Time to Update the Weapons Industry

The basic shortcomings of national defense production remain unchanged, since the military industries were struck by a severe crisis 10 years ago, and in practice almost nothing has been done to try to remedy the situation.

Listening to the lectures at a conference on "The Economy and National Security," held last week under the auspices of Tel Aviv University's Jaffee Center for Strategic Studies, one had the feeling that time had stood still since the military industries were struck by a severe crisis 10 years ago. True, Israeli arms exports increased impressively, and no fewer than five Israeli companies are on the list of the 100 largest arms manufacturers in the world. However, the basic shortcomings of national defense production remain unchanged, and in practice almost nothing has been done to try to remedy the situation. This is especially serious here, because more than half of the arms industry is government-owned.

The direct, concrete responsibility for the military industries rests with the Defense Ministry. The policy that the ministry formulates in regard to development, production, export and procurement of weapons systems affects not only the government industries but also those that are privately owned. Thus, the failure of the ministry, which was unable to bring about a process of redeployment by the military industries, is more than flagrant. At no stage, since the crisis began, was a comprehensive policy articulated that defined long-term goals and set forth the steps needed to achieve them.

The steps that are needed to improve the situation of the arms manufacturers were clear from the moment the industries encountered difficulties, and they remain valid today. All of them appeared in the recommendations of the numerous committees and commissions that the Defense Ministry itself appointed over the years to examine the situation of the military industries. No one in the defense establishment or in the industries disputes the need to carry out those recommendations, but virtually nothing has been done.

While the United States and Europe have seen the merger of weapons producers, based on the understanding that only large companies can compete successfully in the conditions of the world arms market, which have changed since the end of the Cold War, in Israel there are still a great many companies relative to the size of the country. The result in many cases is unrestrained competition between Israeli firms, and consequently they all end up losing the deal to a company from another country.

Of the dozens of large-scale and intermediate weapons manufacturers that existed in the United States a decade ago, four huge concerns now remain following a series of mergers: Lockheed-Martin, Boeing, Northrop Grumann and Raytheon. In Europe, two conglomerates were established: Thales and EADS. In Israel, however, Elbit and El-Op merged, as did Tadiran and Elisra (within the framework of Koor), but the government-owned industries were not part of this process.

Another serious implication of the plethora of companies in Israel is dualities in research, development and marketing. Various weapons manufacturers in Israel maintain technological infrastructures in identical areas, without any justification. Even in the U.S. the manufacturers in this sector have been forced to close down production in spheres where there are already competitors. In Israel, though, there are cases where several manufacturers are trying to develop know-how in the same areas concurrently. What the Defense Ministry must do is to map the spheres of research and development for the coming decade and come up with a master plan that will divide the areas of specialization among the different companies.

On top of this, there is the problem of the government's ownership of the three major companies: Israel Aircraft Industries (IAI), Rafael (Armament Development Authority) and Israel Military Industries (IMI). It is very difficult for the government to play the role of owner efficiently in a period of business crises. One result of this situation is massive subsidization of the government firms in an effort to avert their collapse. In the past decade, more than $3 billion has been pumped into these companies, though this has not led to the resolution of the crisis. One of the problems is work agreements that tie the hands of management and make it impossible to exercise economic considerations in making decisions.

A perusal of the data and of economic performance shows a pronounced advantage in most cases for private enterprise over the government companies. It follows that a necessary condition for preserving the security-technological potential of the three big government firms is for the government to cease being their owner. Here, too, the Defense Ministry must take the initiative.

If despite the adverse conditions, the military industries succeed in developing advanced and even revolutionary weapons systems, and to place Israel in sixth place among the world's arms exporters (defense exports account for 17 percent of all exports by Israel), that is highly creditable. It is precisely the great importance of a healthy defense industry for Israel's national security that obliges the policy makers to help extricate the industry from its protracted crisis. But the Defense Ministry has failed to put forward a viable policy, while cabinet ministers and Knesset members have nothing at all to say about the crisis and prefer to turn a blind eye to the massive subsidies that flow to the government companies.