The News Behind the News

Members of the House Appropriations Committee yesterday said that if Israel sells the Phalcon airborne radar system to China, a deal valued at $250 million, it will jeopardize all future aid. In a bipartisan unanimous vote, the committee approved an amendment to the fiscal year 2001 (October 1, 2000 to September 30, 2001) foreign appropriations bill that strongly urges Israel to cancel the deal.

The vote followed more than an hour of censure of Israel, spurred by a proposed amendment offered by Representative Sonny Callahan that the U.S. hold back $250 million in aid until Israel cancels the deal or Secretary of Defense William Cohen certifies that the weapons sale does not threaten U.S. national security. Committee chairman Bill Young likened the sale to a situation in which the U.S. sold F-22 fighter planes to Iran or stinger missiles to Syria, which would threaten Israel. Even ranking Democratic committee member David Obey, who has not voted against Israel's aid requests before, said, “If the sale goes forward, I have no intention of supporting further aid to Israel. Period. That ought to be pretty damn clear.”

There are two aspects to this story. First, why is Israel proceeding with this sale? Second, should Israel and its American friends be concerned about the loss of U.S. aid?

Israel is proceeding with this sale for one very simple reason: Israel Aircraft Industries (IAI), a state-owned military arms producer, cannot survive without fresh infusions of money from China and other purchasers of Israeli arms. IAI, with 14,000 workers, is the country’s largest industrial employer. The company’s total sales in 1999 amounted to $2 billion, of which some three-quarters are exports.

But IAI is not a profitable private enterprise. Rather, it is a money-losing, heavily subsidized state-owned enterprise. IAI typifies most of Israel’s large enterprises, either state-owned or state-sanctioned monopolies and cartels. There is a long-standing political arrangement, under which politicians use taxpayers and foreign aid money to buy goods, arms in this case, to provide jobs to workers (voters) in inefficient state enterprises. Disregard a statement that appeared in The New York Times of June 30, 2000, by an IAI official, Mr. Keret, who stated that “Although we [IAI] are a state-owned company, we get no subsidy, and no favoritism from the defense ministry.” Evidently to Israelis, in Clintonspeak, it all depends on what the meaning of the words subsidy and favoritism is.

As to why the Israeli government wants to go ahead with the sale to China, the answer is that the government and IAI need to get new money anywhere they can, even if it entails putting U.S. servicemen at risk in Asia. It should be noted that IAI has been the biggest beneficiary of American rules that permit a quarter of the nearly $2 billion in U.S. military assistance to Israel to be spent on domestic arms purchases. But even these rules cannot transform a sow’s ear into a silk purse. Obviously, the elimination of U.S. aid would further put IAI in the red. But desperate times call for desperate measures, and both IAI and the government hope that their friends in America will be able to keep the aid money flowing. After all, does Congress want to accept blame for aborting the peace process over a measly $250 million?

There is, however, a much brighter side to the second aspect of this story. Ending U.S. aid to Israel would be the greatest gift the U.S. government could give to the Israeli people. It would destroy, virtually overnight, the financial foundation of Israel’s ruling nomenklatura—its bureaucrats, politicians, intellectuals, monopolies, cartels, and other politically-favored groups—by reducing the financial resources with which a nationwide system of government subsidies keeps Israel’s socialist, freedom-denying, economic system intact. It would, again overnight, put Israel’s high-tech entrepreneurs in charge of Israel’s future, as they replace the country’s moribund socialist nomenklatura.

Please, Mr. Obey. Please, Mr. Callahan. Please, Mr. Young. Please, Mr. Lewis. Please, every member of the Appropriations Committee. Use this rare opportunity to do the greatest possible service to the Israeli people: Cut off aid and free them from the bondage of state socialism. Once Israel’s firms and enterprises learn to survive on the basis of market forces, it will no longer be necessary for Israel to sell high-technology arms to the potential adversaries of the United States to keep inefficient, state-owned enterprises in business.