolscap and ferret
he had created this suburban paradise.
Lady Perivale had a telegram from him before eleven o'clock next
morning.
"I shall do myself the pleasure of calling at 4.30. Impossible earlier.—
Joseph Harding."
There was another Harding, a younger brother, in the firm, and a
certain Peterson, who had his own clients, and his own walk in life,
which took him mostly to Basinghall Street; but Joseph Harding was
the man of weight, family solicitor and conveyancer, learned in the
laws of real property, the oracle whom landed proprietors and titled
personages consulted.

CHAPTER V.
"For thee I'll lock up all the gates of love,
And on my eyelids shall conjecture hang,
To turn all beauty into thoughts of harm,
And never shall it more be gracious.

O, she is fallen
Into a pit of ink, that the wide sea
Hath drops too few to wash her clean again."
Grace Perivale could hardly live through the day, while she was
waiting for the appearance of the family solicitor. Since Lady
Morningside's visit she had been on fire with impatience to do
something, wise or foolish, futile or useful, towards clearing her
character. She had been all the more eager, perhaps, because in her
morning ride she had seen a man whose scorn—or that grave
distance which she took for scorn—pained her more than the
apostasy of all her other friends.
She had ridden in the park with "the liver brigade" three or four
mornings a week, since her return from Italy, and she had found
some trouble in keeping the men she knew at a distance. They all
wanted to be talkative and friendly, praised her mount, hung at her
side till she froze them by her brief answers, warned them that her
horse hated company, that her mare was inclined to kick other
horses, and then, with a light touch of her whip, cantered sharply off,
and left the officious acquaintance planted.
"One can't expect her to be amiable when our wives and daughters
are so d——d uncivil to her," mused one of her admirers.
Some among the husbands and brothers of her friends had taken
sides for her, and argued that the story of her intrigue with Rannock
was not proven; but the women had heard it too often and from too
many quarters to doubt. They sighed, and shook their heads, and
deplored that it was impossible to go on knowing a woman of whom
such a story was told.
They might not have believed it, they argued, had she not obviously
been head over ears in love with Rannock last season. They had
always been about together—at Ascot, Goodwood, at all the
classical concerts, at the opera. True, she had seldom been alone
with him. There had generally been other women and other men of
the party; but Rannock had undoubtedly been the man.
That one man whose opinion Grace cared for, whose good word
might have been balm in Gilead, was not a man of fashion. Arthur
Haldane was a student, and he only appeared occasionally in the
haunts of the frivolous, where he was not above taking his
recreation, now and then, after the busy solitude of his working days
and nights. He was a Balliol man, had known and been cherished by
Jowett in his undergraduate days, and had taken a first in classics.
He might have had a fellowship had he desired it, but he wanted a
more stirring part in life than the learned leisure of a college. He was
a barrister by profession, but he had not loved the law, nor the law
him; and, having an income that allowed him not to work for daily
bread, after about a dozen briefs spaced over a year and a half, he
had taken to literature, which had been always his natural bent, and
the realm of letters had received him with acclaim. His rivals
ascribed his success to luck, and to a certain lofty aloofness which
kept his work original. He never wrote with an eye to the market,
never followed another man's lead, nor tried to repeat his own
successes, and never considered whether the thing he wrote was
wanted or not, would or would not pay.
He was a prodigious reader, but a reader who dwelt in the past, and
who read the books he loved again and again, till all that was finest
in the master-minds of old was woven into the fabric of his brain. He
seldom looked at a new book, except when he was asked to review
one for a certain Quarterly to which he had contributed since the
beginning of his career. He was the most conscientious of reviewers;
if he loved the book, the most sympathetic; if he hated it, the most
unmerciful.
One only work of fiction, published before he was thirty, had marked
him as a writer of original power. It was a love story, supposed to be
told by the man who had lived it, the story of a man who had found a
creature of perfect loveliness and absolute purity in one of the
darkest spots on earth, had snatched her unstained from the midst of
pollution, had placed her in the fairest environment, watched the
growth of her mind with the tenderest interest, looked forward to the
blissful day when he could make her his wife, and then, when she
had ripened into a perfect woman, had seen her ruin and untimely
death, the innocent victim of a relentless seducer.
The tragic story—which involved a close study of two strongly
contrasted characters, the deep-thinking and ambitious man, and the
child of nature whose every thought was poetry, whose every word
was music—had stirred the hearts of novel-readers, and had placed
Arthur Haldane in the front rank of contemporary novelists; but he
had produced no second novel, and many of his feminine admirers
declared that the story was the tragedy of his own life, and that,
although he dined out two or three times a week in the season, he
was a broken-hearted man.
Perhaps it was this idea that had first interested Lady Perivale. She
saw in Arthur Haldane the man of one book and one fatal love. She
longed to question him about his Egeria of the slums, the girl of
fourteen, exquisitely beautiful, whom he had torn from the clutches of
a profligate mother, while her father was in a convict prison. She was
quite ready to accept the fiction as sober truth, beguiled by that stern
realism from which the writer had never departed, but through which
there ran a vein of deep poetic feeling.
She was surprised to find no trace of melancholy in his conversation.
He did not wear his broken heart upon his sleeve. His manner was
grave, and he liked talking of serious things—books, politics, the
agitated theology of the day—but he had a keen sense of humour,
and could see the mockery of life. He was not as handsome as
Rannock was, even in his decadence, but his strongly marked
features had the stamp of intellectual power, and his rare smile
lightened the thoughtful face like sudden sunshine. He was tall and
well set up, had thrown the hammer in his Oxford days, and had
rowed in the Balliol boat.
Lady Perivale had liked to talk to him, and had invited him to her best
dinners, the smaller parties of chosen spirits, so difficult to bring
together, as they were mostly the busiest people, so delightful when
caught. It was at one of these little dinners, a party of six, that she
beguiled Haldane into talking of the origin of his novel. The company
was sympathetic, including a well-known cosmopolitan novelist, a
painter of manners and phases of feeling, and all the intricacies of
modern life, the fine-drawn, the hypercivilized life that creates its
perplexities and cultivates its sorrows.
"The average reader will give a story-spinner credit for anything in
the world except imagination," he said. "I am sure Mr. Williams
knows that"—with a smiling glance across the table at the novelist of
many countries. "They will have it that every story is a page torn out
of a life, and the more improbable the story the more determined are
they that it should be real flesh and blood. Yet there is often a central
fact in the web of fancy, an infinitesimal point, but the point from
which all the lines radiate."
"And there was such a germ in your story?" Lady Perivale asked
eagerly.
"Yes; there was one solid fact—a child—a poor little half-starved girl-
child. I was passing through a wretched alley between the Temple
and Holborn, when a dishevelled brat rushed out of a house and
almost fell into my arms. A man had been beating her—a child of
nine years old—beating her unmercifully with a leather strap. I went
into the house, and caught him red-handed. He was her uncle. There
was an aunt somewhere, out upon the drink, the man said, as if it
was a profession. I didn't want to go through tedious proceedings—
call in the aid of this or that society. The man swore the child was a
bad lot, a thief, a liar. I bought her of him for a sovereign, bought her
as if she had been a terrier pup, and before night I had her
comfortably lodged in a cottage at Slough, with a woman who
promised to be kind to her, and to bring her up respectably."
"Was she very pretty?" Lady Perivale asked, deeply interested.
"Unfortunately—or perhaps fortunately for herself—she was an ugly
child, and has grown into a plain girl; but she is as frank and honest
as the daylight, and she is doing well as scullery-maid in a good
family. My Slough cottager did her duty. That, Lady Perivale, is the
nucleus of my story. I imagined circumstances more romantic—
dazzling beauty, a poetic temperament, a fatal love—and my child of
the slums grew into a heroine."
"And that is the way novels are manufactured," said Mr. Williams;
"but Haldane ought not to be so ready to tell the tricks of our trade."

Grace Perivale and Arthur Haldane had been friends, but nothing
more. There had been no suggestion of any deeper feeling, though
when their friendship began, two seasons ago, it had seemed to her
as if there might be something more. She looked back at last year,
and saw that Colonel Rannock and his 'cello had kept this more
valued friend at a distance. She remembered Haldane calling upon
her one afternoon when she and Rannock were playing a duet, and
how quickly he had gone, with apologies for having interrupted their
music.
She had met him three or four times of late among the morning
riders, and he had neither courted nor avoided her recognition which
had been cold and formal. She did not take the initiative in cutting
people, for that would have looked as if she had something to be
ashamed of. She only made all salutations as distant as possible.
She stayed at home all day playing, reading, walking about her
room, looking at the flowers, sitting in the balcony, which she had
shaded with a striped awning, trying to make it like Italy. She was too
eager for the old lawyer's visit to apply her mind seriously to
anything.
The poodle, who followed all her movements with a tepid interest,
wondered at her restlessness, and was glad when the maid came to
take him for his afternoon airing in the park, where he ran on the
flower-beds, and was regarded as an enemy by the park-keepers.
Half-past four came at last, and Mr. Harding was announced on the
stroke of the half-hour. Lady Perivale received him in her largest
drawing-room. She did not want him to see all the frivolities—
jardinières, book-stands, easels, eccentric work-baskets, and
fantastical china monsters—of her den, lest he should think lightly of
her. The Louis Seize drawing-rooms, with their large buhl cabinets,
holding treasures of old Sèvres and Dresden, were serious enough
for the reception-rooms of a Lord Chief Justice or an Archbishop.
Even her dress was severe, a blue cloth gown, with only a little
bullion embroidery on the primrose satin waistcoat. Her dark auburn
hair was brushed back from the broad brow, and her hazel eyes, with
golden lights in them, looked grave and anxious, as she shook
hands with the family counsellor.
"Please choose a comfortable chair, Mr. Harding," she said. "I have a
long story to tell you. But perhaps you have heard it already?"
Mr. Harding looked mystified. He was a tall, broad-shouldered man
of about sixty, with a massive brow and a benevolent head, and a
countenance that had acquired dignity since his sandy hair and foxy
beard had turned to silver.
"Indeed, Lady Perivale, I have heard nothing involving your
interests."
"Well, then, I shall have to begin at the beginning. It is a horrid
business, but so preposterous that one could almost laugh at it."
She proceeded to tell him how her friends had treated her, and the
story that had been going about London. He listened gravely, and
looked shocked and pained.
"And you have really heard nothing?"
"Not a syllable. My wife and I only visit among our country
neighbours, and I suppose Beckenham people know very little of
what is being talked about in London society. Our conversation is
chiefly local, or about church matters. I never speak of my clients, so
no one would know of my interest in your welfare."
"And my good name, which is more than my welfare. Now, Mr.
Harding, advise me. What am I to do?"
The lawyer looked deeply concerned, but with the air of a man who
saw no light.
"It is a very difficult case," he said, after a pause. "Has there been
anything in the newspapers, any insolent paragraph in those
columns which are devoted to trivial personalities? I don't mean to
imply that this is trivial."
"No, I have heard of nothing in the newspapers—and I have a friend
who is always out and about, and who would have been sure to hear
of such a thing."
Mr. Harding was silent for some moments, pulling his beard with his
large white hand in a meditative way.
"Have you seen Colonel Rannock since this story got about?" he
asked.
"No. Colonel Rannock is in the Rocky Mountains. Ought I to see him
if he were in London?"
"Certainly not, Lady Perivale; but I think if he were within reach you
should send a friend—myself, for instance, as your legal adviser—to
call upon him to contradict this story, and to assure your common
friends in a quiet way, that you were not the companion of his
travels. He could not refuse to do that, though, of course, it would be
an unpleasant thing to do as involving the reputation of the person
who was with him, and to whom," added the lawyer, after a pause,
"he might consider himself especially accountable."
"Oh, no doubt all his chivalry would be for her," said Grace, bitterly. "I
would give the world to know who the creature is—so like me that
three or four different people declare they saw me—me—in three or
four different places."
"You know of no one—you have no double in your own set?"
"No, I can recall no one who was ever considered very like me."
The lawyer looked at her with a grave smile. No, there were not
many women made in that mould. The splendid hazel eyes—les
yeux d'or—the burnished gold in the dark-brown hair, the perfect
eyelids and long auburn lashes, the delicate aquiline nose and short
upper lip with its little look of hauteur, the beautifully-modelled chin
with a dimple in it, and the marble white of a throat such as sculptors
love—no, that kind of woman is not to be matched as easily as a
skein of silk.
"I think, Lady Perivale, the first and most important step is to
discover the identity of this person who has been mistaken for you,"
Mr. Harding said gravely.
"Yes, yes, of course!" she cried eagerly. "Will you—will your firm—do
that for me?"
"Well, no, it is hardly in our line. But in delicate matters of this kind I
have occasionally—I may say frequently—employed a very clever
man, whom I can conscientiously recommend to you; and if you will
explain the circumstances to him, as you have to me, and tell him all
you can about this Colonel Rannock, family surroundings, tastes,
habits——"
"Yes, yes, if you are sure he is to be trusted. Is he a lawyer?"
"Lawyers do not do these things. Mr. Faunce is a detective, who
retired from the Criminal Investigation Department some years ago,
and who occasionally employs himself in private cases. I have
known him give most valuable service in family matters of exceeding
delicacy. I believe he would work your case con amore. It is the kind
of thing that would appeal to him."
"Pray let me see him—this evening. There is not an hour to be lost."
"I will telegraph to him when I leave you. But he may be away from
London. His business takes him to the Continent very often. You
may have to wait some time before he is free to work for you."
"Not long, I hope. I am devoured with impatience. But can you—can
the law of the land—do nothing for me? Can't I bring an action
against somebody?"
"Not under the present aspect of affairs. If you were in a different
walk of life—a governess, for instance, or a domestic servant, and
you were refused a situation on account of something specific that
had been said against you—an action might lie, you might claim
damages. It would be a case for a jury. But in your position, the
slander being unwritten, a floating rumour, it would hardly be
possible to focus your wrongs, from a legal point of view."
"Then the law is very one-sided," said Grace, pettishly, "if a
housemaid can get redress and I can't."
Mr. Harding did not argue the point.
"When you have seen Faunce, and he has worked up the case, we
may be able to hit upon something in Bedford Row, Lady Perivale,"
he said blandly, as he rose and took up his highly respectable hat,
whose shape had undergone no change for a quarter of a century.
There was a new hat of the old shape always ready for him in the
little shop in St. James's Street, and the shopman could have put his
hand upon the hatbox in the dark.

CHAPTER VI.
"Love is by fancy led about,
From hope to fear, from joy to doubt."
It was a week before John Faunce appeared upon the troubled
scene of Grace Perivale's life. He had been in Vienna, and he called
in Grosvenor Square at half-past nine o'clock on the evening of his
return, in answer to three urgent letters from her ladyship which he
found on his office table in Essex Street.
Susan Rodney had been dining with her friend, and they were taking
their coffee in the morning-room when Faunce was announced.
"Bring the gentleman here," Lady Perivale told the servant, and then
turned to Miss Rodney.
"You don't mind, do you, Sue? If you have never seen a detective, it
may be rather interesting."
"Mind? No! I am as keen as you are about this business. What a fool
I was not to suggest a detective at the beginning. I shall love to see
and talk with a detective. I have been longing to meet one all my life.
Unberufen," added Miss Rodney, rapping the table.
"Mr. Faunce," said the butler; and a serious-looking, middle-aged
man, of medium height and strong frame, with broad, high forehead,
kindly black eyes, and short, close-cut black whiskers, came into the
room.
There was a pleasant shrewdness in his countenance, and his
manner was easy without being familiar.
"Pray be seated, Mr. Faunce," said Lady Perivale. "I am very glad to
see you. This lady is Miss Rodney, my particular friend, from whom I
have no secrets."
Faunce bowed to Miss Rodney, before seating himself very
composedly outside the circle of light under the big lamp-shade.
"I must apologize for coming so late in the evening, madam; but I
only arrived at my office, from Dover, an hour ago; and, as your
letters seemed somewhat urgent——"
"It is not a moment too late. I would have seen you at midnight. But
—perhaps you have not had time to dine. We have only just left the
dining-room. Will you let them get you some dinner there before we
begin our business?"
"Your ladyship is too good. I dined on the boat—a saving of time—
and am quite at your service."
Lady Perivale told her story, Faunce watching her all the time with
those tranquil eyes of his, never very keen, never restless. They
were absorbent eyes, that took hold of things and held them tight;
and behind the eyes there was a memory that never failed.
He watched and listened. He had heard such stories before—stories
of mistaken identity. They were somewhat common in divorce court
business, and he very seldom believed them, or found that they
would hold water. Nor had he a high opinion of women of fashion—
women who lived in rooms like this, where a reckless outlay was the
chief characteristic, where choicest flowers bloomed for a day, and
delicate satin pillows were tossed about the carpet for dogs to lie
upon, and toys of gold and silver, jewelled watches, and valuable
miniatures, were crowded upon tables to invite larceny. Yet it
seemed to him that Lady Perivale's voice rang true, or else that she
was a more accomplished actress than those other women.
"Mr. Harding was right, madam," he said, when he had heard her to
the end, and had questioned her closely upon some details. "We
must find out who your double is."
"And that will be difficult, I'm afraid."
"It may take time and patience."
"And it will be costly no doubt; but you need not be afraid of
spending money. I have no father or brother to take my part; no man-
friend who cares enough for me——" She stopped, with something
like a sob in her voice. "I have nothing but my money."
"That is not a bad thing to begin the battle with, Lady Perivale,"
answered Faunce, with his shrewd smile; "but money is not quite
such an important factor in my operations as most people think. If
things cannot be found out in a fairly cheap manner they cannot be
found out at all. When a detective tells you he has to offer large
bribes to get information, you may take it from me that he is either a
fool or a cheat. Common sense is the thing we have most use for,
and a capacity for putting two and two together and making the
result equal a hundred."
"And when you have found this shameless creature what are we to
do? Mr. Harding says I can't bring an action for slander, because I
am not a housemaid, and loss of character doesn't mean loss of my
daily bread."
"There are other kinds of actions."
"What—what action that I could bring? I should like to go to law with
every friend I ever had. I think I shall spend the rest of my days in the
law courts, pleading my own cause, like that pretty lady whose name
I forget."
"You might bring an action for libel, if you had a case."
"But I have not been libelled—a libel must be written and published,
must it not?"
"That is the meaning of the word, madam—'a little book.'"
"Oh that my enemy would write a book about me!"
"Are you sure there has been no offensive allusion to this rumour in
any of the newspapers?"
"How can I tell? I have not been watching the papers."
"I should advise you to send a guinea to Messrs. Rosset and Son,
the Press agents, who will search the papers for your name, and
save you trouble."
Lady Perivale made a hurried note of Messrs. Rosset's address.
"An action for libel, if any one libelled me—what would that mean?"
"It would mean a thorough sifting of your case before a jury, by two
of the cleverest counsel we could get. It would mean bringing your
double into the witness-box, if possible, and making her declare
herself Colonel Rannock's companion in those places where you are
said to have been seen with him."
"Yes, yes; that would be conclusive. And all those cold-hearted
creatures, whom I once called friends, would be sorry—sorry and
ashamed of themselves. But if there is no libel—if people go on
talking and talking, and nobody ever publishes the slander——"
"Make your mind easy, Lady Perivale. When we are ready for it there
will be a libel."
"I don't understand."
"You may safely leave the matter in my hands, madam, and in Mr.
Harding's. If I succeed in finding the lady who resembles you, the
rest will not be difficult."
"And you think you will find her?"
"I mean to try. I shall start for Algiers to-morrow morning."
"May I give you a cheque for travelling expenses?" Lady Perivale
asked, eagerly.
"That is as you please, madam. You may leave my account to be
settled by Mr. Harding, if you like."
"No, no," she said, going to her davenport. "In spite of what you say
about money, I want you to have plenty of cash in hand, to feel that
you have no occasion to stint outlay."
"That is what I never do, when character is at stake."
She handed him a hastily written cheque for five hundred pounds.
"This is a high figure, madam, to start with," said Faunce, as he
slipped the cheque into his letter-case.
"Oh, it's only a trifle on account. Call upon me for whatever sums you
require. I would rather beggar myself than exist under this odious
imputation."
"There is one thing more I must ask for, madam."
"What is that?"
"Your photograph, if you will be so good as to trust me with it."
"My photograph?" wonderingly, and with a touch of hauteur.
"It will help me to identify your double."
"Yes, of course! I understand."
She opened a drawer and took out a cabinet photograph of herself,
choosing the severest dress and simplest attitude.