Breaking the Siege on Israel’s Skies and Seas

The Open Skies reform of the airline industry is Israel's latest attempt to increase competition and ensure prosperity - next up should be the ports.

Meirav Arlosoroff
Meirav Arlosoroff
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Meirav Arlosoroff
Meirav Arlosoroff

The Israeli government in 1988 adopted a policy of exposure – a gradual diminution of protective tariffs over a number of years, with the aim of exposing industry to competing imports from abroad and in this way also making local industry more efficient and reducing prices for the Israeli consumer.

Without a doubt, the exposure plan had some harsh – even destructive – results. Ten textile plants that had been operating in Israel were unable to withstand the competition from abroad and closed. Thousands of workers in the country’s periphery lost their sources of income. The harshest blow was felt by Arab women who worked at the sewing shops that were closed – without discrete work near their homes, they returned to their villages and have not left since.

While tens of thousands of Israelis paid a steep personal price for the exposure plan, some 7 million Israelis owe the country’s strong economic situation to it. The plan lowered the cost of living for millions of Israelis thanks to new cheap imports from abroad and saved Israel’s economy in the 2008 crisis thanks to the increased competitiveness of Israeli industry, which came through the recession easily. But more than anything, in the age of cheap Chinese manufacturing, the plan was revealed to simply be a necessity. Does anyone want to imagine the crisis Israel would be experiencing now had it insisted on maintaining factories like the iconic Ata textile plant in the Chinese era?

There is no dispute among economists today that the exposure plan was a tremendous economic success – thousands of Israelis lost their jobs in the textile industry, but tens and hundreds of thousands gained steadier and better employment thanks to the growth Israel has subsequently experienced. With the tragic exception of the case of the Arab women (which was indeed handled very poorly), most of the people who were fired from the textile industry ultimately found other employment, thanks to economy-wide growth.

Moreover, a study by Yoram Gabbai, formerly state revenue director at the Finance Ministry, has shown that the fate of textiles – the industry was almost eliminated entirely in Israel as a result of the exposure plan – was unique. Most of the industries that were exposed to competition were not wiped out but rather changed the makeup of their activity and became more efficient, so that they ultimately emerged from the exposure stronger.

The improved competitiveness of the economy afforded it sustainability in the face of economic crises – the Israeli economy experienced a deep recession in 2001 and 2002 and an international crisis in 2008 and came through both unscathed thanks to its vibrancy and competitiveness. In light of the lessons of 2008, no one today doubts that competitive countries are stronger, more stable and more growth oriented and therefore that competitiveness is the only way to improve the circumstances of citizens in the long run.

So yes, now the time has come for the Israeli airline industry to be exposed to competition. This is not going to be easy for the industry’s employees, nor will it be pleasant. It is certainly possible that one or more of the three Israeli airlines will not survive the competition that is about to land on them and that their employees will find themselves laid off (although, according to Gabbai’s study, it is also possible the companies will come out strengthened by the process). We do not take this lightly for a moment.

However, we also do not take lightly the cost of living the Israeli airline companies have been imposing on the public for many years through the excessive prices of flights. We do not take lightly the waste that exists at the Israeli aviation companies and the very high salaries they pay, because they treat the Israeli public like a captive. Nor do we take lightly the growth that could stem from reducing the prices of flights to Israel, bringing in tourism, which could create thousands of new jobs.

We do not take lightly the daring required of Prime Minister Benjamin Netanyahu’s government, Finance Minister Yair Lapid and above all Transportation Minister Yisrael Katz to pass the Open Skies reform in face of the lobby opposing it, comprised of the airline companies, their employees and the Histadrut labor federation. Facing down a formidable lobby like this is not to be taken for granted, and the government deserves praise for doing so.

Especially worthy of praise is the transportation minister, who is beginning to come across as a new sort of Kachlon – the popular former communications minister Moshe Kachlon who lowered the cost of mobile telephony. Opening the skies to competition could indeed quickly bring about a dramatic drop in the prices of flights to and from Israel, from which the citizens of Israel will benefit – both those who travel abroad and those who will see more income as a result of incoming tourism. Katz’s next step, if he really wants to prove himself a Kachlon, is to advance essential reform at Israel’s ports – breaking the monopoly of the two existing ports over foreign trade by means of the establishment of a new private port.

If Katz manages to break the siege on Israel – both in the air and on the sea – he will be worthy of being considered an important minister of transportation, responsible for a step up in the quality of life of Israel’s citizens. This would indeed be the new politics Lapid has promised.

El Al planes parked at Ben-Gurion airport. Sunday, April 21, 2013.Credit: AP

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