A Fabric of Failure
Judy Maltz
YET ANOTHER ISRAELI TEXTILE firm bites the dust. The latest casualty is Bagir, a designer and manufacturer of men’s suits based in the northern Negev town of Kiryat Gat, and prominent member of the Polgat textile concern. As talks continue over how to rescue one of the biggest employers in the southern development town, about 650 of Bagir’s 1,100 workers are being put on unpaid leave. Their prospects of returning to work in six months are, by all accounts, quite dim.
It’s no surprise. The sad truth is that Israel’s textile industry, or rather a textile industry based on Israeli labor, has no future. Bagir is the latest proof. Since the mid-1990s, dozens of Israeli textile firms have transferred production facilities to neighboring countries, where cheap labor is abundant. After all, why pay $1,000 a month for an Israeli worker, when a Jordanian will do the same work for $120?
Who’s to blame for the demise of what was once a thriving industry? Certainly not the workers. They can’t be expected to work for less than minimum wage and without social benefits, just to match the low standards of the less-developed world. Neither are the industrialists. To survive in the globalized world, they’ve got to produce the best possible products at the lowest possible price. That means cutting production costs – more specifically, labor costs – to the bare minimum.
The real villain is government policy, in particular, the Law for the Encouragement of Capital Investment, which instead of promoting employment in development towns, as it was designed to do, has in fact accomplished the opposite. Indeed, under this law, the Israel government has sunk hundreds of millions of dollars over the years, largely into the wrong kind of companies. Any industrialist who agreed to set up a factory in a development town – whether or not his business plan was viable – would almost automatically get a 20-34 percent government grant. Nobody bothered checking how the money was used, how many jobs were created, whether the local labor force had the skills to run the plant, or whether Israel itself had any particular advantage in the specific industry to justify the investment.
The result: According to a Treasury survey, out of a random sampling of 537 industrial plants established in development regions in 1985-1998, which received a total of $800 million in government grants, 20 percent were no longer around by 1999, and 17 percent of the “survivors” were on the verge of bankruptcy.
Obviously, this law has to go, or at least be seriously revised. But the more urgent question is how to save what’s left of Israel’s textile industry and find alternative employment for those made redundant by it. The recent devaluation may help some exporters, even though the extra 10 percent they’ll be earning on every dollar will hardly compensate them for the extra 10-fold they spend for labor at home.
Another possible solution raised in connection with Bagir is transferring ownership in the plant to the workers. It sounds nice, but it won’t solve the problem of uncompetitive costs. It’s highly unlikely that the workers will be willing to settle for less money once they’ve become owners.
The manufacturers claim that salvation will come only when the clock is turned back, and textile imports from less-developed countries are again banned. Resorting to protectionism, however, is not exactly going to get Israel honorary membership in the globalized world. And whatever benefits it may yield to textile workers would be completely outweighed by the cost to Israeli consumers.
The vast majority of the remaining 30,000 workers in Israel’s textile industry are women, most of them with little education and little training in anything else. High-tech, obviously, isn’t an option for them. But there are other service industries in Israel, where demand for workers is still fairly buoyant and where they could easily make themselves employable with minimum retraining. Home health care, for example. With little prospects for revitalizing the textiles, someone must think ahead.
Judy Maltz is a member of the editorial staff of Globes, the business daily.
Copyright c 2002. The Jerusalem Report
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