The News Behind The News
January 26, 2000
Ran Cohen and New Horizon
By Yossi LasterAn article by Keren Tsuriel appearing in Globes on January 18 reported that the New Horizon textile factory in the development town of Ofakim, which had received NIS 20 million in grants from the Ministry of Industry and Trade, had declared bankruptcy and fired all of its 110 employees. Globes reported that of the total NIS 20 million in grants, NIS 13 million was transferred only eight months ago. Ran Cohen, the Minister of Industry and Trade, declared in the media that he is demanding that the owners of New Horizon reopen the factory or else return the NIS 20 million. Why did Ran Cohen choose to blame the owners of New Horizon for this failure?
The immediate reason for Ran Cohen's declaration is simple: the best defense is a good offense. In a properly functioning country, Ran Cohen would have had to present himself before a committee of inquiry in order to supply the answers to questions such as: Who wrote the business plan for New Horizon? Did anyone at the Ministry of Industry and Trade verify the assumptions of the business plan or check that it was actually being carried out? Which bureaucrat approved grants of NIS 20 million of the taxpayers' money for a factory in financial difficulties and what was his justification for this decision? And so forth.
The responsibility of the bureaucrats at the Ministry of Industry and Trade for this financial disaster should be clear; Ran Cohen's declarations in the media, however, have managed to divert criticism from the Ministry to the New Horizon factory. The Israeli newspapers swallowed the bait and took part in the media lynch of the New Horizon owners. They neglected to ask Ran Cohen some difficult questions, which clearly should have been asked.
Can Ran Cohen claim that the closure of the factory came as a surprise? It seems that the Ministry bureaucrats knew of the factory's problems for long time but nonetheless decided to transfer the taxpayers' money to the company. Keren Tsuriel writes in the article: "It seems that that there were intense arguments at the Investment Center over the assistance to New Horizon during the period under the previous director, David Baruch. The assistance was finally approved principally in order to prevent layoffs in Ofakim prior to the 1996 elections."
The fundamental problem does not lie with the New Horizon factory; one can assume that even the most talented managers would not have managed to save the factory under present conditions. The textile industry does not have a relative advantage in Israel; labor costs are high making the production of low added value goods such as textiles unprofitable. This situation is a result of global demand and supply and the relative advantages enjoyed by each country. No one, not even Mr. Ran Cohen, can change this simple fact. Support for this can be found in the Globes article: "…New Horizon was closed after accumulating losses of $5 million which resulted from a continuing decline in orders and the high costs of production which made the production unprofitable."
Why do Ran Cohen and his political colleagues continue to transfer money to these factories when their difficulties are chronic and foreseeable? The answer lies in the desire of Israeli politicians to appear as the protectors of the weak and supporters of the development towns. This makes for good photo opportunities; however, the dependence of the local residents on these politicians is continually growing since there are few alternative sources of livelihood in the development towns.