So today the Manufacturers Association of Israel is out calling on the government to implement some kind of emergency rescue program to save the fledgling textile industry. They say that due to the Shekel strength over the last year or so, exports have fallen and about 5% of workers in the industry have lost their jobs in ‘08.

According to a report in Globes: “While textile exports fell 3.3% to $520 million in the first half in real terms, compared with the corresponding period, textile imports (especially from Asia), rose 18.6% to $656 million.”

Unfortunately what they neglect to say is that this is nothing new. Israel has lost textile market share for years, as even local producers have turned to Jordan and other countries with much cheaper production costs. Basically, due to the fact that many in the Israeli textile industry are unionized, they have succeeded in pricing themselves out of the market, forcing companies to turn to cheaper alternatives. It’s the Association’s own fault and now they want the government, i.e taxpayers, to bail them out. Sorry. If you can survive, great. If not, try producing something else.

I realize that government bailouts of certain sectors and populations has become the norm over the last couple of months, as governments in both the UK and the US, have bailed out banks that played fast and loose with their and depositor’s money. And let’s not forget homeowners in the US who were encouraged to purchase homes that they couldn’t afford, couldn’t make monthly mortgage payments, and are now getting bailed out by Congress, the same Congress that encouraged them to make the purchase in the first place. But why can’t we just let the market take care of itself.

If developing countries are able to produce goods on the cheap, let them. Developed countries should concentrate on what they do best, which is producing value-added goods and services. Each country should specialize in what they do best, thus we will get the best goods at the most attractive prices. I am not going to go into an analysis of Francis Fukuyama’s “End of History’ theory, but specialization does have advantages.

The Israeli government should stand strong, and not succumb to a bailout of the textile industry. Either the Israel textile industry should make the necessary changes needed to compete in a global economy, or they should face the music.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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