Defence structure, procurement and industry: The case of Israel

Abstract

This chapter describes the structure of the Israeli defence establishment, the development of its budget, the procurement process, and the defence R&D effort. It also emphasises the unique characteristics of the country’s defence industry as an integral part of the global defence industry. Israel is a small developed country with a geographic size of about 22,000square km.1 Since the country’s establishment in 1948, Israel’s sovereignty has been contested by most of its Arab neighbours and the Israeli Defence Force (IDF) has been engaged in conflicts that have varied from all-out wars with neighbouring states to counterinsurgency and peace-enforcement operations in areas under its control. Despite its small size and overwhelming strategic and political problems – or perhaps because of them – Israel has succeeded in developing the most powerful military establishment in the Middle East (see Gordon, 2003). To provide a context for our discussion, we start by briefly outlining Israel’sstrategic position in the Middle East at the beginning of the present century. This is followed by a description of the structure of the Israeli defence establishment and a discussion of its budgetary, procurement and R&D processes. We analyse interactions between Israel’s choice of national security level and the market structure of the world’s defence industry and conclude that the country’s military superiority in the Middle East may be attributed to Israel’s huge advantage in skilled human resources and technology, and the military support that it receives from the USA. Policy implications are twofold. First, Israel’s net defence costs (its expen-diture on defence minus the profits of its defence industry) could be minimised if defence industry comprised a single firm, that is, Israel would likely gain from a consolidation of its defence industry. Second, whatever the benefits of the US military aid in reducing Israel’s net defence costs, this aid reduces the profits of the Israeli defence industry and may, in the long term, hurt its sustainability and viability. Thus, the Israeli defence establishment should actively seek additional foreign markets via joint ventures, or mergers, with American and European defence firms.