Israel's defense industries stand as a cornerstone of the nation's security framework. Their accomplishments not only bolster Israel's global reputation but also ensure its security and survival. Traditionally, the government distances itself from business ventures except in cases of market failures, essential service provision, infrastructure development and strategic sectors like security and energy.
Over 20 years ago, then-Finance Minister Benjamin Netanyahu initiated the groundbreaking process of issuing shares for Israel Aerospace Industries, setting a precedent for the privatization of state-owned defense companies, whether fully or partially through minority public offerings. The transformation of IMI Systems, which once teetered on the brink of insolvency and is now thriving under Elbit Systems' management, exemplifies the success of this path.
In today's climate, with global military spending surging by almost 7% and defense companies' returns hitting record highs, these enterprises are highly coveted. This trend underscores the urgency to advance and finalize their privatization. In the Western world, most defense companies are privately owned, and numerous studies highlight significant financial and operational improvements post-privatization.
Thus, the real debate around privatizing Israel's defense industries is not a question of "if", but "when". Should we wait for these companies to falter and then sell them at a loss, allowing investors or private entities to rescue and profit from them at the public's expense? Or should we capitalize on their current stable yet underutilized state – both economically and security-wise – by initiating a process of issuing shares that maximizes public value?
Israel's human capital is a precious and limited resource. The booming high-tech sector has recently drawn many engineers and technicians away from government companies. To attract top talent to the defense industry, companies must be able to offer competitive salaries and involve employees in ownership through shares or options. This approach can drive their commitment to the company's success and mission fulfillment.
Yaakov Quint Photo: Photo MarceloConcerns about privatization often stem from the need to safeguard valuable security knowledge within these companies. However, this fear is not necessarily warranted. There are numerous safeguards to prevent hostile takeovers and protect sensitive information – challenges that many Western countries successfully navigate. For units that cannot be privatized, a model can be adopted to segregate classified divisions, similar to the establishment of the government company Tomer during IMI Systems' privatization.
Combining privatization with stringent security information confidentiality, enhancing business orientation by reducing labor union influence, involving employees in ownership, and restructuring the company's capital will collectively improve organizational culture. These measures will incentivize significant investments in research and development, ultimately producing world-class systems capable of addressing Israel's security challenges.
Yaakov Quint serves as acting director of the Israel Land Authority