Israel Needs Less U.S. Aid, Not More

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Israel's Iron Dome defense system firing to intercept incoming missiles.
An Iron Dome system firing to intercept incoming missiles: Funded on top of American aid.Credit: AP

Among the notable aspects of the America’s special relationship with Israel is billions of dollars in military aid we get every year.

The headline figure of $3.1 billion is supplemented with hundreds of millions more for development programs like Iron Dome and David’s Sling missile-defense systems. Then there are the special terms Israel enjoys, like the money being delivered in one lump sum at the start of the year, rather than in the dribs and drabs that other recipients get.

Also, Israel is generously allowed to spend 26% of the aid at home, rather than on buying U.S. equipment.

After the Yom Kippur War, aid had a strategic logic for America and was nothing less than a lifesaver for Israel. In the 1970s, when Israel was recovering from the Yom Kippur War, American aid equaled 20% of Israel’s gross domestic product and half of its defense spending.

For America, the assistance ensured it had a politically reliable partner in a critical but unstable part of the world – and one that had the economic wherewithal to serve its purpose.

Nowadays, the quid pro quo is less self-evident. Israel’s strategic value remains intact, but lots of other countries partner with America in the war on terror and in other U.S. interests without getting paid for it.

In any case, Israel is certainly no longer a beggar state that relies American generosity to stay afloat. American aid now amounts to 1.5% of GDP. It provides 20% of the defense budget, but that is certainly an amount the government could find through spending cuts,  reforms and tax increases, if it wanted to.

Also, aid comes with costs. It risks becoming a way for future U.S. administrations, maybe as early as a Trump presidency, to pressure Israel. It makes it easier for the army to avoid spending reforms. 

American aid has simply become a tool to make life easier for the finance minister and his boss. There is more money for settlements, yeshiva stipends and politically tinged outreach programs to American youth. There’s even some spare change for hospitals and universities, and an occasional tax cut. The prime minister can get a good night’s sleep knowing each minister’s special interests are covered, thanks to America’s largesse,  .

These days the two countries are in talks about increasing aid to $3.5 billion or $3.7 billion a year – Israel even sought $4 billion or more. The only notable string Washington has attached is that the local-procurement provision be eliminated.

An ounce of coalition peace

Netanyahu is reportedly less than thrilled with the idea, but since he dragged his feet in the talks, allowed relations with the Obama White House to fall apart and faces the (albeit remote) prospect of Donald Trump in the White House, he has little room to maneuver. Anyhow, from the point of view of someone like Netanyahu, whose main interest these days is to remain in power at all costs, a few-hundred million dollars can buy a lot of coalition peace.

However, what is good for Netanyahu isn’t necessarily good for Israel.

The defense industry is big business in Israel, with $5.7 billion in exports in 2015. Eliminating the local-procurement  clause, even if it’s done gradually, will deal a body blow to that industry. Vast contracts worth hundreds of millions of dollars will be lost every year.  Ironically, the companies will have to move production to the U.S., where Israel can freely spend its American aid money.  

Netanyahu would serve Israel’s interests best by negotiating a gradual reduction in U.S. aid and keeping the local-procurement provision in place. Instead, we seem to be heading for exactly the opposite.

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