Start Up Nation: Death By Unions?

“We don’t want to reach that point but the management is leaving us no other choice. We might not do a full strike in the beginning, but we are not ruling out that move if we need to get there.” Read that sentence again, and remember it well. It may be that with these banal words Uri Pinhasi, Chairman of the Amdocs Workers’ Union, presaged the beginning of the end of the State of Israel as a Start-Up Nation.

Israel is a global leader in the field of high tech. As Mida has repeatedly pointed out, the Israeli economy is increasingly dependent on technological export, which is an increasing part of the country’s foreign trade. Books and studies have been written on the Israeli high-tech miracle, many entrepreneurs got rich, science and technology are flourishing, and Israel has earned global prestige.

But now, the future of Israeli high-tech is in danger. There is a decline in quality manpower in Israel, and the increasing regulation and taxation are negatively influencing Israel’s attractiveness. But the true death blow to the branch we’re all sitting on may come from an entirely different source: the penetration of the Histadrut into high-tech companies.

In the past few years, the Histadrut has led a unionizing campaign within a long list of high-tech companies in order to bring the tens of thousands of workers there under its wing, along with the huge sums they will bring in as dues-paying members. This move has enormous destructive potential: global experience shows that such unionizing harms the industry. Companies become less efficient and less innovative, profits go down, investors flee, and the whole market stagnates.

It’s important to understand that the high-tech market works according to different standards than other manufacturing markets. More than any other sector, high-tech is a world of zero or one: great success or complete failure, with very little middle ground. Competition is enormous and global, and therefore success in the high-tech market is dependent on fast response, fast development, and on initiative, originality, innovation, and the maximizing of efficiency. The complete opposite of what the Histadrut brings with it.

Add to this the fact that the Histadrut’s strategy is to tie workers’ struggles in one sector to their struggles in another and you have a recipe for disaster. “If tomorrow the Histadrut chairman threatens to shut down the economy because Amdocs management refuses to surrender to any particular pay demand by the company workers’ union, or demands the government prevent imports to help local companies, then we have a serious problem,” economist Ori Katz explained on his Facebook page. The opposite is also true: imagine a “solidarity” strike by high-tech workers in favor of the struggle of Ashdod dock workers, and you’ll understand how big a nightmare this really is. Do you know a venture capitalist who’d be willing to entrust hundreds of millions of dollars in the hands of Alon Hassan, Gila Edrei, or Avi Nisenkorn?

An End to Innovation

Israel Aerospace Industries provides a unique Israeli test case: a huge government company which brings in $4 billion in revenue and employs some 17,000 workers. Various items in the media tell of a difficult organizational situation in the company: in 2014, the net profit of the company was only $27 million, a very low margin compared to revenue. Entire divisions in the company are operating at a loss, and every attempt by the management to make the company more efficient runs into fierce resistance by the Histadrut and the company union. That’s the price of unionization.

Israel Aerospace Industries is not alone: a comprehensive study conducted recently in the United States demonstrated the negative influence of workers’ unions on corporate innovation. According to the study, about three years after the establishment of a union by its workers, a company will experience an 8.7 percent drop in patent proposals and a 12.5 percent drop in their quality. This leads to companies moving their innovation centers to states without unions. A famous example of this is the decision of Boeing to develop their Dreamliner plane in South Carolina rather than Washington. When the CEO was asked to explain his decision, he said he can’t fund “strikes every three or four years.”

Silicon Valley already understands this. A survey conducted by Vox among 300 high-tech entrepreneurs in California showed that although more than 80 percent of them identify as Democrats (i.e., members of the traditionally pro-union party), only 29 percent of them think that workers’ unions are a positive phenomenon. There is no wisdom like experience—and high-tech entrepreneurs have had bad experience with unions.

The idea that Israel could lose its innovative edge is terrifying. Anyone who cares about the country’s future, anyone who is proud of the Israeli mind—of the vision, initiative, and unique spirit which made Israel what it is today—needs to be worried.

The Amdocs fight is a harbinger of aggressive fights between union and management in a private high-tech company in Israel. The Histadrut has already moved its unionization campaign into high gear: Comverse, Matrix, NESS, SAP, and other companies are in various stages of unionization. And some have already registered union-management friction.

Just this week the CEO of the Israeli cybersecurity company Check Point, Gil Schwed, warned that the company is considering reducing its activity in Israel: “Today the tax burden has become four times as high and there’s a feeling of a pile-up on all the companies in Israel—it raises the question ‘What do I need all this for?’” he said at a conference.”

If something doesn’t change quickly, these trends will become a sad reality. The Amdocs case needs to ring all the alarm bells. We need an immediate and crucial reform in labor laws in Israel: raise the necessary threshold for binding unionization in Israel, create free association and competition between unions, repeal the destructive right to strike, and cut the Histadrut loose from the udders of the government.