On March 18, 1992, on its last day before disbanding, the Israeli parliament, the Knesset, changed the electoral law in Israel. This momentous institutional change was implemented in the fourteenth general election on May 29, 1996.

The initiative to reform the electoral law emanated from widespread dissatisfaction over government performance. A grass-roots movement led by prominent law professors and Knesset members attributed the stalemate in Israeli politics during the 1980s primarily to coalition politics. Small parties, particularly the religious ones, gained disproportionate influence in the coalition formation process, thus weakening the discretionary authority of the Prime Minister over the formation of national public policies, and bestowing them with larger than deserved shares of public resources and symbolic commitments. The institutional change was supposed to remedy this situation.

In a recent paper, Nachmias and Sened (1998) show that the institutional reform in the electoral law significantly decreased the electoral strength of the big parties and inevitably augmented the bargaining power of the religious and other small parties. From the reformers' perspective, the outcome of the electoral change was counter-intuitive. However, from a theoretical perspective, the consequences were to be expected. In the first section, I examine the electoral rule used in Israel between 1951-1992, and discuss the political reasons for the widespread dissatisfaction with this institutional arrangement. In the second section, the major attributes of the new law are described along with the unrealizable expectations that it would constitute a significant improvement over the previous law. The problems inherent in the new law are discussed from a conceptual perspective in the third section. In the last section, the general implications of the reform are addressed in the context of the search for pluralistic, democratic institutional designs.

The Electoral System in Israel Before 1996

The electoral law practiced in Israel from 1951 to 1992 was one of the purest forms of proportional rule. The entire Israeli electorate was treated as a single district. The number of seats that each party in the Knesset gained was almost exactly proportional to the number of votes the party obtained in the general elections. The minimum number of votes needed to enter the parliament was one percent of the votes (since 1992, 1.5 percent), a very low threshold of entry compared to similar electoral systems.

One notable effect of this pure form of proportional electoral rule was that the Israeli Knesset was always composed of a multitude of parties. In the thirteen elections held between 1949-1992, no party ever obtained a majority of the seats in the Knesset. This required the largest party in the Knesset to enter a bargaining process of coalition formation after every electoral campaign in order to form a new government.

Coalition formation in multi-party systems involves a tedious bargaining process over two types of payoffs: office-related side payments and policy agreements (Laver and Schofield 1990; Sened 1996). In multi-party systems, the coalition forming party must strike a balance between office-related side payments and policy-related payoffs. Any government can pursue only one policy that rarely satisfies all the partners in the ruling coalition. The coalition forming party must win the support of its smaller partners. Side-payment are allocated to them to compensate their dissatisfaction with policies that the government as a whole decides to pursue. This dissatisfaction often leads to the breakdown of coalition governments, when the office-related side payments no longer compensate for the policy compromises of the different coalition partners (Mershon 1996; Sened 1996).

The New Electoral Law

Towards the end of the 1980s a grass-roots movement, the Public Committee for a Constitution for Israel was formed to advocate political and electoral reforms. The group's leadership submitted a detailed proposal for reforms, including specific recommendations pertaining to issues of individual rights; a formalized structure of checks and balances between the legislative and the executive branches of government, and a new electoral law. Despite of the publicized objection of most political scientists in Israel and a sizable number of legislators representing different parties, the Knesset, after considerable political pondering, maneuvering and delay tactics modified the original movement's proposal and changed the electoral law. The success of the movement has been attributed to its outstanding public campaign in terms of scope, resources, and visibility, reinforced by the endorsement of leaders of the two major parties.

The new electoral law includes two major provisions that are supposed to strengthen the Prime Minister in the process of forming a coalition following a general election. First and foremost, the Prime Minister is elected directly by the eligible voters. Voters enter two ballots in the poll. On the first ballot, they vote for the party of their choice and on the second they vote for their most preferred candidate for Prime Minister. Under the old electoral law, following the election, the President of Israel called all the newly elected Knesset members and consulted with them before asking one of them to try to form a coalition. In practice (with a single exception), the president asked the head of the largest party to attempt forming a coalition government. Under the new law, the Prime Ministerial candidate receiving more then fifty percent of the votes is popularly and directly elected. If no candidate receives more than fifty percent of the votes, a second round is held. Blank and invalid ballots are not counted.

Consequently, one of the two contenders is assured of obtaining more then fifty percent of the votes. Under this procedure, the Prime Minister may not be the head of the largest party in the Knesset. In fact, in the 1996 election Netanyahu won the election for Prime Minister while his Likud party gained 32 seats in the Knesset. Two seats less than Labor, which gained 34 seats while its head and Netanyahu's contender for the Prime Ministerial election, Shimon Peres, lost in the election for Prime Minister.

To further strengthen the power of the Prime Minister and ensure the stability of coalition governments, the new law diminished considerably the potency of the long-standing parliamentary institution of vote of no confidence. Under the new law an absolute majority of Knesset members (61 members) is required to approve a vote of no confidence, compared to the old rule where a simple majority of the members present in the plenary was sufficient to pass such a vote. Most significantly, however, under the new law, if an absolute majority supports a vote of no confidence, not only is the government ruled out of power, but the Knesset is dissolved as well. This change constitutes a strong disincentive to legislators to support a vote of no confidence. To bring down a coalition government without dissolving the Knesset, a vote of no confidence must be supported by at least 80 Knesset members.

Legislated Rule was not to serve the Purpose

There are three reasons to expect that the institutional change will fail the major purpose for which it was legislated. The first is well- known and has been pointed out by scholars and a few prominent elected officials prior to the change. The new electoral law enables small parties to pressure the big parties to accommodate their policy preferences in three rounds: preceding the first-round of the election, again before the second-round of the election, and still again during the bargaining process for the formation of the coalition government.

Under the old law, the small parties could pressure the big ones only during the coalition formation process, and solely if they were genuinely pivotal. Under the new rule, the small parties in general and the religious parties in particular, are virtually guaranteed the pivotal status in the second round. Preclusion of a second round would make them pivotal in the first round. This institutional change increases considerably the likelihood of small parties, in particular the religious, to become genuinely pivotal thus augmenting their bargaining power.

The second reason to expect the new law to defeat its purpose is directly related to another well-anticipated outcome: big parties are bound to lose Knessset seats to small parties. Since the Labor Party lost its dominance status, the Israeli party system has turned into a bi-polar system in which two major parties compete, with the support of their satellite parties, over the control of parliament and hence the coalition government. Typically, the head of the largest party was given the first opportunity to form a governing coalition. The voters, fully aware of this institutional practice often voted strategically to increase the chances of the head of the big party of the Knesset block they preferred to get the first opportunity to form a coalition. Voters could be closer in their ideological persuasion or policy preferences to one of the small parties in the Knesset-block and yet cast their ballot to the biggest party in the block to increase its chances to get the first opportunity to form a governing coalition.

The new electoral law eliminated the incentive to vote for the biggest party in the block. Under the new law, voters can cast a ballot for the head of the party that leads the parliamentary block they prefer, and then vote sincerely for the party of their choice. Inevitably this leads to added fragmentation in parliament inasmuch as it steers voters to cast their vote to small parties instead of one of the biggest parties. This added fragmentation intensifies the governability problems inherent in coalition governments in different ways:

• First, as Schofield (1995) demonstrates, for all practical purposes, a necessary condition for a non-empty core in two dimensional policy spaces, like the Israeli policy space, is that one central, dominant party must have a considerable advantage in size and occupy a central position in parliament.The diminished electoral size of the big parties, resulting from the change in the electoral law, and the inevitable increase of the power of small and medium-size parties, virtually eliminates the possibility of a stable core in the Knesset's policy space. A dominant, core party can pay considerably less office-related side-payments to its coalition partners than less central smaller parties who may attempt to form a coalition. The advantage that the core, dominant party has in the coalition formation process empowers it to pursue relatively consistent, long-term policies and reward coalition partners with secondary portfolios in order to obtain their support of the government and its policies. The low likelihood for a dominant party to emerge under the new electoral law impairs the ability of the government to maintain consistent policies. Concurrently, it raises the price that coalition-forming parties have to pay to secure the support of their partners in government.
• The other reason that the loss of Knesset seats by the two block leaders to smaller parties is likely to reduce the share of portfolios held by the coalition forming parties has to do with straightforward arithmetic. The coalition forming party must obtain the support of at least 61 Knesset members in order to present the coalition to the vote of investiture, a central institution in multi-party parliamentary systems and an indispensable proviso for a coalition to become a formal government. The bargaining unit in multi-party parliamentary systems is the party. Each party joining the coalition presents, at the coalition formation, bargaining process, its policy demands as well as its office-related preferences. Given that the government can pursue only one policy position, the coalition forming party must compensate coalition partners with portfolios to the extent that they compromise their policy preferences. This implies that the number of the coalition partners should be positively correlated with the cost of the coalition formation in terms of the portfolios that the coalition forming party must give away to its partners. The reduced number of Knesset seats that potential coalitions forming parties are expected to have due to the new law, necessitates an increase in the number of coalition partners in order to form a minimum winning coalition and pass the vote of investiture in the Knesset. Thus the new rule is expected to raise the number of portfolios to be allocated by formers of coalitions to their partners.
• The third reason to expect the new law to defeat its purpose is the remarkable erosion it introduces in the force of the parliamentary institution of the vote of no confidence. From an effective governance perspective, the importance of the vote of no confidence as a parliamentary practice has been well-explained by Huber (1996: 279): "By allowing the Prime Minister to make the final policy proposal, confidence vote procedures give the Prime Minister substantial influence over final outcomes, even when these procedures are not invoked." In other words, by invoking the vote of the no confidence procedure, the Prime Minister can discipline coalition partners to vote with the government even if they disapprove of a particular policy in question. Since under the new law Knesset members lack the incentive to pass any vote of no confidence, the Prime Minister has lost an important governing resource. Furthermore, the vote of no confidence ceased being a credible threat that excessive budget and policy demands by small coalition partners may lead to the downfall of the governing coalition. This, in turn, leads the smaller parties to raise their demands for policy-related payoffs from coalitions forming parties.

In sum, there are three theoretically grounded reasons to expect the institutional change to accomplish the opposite of what it was intended to do. Instead of reducing the fragmentation in government and decreasing the bargaining power of small parties, the new electoral law is expected to increase fragmentation as well as the power of small parties, particularly the religious parties. First, the new law institutionalizes more opportunities for small parties to bargain with Prime Ministerial candidates, and then with the Prime Minister-elect. To raise their chances of wining the election, candidates will promise a variety of payoffs to small parties in return for their support in the first and the second round and during the coalition formation process. Second, the new rule reverses the incentive of voters to vote strategically for the big party in the Knesset block. Inevitably the big parties would lose Knesset seats, considerably reducing the likelihood that a major, central party would capture the parliamentary core and pursue relatively consistent policies. Moreover, the coalition forming parties would have to rely on more partners to form and maintain governing coalitions. This would increase both fragmentation in government and coalition payoffs to small parties. Finally, by jeopardizing the role of the confidence vote procedure the new law would impair both the governance capability of coalitions and the effectiveness of parliamentary oppositions.