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(photo credit: Ariel Jerozolimski)
International companies will transfer their knowledge centers abroad and investors will be deterred from investing in Israel's hi-tech industry if far-reaching amendments to current labor laws are passed by the government, hi-tech veteran Giora Yaron warned on Thursday.
"This is a non-starter. If it really happens, the hi-tech industry, start-ups and subsidiaries of global companies will leave Israel sooner or later. We will not be competitive anymore in a world where the tendency is towards freedom," said Yaron, one of the country's foremost hi-tech entrepreneurs, in an interview with The Jerusalem Post.
"Just look at what happened at General Motors. What killed GM was its labor unions. The labor cost disadvantage rendered them less competitive and they couldn't pay what was demanded of them."
Yaron has established and sold many start-up companies over the past years, and has been a major contributor to the success of the Israeli hi-tech industry. As chairman of the board of Mercury Interactive, he oversaw the sale of the company to Hewlett-Packard in 2006 for $4.5 billion.
"It took 20 years to build the Israeli hi-tech industry. The effect of the new amendments might not be felt immediately, but within 5 to 10 years we could see the industry and investors disappear to more competitive locations," said Yaron.
"We are not the US, in Israel we don't have the privilege of a local market. We are far away from the market, labor costs are not as competitive as they used to be, so the last thing we need is for labor unions to impair managerial freedom."
The Federation of Israeli Chambers of Commerce (FICC) has launched a media campaign against the proposed changes.
"Instead of ... investing a bit of thought in how to reach the correct balance of power between the freedom of labor unions and managerial freedom, the government is striving to make matters worse," Uriel Lynn, President of the FICC, told the Post.
One of the currently proposed amendments to the law will make employers subject to penalties of NIS 50,000 to NIS 200,000 if they prevent union representatives from entering their businesses.
The second proposed amendment to the labor laws would force an employer to hold negotiations with a labor union representative over collective labor bargaining agreements if at least one third of the employees agree to be represented by a union. The employer is not obligated to sign an agreement as long as negotiations are held.
"Is it right to force someone to negotiate? Where is the freedom of contracts? Where is managerial autonomy?" asked Lynn. "In the past, we saw what happened to Koor, or Solel Boneh, all Histadrut companies, who tried to pay high salaries across the board, until they collapsed in the 1980s."
Ofer Eini, the head of the Histadrut and one of the architects of the proposed changes, dismissed Lynn's charges. "In order to meet the challenges of this crisis we must join forces and work through dialogue and cooperation among all parties."
He dismissed the FICC campaign, stating sarcastically "I thank Lynn," for bringing attention to workers' rights. "I would ask him to keep it up."
Today, about one-third of the business sector is made up of large, monopolistic companies, which have strong unions controlled by the Histadrut. Examples include the Israel Electric Corporation, the ports, the Israel Airports Authority, and other large industrial plants. On the other hand, almost two-thirds of the private sector in Israel are not unionized. Among the latter are multinational companies, startups and high-tech firms, as well as many mid-sized businesses in commerce and services - the backbone of the economy.
Yaron says workers in these more advanced areas don't need unions. "Labor relations in the hi-tech industry are built on personal contracts based on talent, knowledge and effort to encourage excellence, enhance competitiveness and boost efficiency," he said.
Another change worrying Lynn is the proposal to make withholding wages or late payment a criminal offense subject to a prison term of half a year. The proposal will be brought for approval at the Knesset Labor Committee on Monday as part of the economic arrangement bill 2009-2010.
"As it is, thousands of small businesses are struggling to survive amid the global economic crisis," said Lynn. "It would only take one big client to pay late to bring a small business into difficulty to be able to pay salaries on time. Since banks are also reluctant to provide credit there will be more pressure on employers to lay off workers or close the business if they can't pay salaries, rather than face criminal prosecution."