International cooperation: Israel’s ‘open waters’ plan adds to free market powerhouse status

Israel is known as the “Startup Nation,” a pint-sized powerhouse that produces more high-tech startups and boasts a larger venture capital industry per capita than any other country in the world. But Israel rates another moniker too — that of Break-Up Nation, because of its determination in dismembering the old-style monopolies that have long dominated this once-socialist state. As a result, Israel and its prime minister, Benjamin Netanyahu, are engineering the Western world’s most aggressive transformation from socialist to capitalist state since Margaret Thatcher’s privatizations of the U.K.’s monopolies in the 1980s.

Last month Israel’s government signed an Open Skies agreement with the European Union after running a gauntlet of dire warnings: Government bureaucrats insisted that El Al, Israel’s flagship carrier, faced “collapse,” the airline unions went further, claiming that the country’s entire “aviation industry [faced] complete destruction” and that “tens of thousands of workers [would be thrown] into the street,” and the national trade union federation threatened a country-wide transportation strike. Israel also suffered an actual strike by the airline workers, which suspended service for two days in an attempt to bring the government to its knees.

The Israeli government not only withstood that gauntlet, it’s coming back for more. “We started with Open Skies,” Israel’s Prime Minister Benjamin Netanyahu said earlier this month in announcing a tender for companies to build and operate new, privately owned seaports, “and now we’re moving toward open waters.”

To do an end-run around Histadrut, the labour federation that effectively controls the country’s major Mediterranean ports of Haifa and Ashdod, Netanyahu issued tenders for private seaports in the same cities to compete with the state-owned ports. “I won’t accept this monopoly. I want to tell my friends in the Histadrut — it’s over,” Netanyahu said at a press conference that effectively declared war on the union.

Free market reforms have given Israel the Western world’s best performing economy

But it’s not quite over, Histadrut made clear Monday, by formally declaring a dispute that could soon lead to a strike of Israeli ports, which account for some 90% of the country’s imports and exports. Though a shadow of its glory days in the 1980s when it represented 85% of all wage earners, Histadrut remains radical and potent. With dock workers averaging $123,000 per annum — four times the average Israeli wage — the union and its workers have a lot on the line. The stage is now set for a historic confrontation akin to the U.S. air traffic controllers’ defiance of Ronald Reagan, or the U.K. coal miner’s defiance of Thatcher.

Should a crippling strike proceed, Netanyahu vows to break it by bringing in foreign workers or the army. “I promise nothing will deter us,” he warned the union. A 2009 government report had found the ports to be grossly inefficient, costing Israel billions of dollars, hurting the competitiveness of the economy and raising living costs for Israelis.

The creation of private ports continues an aggressive policy that has privatized much of Israel’s economy over the past two decades, including banks, El Al, oil refineries, resource companies and defence firms. More is in the works. Siemens just won a tender to build the country’s first independent power plant, part of Israel’s plan to increasingly rely on private power to meet its burgeoning power needs. Israel Railways is to be broken up into three units and then sold. Israeli Aerospace Industries, a major defence industry, is being prepared for sale. About the only institution that is off limits is Israel’s prison system – the country’s Supreme Court struck down legislation to privatize prisons as unconstitutional.

Israel’s open skies and open waters initiatives continue a remarkable string of free market reforms. Israel has not only negotiated free trade treaties with the EU and the Nafta countries, it has struck a deal with the Mercosur bloc — Brazil, Argentina, Paraguay and Uruguay — making it the first non-Latin American country with this status. Now Israel is negotiating a free trade agreement with China.

Israel’s free market reforms have given it the Western world’s best performing economy, despite carrying the Western world’s largest defence burden. In Israel, the socialists are on the run — the rising political parties are free-market oriented — as the nation shrugs off the burdens of socialism.
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