ABSTRACT
A complex web of factors has shaped the size, structure, and economic and sociopolitical importance of the Israeli military-industrial complex. Most important among these factors has been Israel’s tenuous security environment. Until recently this geographically and demographically small nation has been completely surrounded by militarily, economically, and geographically larger – and from the Israeli perspective – hostile nations. That situation has begun to change. The advancement of the peace process (as well as the wider reduction of world tensions due to the end of the Cold War) has prompted the Israeli government to rethink the structure and purpose of its defense industry. The government, the Israeli Defense Forces (IDF), and the defense firms have mounted a three-pronged strategy to restructure the military-industrial complex designed to cut cost while maintaining the capacity to deter its enemies. Similar to the vast majority of the world’s defense industries, Israel has downsized the workforce and tried to eliminate capacity in response to the post-Cold War structural decline in both world markets and domestic demand for weapons. Second, in the interest of maintaining capacity in critical technologies, national policy has guided the development of high-tech niche markets for both domestic consumption and export. In addition, the Israeli firms have leveraged their competitive advantage in the retrofitting and upgrading of other nation’s platforms from both NATO and former Warsaw Pact producers. The third prong is one of diversification, by which defense firms are seeking opportunities in civilian markets.There is also a fourth option, which is to consolidate via the mergers of defense enterprises to reduce capacity and capture the benefits of economies of scale.Although this appears to be desired by the firms and many government officials, it has been hampered by government ownership of the three largest defense firms, stiff opposition by well-organized labor unions, and the host communities of production facilities.
