Expert at Losing Money

Israel Military Industries' years-long, painful decline should serve as a sign for any neo-Socialist who opposes privatization and favors nationalization.

Israel Military Industries' years-long, painful decline should serve as a sign for any neo-Socialist who opposes privatization and favors nationalization. In another two weeks, IMI's fate will be sealed. Will it be closed? Will it be sold? Will it be merged with another government company?

This is a government company that manufactures in the defense industry, but it specializes in losing money. It has lost money for 11 straight years! In the private sector, a company in a similar plight would have gone bankrupt, but IMI survives due to the taxpayers' deep pockets, out of which come billions of shekels. But the taxpayers know nothing about this.

IMI suffers from a chronic bloated workforce and exorbitant salaries that have nothing to do with productivity or profit. In 1987, it employed a surrealistic number of workers - 14,000. Since then, the government has financed various "recovery plans" that come to nothing other than the allocation of billions of shekels to excessive retirement and pension plans. The state has allotted NIS 7 billion to IMI. Even though its payroll has been pared down to 3,200 workers, it still loses money; it made a huge loss of NIS 250 million in 2009.

In August 2005, the government decided to get rid of IMI once and for all. The decision was to merge some of its activities with Rafael Advanced Defense Systems (a government company ), and privatize other activities. Around 10 private entities showed interest in the plan for a revamped IMI, but Israel Aerospace Industries (a government company ) opposed the deal with Rafael, and IMI workers were against any form of privatization. Histadrut chief Ofer Eini supported the workers, as did Ehud Barak, and that sufficed to scuttle the deal. IMI continued to bleed.

In 2005, the company was estimated to be worth $300 million, but today, as its losses mount, it's worth tens of millions, in the best case. Such a bleak outlook fails to make much of an impression on IMI workers. They're demanding NIS 1 billion from the government to finance pension payments for 950 workers, as well as a security net to finance the possible retirement of several hundred more workers if a new employer (private or government ) streamlines and lays off employees.

The argument now is whether IMI is to be merged into Rafael or Israel Aerospace Industries, or privatized. It's worth mentioning that government companies are, in the best scenario, poorly managed. Their managers don't seek to economize and make profits. Instead, such companies focus on increasing sales, enlarging the workforce and improving wage conditions. Management knows that as the number of workers increases, the company's power grows, making it harder to shut down the operation. So profit recorded by a government company will always be symbolic - and that's when it's not losing money.

In contrast, managements of private companies focus on profit. Executives know that without profit, they won't be able to raise capital, they won't be able to take loans. So they won't be able to invest, expand and grow. For this reason, managers of private companies constantly streamline, save and search for new markets. The result benefits the whole economy.

So the price of IMI's sale makes no difference. The price is just a small part of the benefit in privatization. The main thing is privatization's benefit to the economy over the years. Take, for example, the huge growth in exports and the employment of several thousand workers that resulted from the privatization of Israel Chemicals.

That's exactly what will happen to IMI if, instead of spreading its ailments to another government company (Rafael or Israel Aerospace Industries ), it is privatized in a transparent tender process. In such a case, we would all profit, and the public would enjoy increased employment and economic growth. Only the neo-Socialists will be bitter and angry - for them, privatization is evil incarnate.