Although the defense assistance agreement that Prime Minister Benjamin Netanyahu signed with the US government has predictably led to political controversy, it is actually a very good deal, especially considering the poisonous relationship with the current American administration.
Criticism centers around two allegations: the first, that it should have been more is easily disposed of. It is the best that Israel has ever gotten. The second is more cogent: for the first time the reservation of up to 26% of all contracts for Israeli companies is eliminated and instead 100% will go to US contractors. This appears significant, but those making the argument might wish to consider why Israel's big defense companies did not make an issue of it.
The explanation is quite simple. Previously a $100 million contract might have been divided 74% for American companies and 26% for Israeli counterparts. Now the whole amount will go to the American contractors and they can then subcontract to Israeli companies for whatever percentage they mutually agree. Problem solved, or rather there never was a problem in the first place.
Note also, that the deal can be altered by mutual consent at any time with a new US administration and Congress.
A much more potentially serious problem for Israel with reference to its principal partner and ally in defense development is the glaring fact that the US fiscal situation is awful and getting worse by the day.
A recent publication of The Committee for a Responsible Federal budget, authored by Mitch Daniels, a former director of the Office of Management and Budget (OMB), makes the following points, greatly abbreviated, based on his recent Congressional testimony:
Our [US] federal deficits have been running at historically unprecedented levels.
Public debt this large weighs on economic growth.
The unprecedented explosion of so-called entitlement spending is squeezing every other federal activity.
The problem is getting worse, fast.
Official projections of growing indebtedness are based on wishful thinking.
A national government that year after year borrows enormous sums and spends them on current consumption lacks judgment and integrity
A decade of anemic growth and the weakest post-recession recovery on record has eroded Americans' economic optimism.
To which it might be added that neither of the presidential candidates has suggested anything approaching a program that would begin to correct this disastrous situation.
In short, Israel should enjoy the multi-year deal it was offered and accepted and hope that the next administration does not try to negotiate it down, because the US will in the not distant future simply not be able to afford anything similar.
Norman A. Bailey, Ph.D., is Professor of Economics and National Security, The National Security Studies Center, University of Haifa, and Adjunct Professor of Economic Statecraft, The Institute of World Politics, Washington, DC. He was formerly with the US National Security Council and the Office of the Director of National Intelligence.
Published by Globes [online], Israel business news - www.globes-online.com - on September 29, 2016
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