Israel’s Security Industries Belong to All of its Citizens

It is not clear that years of private ownership have done business good, but the sale has brought vast riches to those who bought the company, profits that could have directly benefited the people of Israel if the company had not been privatized.


By Moshe Arens

(A version of this column appeared in Haaretz on August 16, 2011.)

When the time finally came to reform Israel’s economy, after years of the Histadrut labor federation owning and controlling much of the country, privatization became one of the mantras of the reformers.

“The government has no business to be in business” the reformers said. And generally, they were right. Why should government bureaucrats run businesses? What do they, who are no more than administrative clerks, know about running a business? Turn it over to the private sector, to the entrepreneur who knows how to turn a profit, who will know how to cut waste and will never forget the bottom line.

And so the great giveaway began. In Russia, as the Soviet Union collapsed, private individuals with initiative grabbed many of the natural resources of that great country and became oligarchic billionaires overnight.

In Israel, it was not to be that easy. There would have to be competitive bidding for the purchase of the controlling interest of a government company on the block, and the purchaser usually needed to obtain huge bank loans in order to finance the acquisition.

When it came to selling government controlled banks, the potential bidder would have to pass inspection by the Bank of Israel. Within a few years, not helter-skelter but at a pretty good pace, Israeli governments succeeded in selling off a good number of government companies, and the age of the tycoons began.

Looking back over the years, some of these transactions may appear to be successful from the national point of view, but most certainly not all of them. Look, for example, at Israel Chemicals, a company that exploited Israel’s natural resources in the Dead Sea, chemicals which belonged to the nation and were in growing demand throughout the world.

It is not clear that the years of private ownership have done the business good, but the sale has certainly brought vast riches to those who bought the company, profits that could have directly benefited the people of Israel if the company had not been privatized.

Was it sold for the right price, by the government bureaucrats who managed the sale, or did it end up being a giveaway? And how about the Israel Land Development Company sold for a small fraction of its real value.

“What’s done cannot be undone”, Lady Macbeth said. But what about the future? Is there great value hidden in companies presently owned by the government that may be for sale, and would this sale be justified? And to whom would it be sold, and at what price?

These questions are relevant when we look at Israel’s defense industries, which are still mostly government owned. They are a gold mine. A store of knowledge, technology and experience that has been amassed over the years by virtue of great investments and the application of Israeli high tech and manpower.

They are among Israel’s most advanced industries, largest companies and biggest exporters. Rafael advanced defense systems, the government-owned weapons developer, is today the leading tactical missile maker in the world.

Israel Aircraft Industries has the potential of being the world’s aerospace leader. Israel Military Industries, one of its most profitable operations, is being sold off and is presently mired in debt and deficits. Nevertheless, it has considerable potential if properly managed.

The government has given notice that it intends to privatize Israel Aircraft Industries, has withdrawn its plans to merge IMI with Rafael and wants to privatize IMI. Is this wise? Who is making these decisions? Are they being made by people who know the aerospace business, or by clerks obsessed with privatizing everything?

It should be clear that when it comes to the defense industries, we are dealing with a national treasure that should not be lightly given away. Past mistakes should not be repeated.

The idea that some tycoon, who knows nothing about the aerospace business, is going to run it more efficiently is most likely all wrong. Leveraging the know-how that exists in these industries in world markets and increasing the value of these companies for the benefit of the country will not be accomplished by new owners hungry for immediate returns on the bank loans they have taken.

It can be done, but it is not likely to be achieved by hasty privatization.

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