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CONTENTS

The Development of the Negev

§ 1.2.1 A theoretical overview

§ 1.2.2 The self-reinforcing Metropolis

§ 1.2.3 Migration from the region to the centre

§ 1.2.4 The role of the Government

§ 1.2.5 Regional inequality and industrial diversity

§ 1.3.1 The System of Central Places

§ 1.3.2 The Growth Pole Concept

§ 2.1.1 A description of the Negev

§ 2.1.2 The geographical demarcation of the research area

§ 3.2.1 The emergence of the settlement structure

§ 3.2.2 The shift to the growth pole strategy

§ 3.3.1 The executive bodies

§ 3.3.2 Investments by the government and the private sector

§ 3.4.1 The first industrial developments

§ 3.4.2 The industrialization of the development towns

§ 3.6.1 The rate of industrialization in 1965

§ 3.6.2 An evaluation of the industrial structure by comparison

with the indicators of industrial diversity

§ 4.1.1 Changes on a macro-level

§ 4.1.2 Changes as direct consequences of the war

§ 4.2.1 The continuation of the growth pole strategy

§ 4.2.2 A new purpose for the Negev

§ 4.2.3 A structure-policy for the Negev

§ 4.2.4 New perspectives for the Negev

§ 4.2.5 The Negev Regiopolis

§ 4.3 The instruments of regional development .

§ 4.3.1 The Law for the Encouragement of Capital Investment

§ 4.3.2 The Free-Trade Zone of Eilat

§ 4.3.3 The Small-Business Development Centers

§ 4.3.4 The Technological Incubators Program

§ 4.4.1 The crisis in the textile industry

§ 4.4.2 The chemical industry in the Negev

§ 4.4.3 The mining companies

§ 4.4.4 The industry in the development towns

§ 4.4.5 Technological centres in the Negev

§ 5.1.1 New developments in and around Be'er Sheva

§ 5.1.2 The privatization of state companies

§ 5.2.1 Old plans

§ 5.2.2 New projects

§ 6.1.1 From 'ad-hoc' to 'made to measure'

§ 6.1.2 The effect of the instruments

§ 6.2.1 Diversity of industrial activities

§ 6.2.2 Diversity of company size

§ 6.2.3 Diversity of company ownership

§ 7.2.1 The Negev's industrial homogeneity caused by autonomous

spatial processes

§ 7.2.2 The unintentional effects of the development policy on the

diversity of industrial activities

§ 7.2.3 The dominance of large firms

§ 7.2.4 The balance between public- and private companies

" We shall bloom the desert land and convert the spacious Negev into a land of strength and power, a blessing to the state of Israel."

These words were spoken by David Ben Gurion, who was elected the first prime minister of Israel in 1948. He is known as one of the most important proponents for the development of the Negev, the vast desert in the south of Israel. During his political career was the great inspirator behind the first developments in this uncultivated area. Later, after his resignation from politics, he stressed his dedication to the Negev, by settling for the rest of his life in Sede Boker, a kibbutz in the middle of the Negev. His special wish to be buried on a site he had chosen in the Negev, was fullfilled after his death in 1973. Since then his tomb, which is located on a plateau near Sede Boker with a fabulous view on the desert, can be visited.

The subject of this thesis deals with the attempts to realize Ben Gurion's 'dream': the development of the Negev into a home for the great numbers of jewish immigrants who have settled in Israel since 1948 and the jewish immigrants who will settle in the future.

The settling of people in arid zones has always been in a focus of attention for scientists from various fields. The motives of people to extend such tremendous efforts, seemingly against all odds, in an inhospitable area are often open to speculation.

Cohen distinguishes four different kind of strategies of desert development, each with its own motives and practices. He classifies the strategies on ideological versus practical motives on one hand and directed versus spontanous development on the other. One of the strategies he calls: 'Visionary Transformation', a way of development which is characterized by large-scale projects which are initiated by a powerful authority, usually a state-government, for cultural, religious, social, or nationalist reasons. A second characteristic is a charismatic leader who is able to inspire people to invest and to endure hardships for long-term ideological goals like the development of the desert for other purposes than practical ones. Cohen mentions the development of the Negev with the inspirator David Ben Gurion as the best example of 'Visionary Transformation'. The combination of idealism and a rational, systematic approach can be found in Ben Gurion's own writings:

"...These areas cannot be settled without the transformation of the facts of nature, an accomplishment not beyond the capacity of science in our day or the pioneering energy of our youth. Science and pioneering will enable us to perform this miracle..."

Since the existence of the state of Israel, the development of the Negev has, besides Ben Gurion's dream, always been in the light of other goals. One of the most important is population dispersal. Already during the first years of statehood, the population, which was growing rapidly because of immigration, tended to concentrate in the three major cities of Israel: Tel Aviv, Jerusalem and Haifa. Because of the need of defence and congestion effects in the cities, population dispersal had a top priority on the national agenda. Especially the Negev was sparsely populated: in 1948 the average population density per square kilometer was 1,5 in the Southern District in comparison with the Tel Aviv District which had a density of 1834 persons per km² and a national density of 43,1. It was obvious that the Negev would be the outspoken destination for the population surpluses of the cities and the great numbers of immigrants in those years. From the start the Israeli government has performed an active policy of dispersal of population by means of planning, incentives and directing new immigrants to peripherical regions, especially the Negev. The far reaching extent of government intervention on society had a wide-spread acceptance, due to the popularity of socialism among the people, the necessity of population dispersal for security reasons and the dependency of the newly arrived on government assistance for matters such as housing and livelihood.

Between 1951 and 1961 eight settlements were established in the Negev. During the years these settlements have developed into middle-sized towns known as Development Towns. The government has taken care of housing, employment and services for the inhabitants of these towns, mostly new immigrants. In the short run these people could be employed in construction in their own town or in neighbouring towns. In the long run other sources of employment had to be found. Due to the physical circumstances of the area and the ideological character of the kibbutzim, the possibilities for large-scale employment in agriculture were limited. Besides that, the service sector in de Negev towns was hardly developed and would not be able to employ a sufficient number of people in the short run because of the lack of industry, an important economical base for services. The only way to create large-scale employment was the development of industry in the development towns. Already in an early stage of development people were convinced of this fact and since the fifties many efforts have been made to industrialize the Negev. Despite several succesful attempts at establishing industry, the employment situation has always been worrisome during the years and has needed continuous government support. The main problems have been the dominance of low-skilled jobs and the dependency of many factories on government assistance. These problems created a constant threat to the policy of population dispersal: new immigrants moved, after a short initial period in the Negev, to the coastal plain. After the first fifteen years of rapid construction and development, the physical en economical growth of the development towns in the Negev came to a standstill after 1967.

Industrialization as a strategy of development

The main theme in this thesis is that without the improvement of the economic structure of peripherical regions, in this case the Negev, a balanced dispersal of the people will not be achieved. Regional economic improvement will cause the employment to grow, in quantity and quality, to such an extent that the region will be attractive for settling. Because of the special role of industry in the economy of the Negev the following question can be posed:

Along with the performance of the regional development policy, two development strategies were implemented: the Central Place Strategy and the Growth Pole Strategy. Especially by means of the growth pole strategy much has been achieved in the field of industrial development during the last decades. However, according to local experts, including scientists of the Negev Center for Regional Development in Be'er Sheva, a structural problem repeatedly occurring in the Negev was the lack of industrial diversity. Therefore the following hypothesis can be stated:

In the case of the Negev the following indicators concerning industrial diversity are important: diversity of activities, in which growth industries should play an important role together with job creation for the highly-educated; diversity of company size and diversity of ownership, which means a balance between private and public hold of companies.

A general limitation of the implemented regional development strategies is the lack of attention for the concept of industrial diversity. The more specific limitations of both strategies will be dealt with in § 1.3.1 and § 1.3.2.

The analysis of the regional development policy and the industrial developments in the Negev will take place within a theoretical framework of regional inequality and regional development. Several theories will be reviewed by focusing on a few central themes which are of importance in the cases of Israel and the Negev. This theoretical review can be found in chapter 1.

Chapter 2 consists of a geographical description of the Negev together with a definition of the Negev-region as it is being dealt with in this thesis. The second part of this chapter describes the history of the area, from 1900 until 1948.

Chapter 3 and 4 create the core of the thesis. In these chapters the regional development policy for the Negev and the industrial developments since the fifties will be reviewed. Because of the existence of a clear turning point in the developments, the period from 1950 until 1994 will be devided into two parts: the period of growth and rapid development from 1950 until 1967 and the period of decline after 1967.

Chapter 5 deals with the most recent developments in the region and expectations for the nearby future will be given.

In chapter 6 the industrial developments and the now-present industrial structure will be evaluated. First the role of the regional development policy in the development of industry in the Negev will be made clear. Secondly the most important companies in the region and in the development towns will be put together in a table and will be examined by using the indicators of industrial diversity.

The conclusion can be found in chapter 7.

Many theories have been developed on regional inequality and regional development. In this chapter several of these theories will be reviewed. First there will be an overview of theories on regional inequality in § 1.2.1. The theorists who have been selected are authoritative to the field such as Perroux, Myrdal, Friedmann and Holland, or deal with the subject from a particular perspective such as Marx, Frank ( Dependency ) and Hadjimichalis. Secondly, theories on regional inequality will be subjected to further analysis by focusing on three mayor themes. These themes, 'the self-reinforcing metropolis', 'migration from the region to the centre' and 'the role of the government' have been chosen because they can be found in almost any regional theory and because they are relevant to the Israeli case. In a separate paragraph elements from the theories dealing with industrial diversity will be combined.

Only two theories/strategies on regional development will be discussed: the in Israel implanted regional development strategies, Christaller's 'Central Place Strategy' and 'The Growth Pole Stategy' by Perroux and others. In the early nineteen fifties a settlement structure has been created on the basis of Central Place Theory. Since 1960 regional policy in Israel has been based on the Growth Pole concept. Therefore other more recent theories on regional development will not be reviewed.

In the review there will be a frequent use of the words 'regions', 'the region' or 'the periphery'. They all refer to one concept which is : the peripherical region in a national context.

§ 1.2.1 A theoretical overview

Developing theories on regional inequalty and regional development is a relatively new phenomenom in the economic sciences. Since the fifties, regional inequality raised the interest of economists who were interested in the spatial elements of economics. A definition of the concept of regional inequality is usually given using economic phrases: " The existing differences of prosperity between regions, taking into account that every use of scarce economic goods and the whole of needs and purposes for which the goods serve, set the level of prosperity". The new theories were a reaction to neo-classical economic balance theories, which prevailed until that time. The neo-classics had the preposition of the stabilizing effects of the market mechanism. Possible spatial differences in economical growth will eventually disappear because of the full mobility of capital and labour. Implicitly regional inequality is seen as a temporary disturbance of a balance of supply and demand. The neo-classical school has been surpassed by reality: the theories could not explain mayor regional problems such as structural unemployment and economic stagnation.

The spatial approach of the new regional economic theories was not particularly new: publications of Christaller and Ohlin in the early thirties can be considered as the first texts in which the spatial dimension in economics was recognized. However during the fifties the first systematically developed regional growth theory emerged with the writings of Perroux.

In Perroux's work the detection en recognization of spatial differences in growth plays a central role. This meant a break with the traditional economic theories of his contemporaries. The concept he developed, the "Pôle de Croissance" or Growth Pole, has had a far reaching influence on regional development theories which have been developed since then. In § 1.3.2 the growth pole concept will be discussed more thoroughly. A contemporary of Perroux, Gunnar Myrdal, was the first who tried to find an explanation for the occurance of regional inequality. In one of his publications in 1957 he mentions, like Perroux, the polarized character of economic growth. However he focuses on the self-reinforcing process of polarization. This process causes initial regional differences to be amplified by the free market forces and will lead to regional inequality. The centers of economic growth are linked to the regions through 'spread-effects' and 'backwash-effects'. The exact functioning of this process will be described in § 1.2.2.

Similarities can be found in Myrdal's work to spatial elements in the writings of Marx. The latter already recognized spatial polarization by stressing the importance to the capitalist of sectoral concentration of production. According to Marx capital concentration takes places in cities where exists a so called 'reserve army' of labour. Such a labour surplus, or unemployment, will keep the wages low and will consequently sustain the process of capital accumulation. Due to overpopulation, replacement of labour by capital in the countryside, the labour surplus in the cities will increase by migration from the country-side to the cities. One can say that Marx implicitly explained regional inequality by taking into account the spatial effects of the capitalist system.

In succession to Perroux and Myrdal many scientists began to pay attention to the subject of regional inequality. One of them, John Friedmann, used Myrdal's findings as a starting point. During the sixties he developed his 'Centre-Periphery' model based on research in Venezuela. An important contribution to the field of regional theory has been his taking of the concept of regional inequality into a historical context. He distinguishes four stages: the pre-industrial stage, the transitional stage, the industrial stage and the post-industrial stage. Friedmann states that during a country's transitional stage ( the transition from agriculture to industry ) a spatial structure emerges which is characterized by the existence of a centre and a periphery. In this stage regional inequality will be the most severe and government intervention the most urgent.

In writings on regional inequality different words are used to describe the relation between the centre and the regions. A recurring aspect is the unequal distribution of power and resources. Friedmann states that during the transitional stage there exists a 'colonial' relationship between the centre and the periphery. Keeping this in mind we can approach the phenomenom of regional inequality from another perspective: Dependency Theory or 'Dependencia'. Towards the end of the sixties and during the first half of the seventies Dependencia was an important school of thought in the field of developmental economics. One of the mayor themes of Dependencia is the attachment of the elite in developing countries to western capitalist countries. This has been initiated by the latter by means of financial and political support, in order to prevent economic development in these developing countries. In this way the a poor country will stay dependent on the capitalist countries and regional inequality in such a country will persist. At the same time the western countries will be able to obtain the resources out of the poor country's regions and the elite in the centre will benefit from the payments. Such a dependency system might also occur on a national scale, if in a developing country regional centers exist. The national centre plays the role of a Western country and the regional centre the role of the local elite.

Such an approach from a mondial perspective has also been made by the English economist Holland in 1976. A central theme in his analysis is the economic proces on corporate level: the actions of companies especially multinationals. He has detected an increasing power of corporations in western economies and an increase of multinational activities by large firms. These tendencies have a negative effect on the results of a national regional policy. For example multinational investments cannot be generated easily by means of regional investment incentives because the multinational companies are generally focused on the world's economic centres. Holland favours a stronger government which can make the activities of multinationals work in favour of national goals, for instance regional equality.

Recently Hadjimichalis (1987) has continued the regional theorist focus on the role of the state-government concerning regional inequality. He explains the emergence of regional inequality by the change in the role of the capitalist state. The traditional role of the capitalist state has been to secure the conditions for production and to sustain the capitalist system by spreading the capitalist ideology. Through the formation of new states by economic unification, the state ( the government ) started to play a new role: the integrator of regions into a modern state in favour of a common market. This process has caused regional inequality: because of new borders in a patchwork of relatively independent regions some regions became centrally located and other regions found themselves along the borders of the new states. Furthermore the state gives, due to her new role, priority to supporting national economic growth instead of regional economic growth. Because of this, regional inequality will increase and a crisis of legitimacy will appear: as long as regional inequality will exist the state will not be able to legitimize her rol as 'integrator'. This will create grounds for regionalism and conflicts between regional and national governments. In her own interest and the interest of the regions the state should actively intervene in the economy to diminish regional inequality.

At this point the theoretical overview comes to an end. It should be said that this paragraph is not meant to be a complete overview of the whole range of regional theory. Efforts have been made to discuss the most important theories. By using themes which are relevant to this thesis, some of these theories will be subjected to further examination. Subsequently the theories will be screened on elements which relate to industrial diversity.

§ 1.2.2 The self-reinforcing Metropolis

According to Myrdal economic growth only emerges in a limited number of places in stead of in all regions of a defined geographical space. In his theory Myrdal uses the example of the settling of a new kind of industry as an impulse for growth. Friedmann also connects the emergence of new economic centres to industrialization. The locations of growth will be predominantly cities: a city implicates the existence of economies of scale, which is essential for specialization, efficiency and industrial growth. These urban centres will attract growth, trade and labour. Myrdal says that consequently profits from agriculture will be invested in the expanding industry instead of in agriculture, because of the higher returns on investments in industry. This will be a self-reinforcing process because the conditions for production in the urban centre will be even better due to the stream of investments and capital towards the centre. Examples of these conditions are: economies of scale and the development of 'external economies' like a great supply of high-skilled labour, an advanced infrastructure, a favourable 'entrepreneural climate' and expectations of growth. Myrdal calls this proces: 'Cumulative Causation'. This is the central theme in his theory. Friedmann also deals with the concept of a self-reinforcing growth in the centre in his 'Centre-Periphery' model. However Friedmann stresses power relations which cause the stream of investments and capital from the periphery to the centre, contrary to Myrdal who sees the self-reinforcing centre as a result of an autonomous process of free market forces.

Another approach to the cumulative process can be found when considering the exchange of goods between the centre and the periphery. An increase in income in the centre will cause an increase of demand for agricultural products from the regions. This will cause the income in the regions to increase as well and will consequently raise the region's demand for industrial goods from the centre. Generally speaking in the case of increase in income, the percentage of manufactured goods in demand will grow. For the regions this means that an initial increase of 'export' of agricultural goods will be followed by a far more larger increase of 'import' of manufactured goods. The final result is an outflow of capital to the centre.

Myrdal calls the negative consequences of cumulative causation for the regions 'backwash' effects. At the same time he distinguishes 'spread' effects. These are the positive consequences of growth in the centre for the regions, for instance an increase in the centre's demand for raw materials from the regions or economic growth in the regions close to the centre. The level of regional inequality depends on the balance of spread- and backwash effects. Myrdal also states that spread effects are stronger in developed countries than in developing countries. The reason is that a higher level of education, a better developed infra-structure and a more advanced communication system in the developed countries cause the spread effects to have a further extension.

§ 1.2.3 Migration from the region to the centre

Due to the strong economic growth in the centre at the expense of the regions the differences in prosperity between both areas will intensify. One of the consequences will be migration from the regions to the centre. The motives for migration are influenced by so called 'push-' and 'pull' factors. Pull factors are the circumstances in the area of destination, in this case the centre, which attract potential migrants. Examples are the favourable economic conditions in the city, such as employment, higher incomes, and a high level of services. Other than economic circumstances also have a great attractiveness, such as a great diversity of social and cultural activities and an energetic night life ( the 'lights' and glamour of the 'City' ). The negative circumstances in the region itself, the push factors, make the migrants leave their homeland.

One of the most important push factors is unemployment. Apart from the process of cumulative causation and its negative consequences on the regions, Holland points at other causes for high unemployment in the countryside. He mentions the structural problems of agriculture combined with a rapidly growing rural population caused by natural increase. In the regions there often exists a traditional, scattered landownership, which prevents the transition to an efficient large-scale production. There is also a strong competition of agricultural areas in the centre, because farmers in these areas have a higher level of mechanisation and are located closer to the main markets. Another problem Holland mentions is the role of distributive trade, which takes its share of the regionally generated agricultural profits. All the above mentioned factors lead to low returns and a low level of investment so that agriculture is not capable of employing an increasing population. High unemployment will be the consequence and an exodus from the countryside to the city sets in motion.

The consequences of migration from the regions to the city are among the main causes for the continuation or aggravation of push factors. One of the most important consequences is 'brain drain' which occurs because of migration. It's also called 'selective migration': the outflow of especially young, flexible, enterprising, highly skilled labourers. Because of this the quality of the regional working force will decrease, due to the increase of the percentage of low- or unskilled workers and elderly. The region will be less attractive for industry, especially growth-industry for which a high-skilled work force is essential. As a consequence ambitious skilled youngsters will not find suitable jobs and will leave the area which completes the vicious circle.

It goes without saying that the centre will also be affected by the negative consequences of migration. One can mention: effects of congestion, the emergence of shanty towns and social unrest and crime. However these negative effects will only have a minor influence on the physical and economic growth of the city, because the extra costs of these effects will be shifted on to the public sector. For example a necessary extension of the road network as a solution for traffic jams will be at the expense of the government.

§ 1.2.4 The role of the Government

In the search for an explanation for the phenomenon of regional inequality, Myrdal focused on the functioning of the free market forces without the intervention of a regulatory government. His conclusions that the market forces create and reinforce regional inequality are valid under 'laissez faire'. Others have used this fact as a starting point for focusing on the role of the government in order to find a solution for regional inequality.

One obvious argument for government intervention is the principle of justice. Holland is pleading for a stronger government to curtail the power of corporations in order that they keep more reckonship with society's aims such as a fair distribution of prosperity. A way to achieve this is regulations for the allocation of investments.

In different theories other arguments are given in favour of government intervention. According to Friedmann, a country's dualistic structure of a centre and a periphery prevents the national economy from growing. He mentions the existence of a so called 'Poverty Trap': a vicious circle in which the centre-periphery structure and economic stagnation sustain each other. He explains this process by stating that economic stagnation is caused by the effects of the dualistic structure such as inefficient use of natural resources, high costs because of congestion in the centre and political instability. At the same time spatial dualism cannot be altered because of economic stagnation. Escape from the vicious circle can be realized by means of government intervention in the form of planning. Friedmann states that regional policy should create a spatial structure which will be able to support the transition to industrialization.

Not only economic arguments, but political arguments can also be a motive for regional policy. Hadjimichalis says that in a modern capitalist state the government's new role of integrator cannot be legitimized as long as regional inequality exists: this would be a threat to the territorial existence of the capitalist state. Backward regions might lose a sense of commitment to the nation, which can lead to regionalism and political instability. By regional policy the state wants to legitimize itself as a conservator of justice and values and at the same time it wants to prevent conflicts with local governments in the periphery.

The government's role of altering regional inequality is realized in regional policy. In most cases a major goal will be the suppression of regional unemployment. Well known measures are: investment incentives for companies which settle in the regions, government investment in the regions' infrastructure and the transfer of public companies or government institutions to the regions. The government also tries to support regional growth by the planning of new towns and the execution of development projects.

Although the prominent role of the government in the fight against regional inequality is generally acknowledged, some critics are doubtful about the effectiveness of regional policy. Holland puts the functioning of incentives for multinational firms for investments in the region into perspective: multinationals, he says, are increasingly capable of setting prices which makes a possibly cheap location in the periphery less attractive. The expensive location in the centre can be compensated by higher sales-prices and at same time the company benefits from the centre's facilities. Furthermore Holland stresses the fact that regional incentives will not be able to compete with locational advantages in developing countries like low wages and less regulation concerning labour-circumstances and the environment.

Dirker points at the incapability of regional policy as far as the national component in the region's problems is concerned. The decline of certain regional industrial branches has often been caused by structural change on a national or international level. Regional policy would not be effective, because these problems can only be solved by national economic policy.

Gore found in many theories on regional inequality that policies which aim to disperse investment, will lead to a less efficient spatial structure. This he calls the conflict between maximizing regional growth and maximizing national growth. Hadjimichalis adds that the state will give priority to the creation of favourable conditions for national economic growth. Creating the conditions for regional economic growth will be second. According to Hadjimichalis this is a contradiction.

§ 1.2.5 Regional inequality and industrial diversity

In the theories on regional inequality processes can be identified, which affect a region's industrial diversity. The concepts of these processes are useful in the description and analysis of the industrial developments in the Negev.

The process of cumulative causation will have a negative effect on a region's industrial diversity. This is caused by the attraction to the centre to advanced kinds of industry. This kind of industry depends more on agglomeration effects than does less advanced industry. The consequence is that the region will be left behind with a simple and laggard type of industry.

The process of selective migration to the centre also has negative effects on the industrial diversity in the regions. Because of a lack of highly skilled workers in the region the advanced industry is not likely to settle there. This will on its turn sustain the process of selective migration.

Finally it can be stated that regional policy which aims towards the diversification of the region's industrial structure will not be very effective because of the increasing power of multinationals and the government's recurring dilemma between national and regional economic growth. Government intervention is not a guarantee for a better diversity of industry in the region.

With the regional development of the Negev two development strategies have been used. The settlement structure which was developed during the fifties was based on the system of 'Central Places' from the theory of Christaller. Since the sixties strategies changed and regional development came into the context of 'Growth Pole Strategy'. The theory behind both concepts will be reviewed in the next paragraphs.

§ 1.3.1 The System of Central Places

In geopgraphy Walter Christaller's central place theory is considered to be a standard work of theories which deal with the location of cities. By analysing the structure of cities in Southern Germany in the early thirties, Christaller developed a model of a spatial structure which consists of a hierarchy of big cities, middle-sized towns, small towns and villages: the central places.

A central place can be defined as a centre of a region, the centre's service region. Christaller classifies the central places as follows: G-places (30.000 inh.), B-places (10.000 inh.), K-places (4000 inh.), A-places (2000 inh.) and M-places (1000 inh.). The size of the service region to a central place depends on the number and kind of so called 'central goods' that can be obtained. Central goods are goods and services which are both produced as well as supplied in a central place. The theory focuses on consumption goods. The number of types of central goods which are supplied in a central place determines the central place's rank in the classification. An important aspect of central goods is that every kind has its own spatial range: the spatial area in which a good is supplied has an upper- and a lower limit. The lower limit of the range of a central good is determined by the minimum size of the base of potential customers needed to achieve a good's break-even point. For example bread has a low lower limit: every family needs bread every day, so a village or a neighbourhood has enough potential customers for a bakery to stay in business. On the contrary, a Rolls Royce dealer needs a very large area to get enough customers and usually there is only one such dealer in a whole region. These kind of goods have a high lower limit and can only be supplied in big towns. The upper limit of the range of a good is mainly determined by the maximum ceiling of transport costs a customer is prepared to pay in order to obtain a certain central good. At a certain distance from a central place the costs become too high to obtain the good in that particular place. Using the same examples, a customer is prepared to travel further to buy a new car than to buy a loaf of bread. The service area of a central place, 'complementary area', is thus limited by the upper limit of the range of the central good with the highest upper limit; this means that this area also contains the ranges of the other ( lower rank ) central goods. One of the prepositions in the theory is that central goods should be able to be supplied everywhere. In the simplified model of one central place, for instance a G-place, problems arise because parts in the complementary area will not be covered concerning central goods with lower upper ranges. Considering the good with the second highest upper limit, there will be an area, between the upper limit of the good with the highest upper limit and the upper limit of the good with the second highest upper limit, in the shape of a ring, where the central good with the second highest upper limit and the lower central goods cannot be supplied. More central places ( smaller ones ) are necessary to be able to supply all central goods to every destination.

Around the complementary area of our G-place the complementary areas of six other G-places are situated hexagonally, in a way that every spot in space is covered. With the circular shape of the complementary area in the simplified model overlaps appear close to the borders between two regions. Under the ideal circumstances of the model, customers close to the borders will choose the shortest distance: customers who live closer to G-place 1 will go there instead of going to G-place 2 ( even though they would be prepared to pay the costs of transport to G-2 in the case G-1 would not have existed ). A partition line can be drawn along the axis of the overlap area and consequently the complementary regions will fit as hexagons . The hexagonal shape of the complementary regions is caused by the difference between the so called ideal upper limit of the range and the real upper limit of the range of the highest central good. When there is the alternative of another central place customers choose the place which is the closest.

B-places, which are second in the hierarchy , are located on the corners of the hexagon of our G-place. These positions are situated exactly between all G-places, because in those spots, where G-regions touch, the central good with the second highest upper limit cannot be delivered by any G-place. Only a B-place will be able to supply this good . The same explanation can be given considering the other ( lower ) places in the hierarchy. In this way every central place is surrounded by six smaller central places, which are in their turn surrounded by even smaller places. The model which appears is characterized by a dense honeycomb pattern of hexagons in different sizes: the System of Central Places . ( see: pictures )

The number of central places in a region depends on the population density and the average income. In a prospering, densely populated area there will be more central places, because even the smallest localities might become central places. The explanation is that more people with a higher income cause the lower limits of the ranges of central goods to drop: now also the smallest places in the system attract business.

It stands to reason that the model is an ideal model. This is one of the main limitations of Central Place Theory. The following prepositions have been made: a) an equal distribution of population and purchase-power and b) a uniform transportation system, so that every central place can be reached just as easily.

§ 1.3.2 The 'Growth Pole' Concept

The French economist François Perroux is the spiritual father of the 'growth pole'. He developed this concept to find an explanation for the phenomenon of economic growth. In his writings, which were published in 1955, he defined the concept of the growth pole as follows: "...Growth doesn't take place everywhere in the same place; it occurs in centres or growth poles, in a varying intensity; it is spreading in different ways with varying consequences for the economic unity...". A recurring point of criticism is the fact that this definition, formulated by Perroux himself, gives room to a whole range of interpretations. However in most interpretations both a clear functional and geographical element can be found: functional concerning the synergetic functioning of economic clusters and geographical concerning the spatial polarization of economic growth. A clear definition for the growth pole has been formulated by Vanneste (1967): "...A unity of economic elements, concentrated in a geographical space, in which the elements make linkages which support economic growth...". In a growth pole context the unity of economic elements is often called 'motoric element' or 'propelling element'. With the realization of the motoric element, initially Perroux only mentioned growth industry ( "industrie motrice" ). Later Perroux and others widened the range of examples. Among the examples of the motoric element are: an industrial branche, a group of industries, an infra-structural artefact, an airport or a university. The general features of all possible growth poles have been surveyed by Vanneste: a) the internal relations and linkage between the economic elements, b) the multiplier effect and c) the geographical concentration.

The way in which the growth pole contributes to regional growth consists of four impulses for growth: technical polarization, income polarization, psychological polarization and geographical polarization. In the case of technical polarization an hierarchic cluster of companies emerges of which a key industry is the growth pole. Subsequently because of an increase of economic activities and employment the regional income will increase which will cause multiplier effects: there will be an increase of demand which causes investment to increase. This process is called income polarization. Psychological polarization is the whole range of non-economic effects of the existence of a growth pole, for instance an atmosphere of optimism in the region, better circumstances for living or the trend-setting effects of a prestigious firm settling in the region, on other firms ( imitation effect ). Geographical polarization is the spatial outcome of the former three kinds of polarization. Considering geographical polarization, the emergence of a growth pole cannot be disconnected from urban development, because the agglomeration effects and 'external economies' in a city are among the most important factors for the emergence of a growth pole or can be the consequences of a growth pole. Friedmann considers spatial polarization essential for the altering of the centre-periphery structure. He stresses the importance of middle-sized towns as 'growth centres' for regional growth.

A major point of criticism on the growth pole concept is the possible absorbtion of a growth pole of all regional growth ( in comparison to Myrdal's backwash effects ). Also a small economic base might appear if a growth pole has been based on one kind of industry. It is also stated that big firms which are supposed to play a propelling role tend to organize the process of delivery of goods and services internally. This will diminish the possibilities of technical polarization.

Using his theory, Perroux has made recommendations for regional policy. He recommended that the government creates counter-poles in less-developed regions which would be able to counterbalance the centres in fast growing regions. Vanhove subscribes to this point of view by saying that growth poles might contribute positively to the growth of strong regions and the development of weak regions. However Boekema and Verhoef say that it is true that growth pole theory has proved to be useful in the search for an explanation for growth in Western European centre's, but that the concept is not suitable as a planning instrument in regional policy which focuses on backward regions. The latter they show by mentioning examples in the Netherlands and other countries, which on the other hand shows the large number of case in which the growth pole strategy has been implemented.

Perroux detected regional inequality by pointing at spatial growth differences. Myrdal tried to explain the causes of these spatial differences. He found that regional inequality is caused by the autonomous functioning of free market forces. In this way a spatial structure emerges of a fast growing urban centre and a declining periphery. Friedmann said that such a spatial structure emerges during a society's transition from agriculture to industry. However he blames regional inequality on the unequal power relations between the centre and the periphery. In Dependency theory, unequal power relations are also considered to be cause for regional inequality.

Holland observes an increasing power and autonomy of multinationals, which will be an obstacle for an effective regional policy. Hadjimichalis says the government itself is to blame for an unsuccesful regional policy. He mentions the government's priority for national economic growth instead of regional economic growth.

During the initial stage of regional development in the Negev the central place strategy was implemented. The main feature of this strategy is the hierarchy of settlements of different sizes. Each of them is a central place for a certain area.

After a while the development policy changed to the growth pole strategy. This strategy is characterized by the spatial concentration of economic activities in one place in the area. By trickling-down effects from the growth pole to the region, the economy in other parts of the region should grow as well.

§ 2.1 The topography of the Negev

( see: Map of the Negev )

§ 2.1.1 A description of the Negev

The Negev is a vast desert in the south of Israel. It covers the whole southern part of the country and has a size of 12.500 km², more than 60% of the total surface of Israel. In 1992 the total population of the Negev reached 362.000. Compared to the total population of Israel ( 5,2 mln. ) this means a share of 7%.

The area has both natural as well as political borders. In the east the Negev is bounded by the Afro-Asian rift which goes through the Arava valley. This valley stretches in a north-south direction, from the Dead Sea to the Red Sea. Through the Arava lies the political border Israel-Jordan. The western border of the Negev is the political border Israel-Egypt, which has been drawn from the Mediterranean Sea to the Red Sea and which separates the Negev from the Sinai-desert. In the south the short coastline along the Red Sea with the town of Eilat, is a natural border. In the north the border is determined by the 200 mm. precipitation line, from where in the southern direction the climate gets dryer. This line goes from west to east somewhere in between Qiryat Gat and Be'er Sheva. The exact northern border of the Negev is not quite clear: the Negev region covers a part of the Be'er Sheva sub-district which has another northern border. Some say that the northern border of the Negev lies along the Nahal Shiqma, a small river south from Qiryat Gat. Finally the Negev is bounded by the Gaza-strip in the northwest and by the Green Line along the Judean hills in the northeast.

Physically the Negev consists of four parts: the plains and hills in the north, the mountains and basins of the central Negev, the Arava valley along the eastern edge and the mountains near Eilat in the south. Most settlements, like kibbutzim, moshavim and towns, are located in the northern part of the Negev, of which the western part of this area is most suitable for agriculture. In the northern Negev most development towns, or New Towns, can be found, like Dimona, Yerucham, Arad, Ofakim, Netivot, and Sederot. Be'er Sheva ( which is not a New Town ) has the status of regional capital. The northern Negev is also the location for the main industrial areas. In the central Negev there are some kibbutzim, among these is Sede Boker, the kibbutz of the late Ben Gurion. There is also a small development town, Mitzpe Ramon, which is located on the edge of a huge crater. This crater, the 'Makhtesh Ramon', is 40 km. long and 10 km. wide and has been created by erosion. In the northeast two more craters exist, which are smaller than the Ramon crater: the 'Makhtesh HaGadol' and the 'Makhtesh HaKatan'. The other parts of the central Negev have been occupied by military bases and a military airport. In the Arava valley there is a chain of kibbutzim and moshavim, stretching from north to south, with the small urban centre of Merkaz Sapir. In the north of the Arava on the shores of the Dead Sea there is the industrial park of 'Dead Sea Works' and further to the north along the western shore there are the hotels of Ein Bokek, a health resort. In the southern tip of the Arava there is Eilat, a sea-port and a beach resort on the Gulf of Aqaba ( a branch of the Red Sea ). Eilat has a short coastline: on the eastern side of the bay there is the Jordan sea-port of Aqaba and on the southwestern side there is Taba, a border checkpoint with Egypt.

§ 2.1.2 The geographical demarcation of the research area

Industrial development, the subject of this thesis, has not been dispersed throughout the whole region. It is concentrated in the northern part of the Negev, close to the development towns. The area which will be in focus in the following chapters is mostly the northern Negev with Netivot on the northern edge and Yerucham on the southern edge. The other parts will recieve only small attention with the exception of Eilat and some mining locations. The main reason is that many parts of the Negev, like the central Negev, are not destined for human settlement. These areas are beyond the scope of the development because they mainly consist of nature reserves and military bases.

Although Sederot is a development town and belongs to the Negev-region, it will not be taken into consideration. The reason is that the economy of Sederot focuses on Qiryat Gat and the Lakhish region.

In the following chapters 'the Negev' is considered as the Negev region of which the borders have been described in the former paragraph. In the statistics which have been used the Negev region is considered equal to the Be'er Sheva sub-district, because of the frequent use of a district partition in statistics. Although the Negev region and the Be'er Sheva sub-district are not exactly the same, the differences are of minor importance.

Since the beginning of this century the history of the Negev has been closely connected to the development of the town of Be'er Sheva. Before 1900 Be'er Sheva had been just a well with a 'caravanserai', a resting facility for desert caravans. The Negev was populated by bedouins, arab nomads. These bedouin tribes frequently clashed with the Ottoman government in Palestine, which tried to make the bedouins sedentary for the purpose of control and taxation. An important instrument in achieving this was the creation of a regional government seat in a new settlement on the location of Be'er Sheva. Another purpose for the new government seat was the reinforcement of Palestine's borders with the Sinai, in order to protect the country against invasions from Egypt. The town was build during the first decade of this century with the help of a Swiss and a German architect. They created a town with the structure of a grid-pattern, a town-building pattern which was popular among town planners in Europe at that time. The location was close to the old well, on the northern bank of wadi Be'er Sheva, at the entrance of a wide valley in the hills of the northern Negev. In spite of the existence of the Ottomans in Be'er Sheva, the bedouins did come to the town for trade. In this way the town developed into a central market for the whole region. However the town's population was still low.

With the beginning of the First World War, Be'er Sheva became an important base for the Turkish army, which occupied a strategic position there against the English who ruled Egypt and the Suez canal. For military purposes the Ottomans built roads in the Negev and connected Be'er Sheva to the Hijaz-railway by building a new railway. They also created water pipelines in the region. This improvement in the regional infrastructure caused an increase in the population of Be'er Sheva. In 1917, with conquest of the city by the English, a large part of the infra-structure was destroyed.

The English also created a government seat in Be'er Sheva: the town became the capital of the Southern District of Palestine. Although the town was provided with basic services, the English neglected further development of the town. Only in the early forties, with the beginning of the Second World War, did the English try to revive the city for of the English troops. This revival came to end in 1948 with the outbreak of the War of Independence. After the departure of the English, Be'er Sheva was occupied for a short period by Egyptian troops. After the Israeli army conquered the town during the War of Independence, the Negev and Be'er Sheva have been undisputed parts of the State of Israel.

§ 3.1 Regional development in Israel

During the first years of regional development in Israel, the circumstances of development were very different from those in Europe. The European regional policy was aiming for the improvement of the economic situation in the peripherical regions in order to diminish regional inequality. Regional development consisted of the transformation of an existing spatial structure. However in Israel regional development had other goals. Besides Be'er Sheva and a number of wandering bedouin tribes, the Negev was completely empty. So regional inequality didn't exist: there were no economic problems because of the small number of people living there and the lack of an economic structure.

The main goal for developing the Negev was: population dispersal. This would favour two other goals: a) the establishment of population concentrations along the nation's borders for security reasons, and b) to relieve the three big cities of over-population.

Paradoxically regional inequality occurred together with the urban development and the creation of an economic structure in the Negev. From this point leveling regional inequality also became an important motive for regional policy, because large economic differences between the centre and the periphery would become a threat to population dispersal.

§ 3.2.1 The emergence of the settlement structure

Shortly after the establisment of the state of Israel on the fourth of May 1948, the National Planning Office was founded. A major task for this institution was the development of plans for population dispersal. The authorities gave population dispersal the highest priority: first population dispersal was considered to be necessary for the national security. The reasons for it's military importance were the experiences of pioneers in peripherical regions during the Yishuv-period and military experiences during the recent War of Independence. Second, there was a tendency to concentration of population in the three big cities and in the coastal plain. Tel Aviv especially attracted lots of new immigrants and economic activity. A reason for this was that because of the one-sided focus of the Zionist Organization on agriculture, in the cities the free market forces could rule without intervention and the cities expanded without restraints. In 1948 more than 35% of the total population lived in Tel Aviv. Such a spatial imbalance was found to be undesirable. The authorities feared increasing congestion and a coming period of economic stagnation. Third, a policy of population dispersal was necessary to absorb mass immigration during the first four years of statehood. From 1948 until 1952, 684.201 immigrants settled in Israel, which meant that the total population had doubled since 1948.

In one of the first plans for population dipersal, dating from 1951, the special role of the south in the dispersal policy was stressed. In 1948 barely 1% of the total jewish population lived in the Negev.

The Negev was very suitable for further colonization for different reasons. The first reason was the wide spread ideological motivation for the development of the desert by means of planning and pioneering. David Ben Gurion, the first prime-minister of Israel, made the development of the Negev a national issue: from the beginning, regional development in the Negev had a prominent place in spatial policy. This can also be found in statistics: in 1961 the Negev recieved the biggest part of net investments in fixed assets, 23,2%. A second reason was the very low density of population in the area. From the start, there was the possibility of starting plans and projects on a large scale, because of the lack of population concentrations. Due to the large size of the new projects, large numbers of people could be employed. This made the establishment of settlements in advance of an economic base, possible.

Until 1964, the regional development policy for the Negev consisted of the creation of a system of settlements in the area. Because of the ideological character of the kibbutzim and the limited possibilities for agriculture in the Negev, kibbutzim and moshavim were not suitable for the absorption of large numbers of new immigrants. The solution had to be found in urbanization, especially in the creation of middle-sized towns which would bring balance to the national urban structure. However the political establishment in that time favoured a prolongation of socialist Zionism, the main political stream during the pre-state period. This meant a great dedication to agriculture and rural settlements and at the same time a negative attitude towards the city. The urgence of the situation created a compromise: in the Negev, small urban settlements with a rural caracter had to be established. These settlements were supposed to develop close links with the existing agricultural settlements. The planners, who started to work on plans according to these conditions, were mostly educated in Europe and were strongly influenced by townbuilding- and geographical theories which were popular in Europe at that time. According to Christaller's System of Central Places, plans were made for a settlement structure that consisted of a hierarchy of middle-sized and small towns, which would be the centres for the agricultural settlements. In 1951, the first plan was developed, in which such a settlement pattern is schematicly designed. To fill up the gap between Tel Aviv as a big city ( E-centre ) and the rural settlements of the Negev ( A-centres ), B-, C-, and D-centres had to be created. Be'er Sheva was destined to become the regional capital as well as a centre for industry. Northwest from Be'er Sheva B- and C-places could be established as centres for the kibbutzim and moshavim in that area. Ofakim ( 1955 ), Netivot ( 1956 ) and Sederot ( 1951 ) had to become towns from which the surrounding agricultural settlements could be supplied with services and goods. However southeast from Be'er Sheva, the future settlements could not be based on an agricultural economic base because of the lack of agriculture there. The towns Arad ( 1961 ), Dimona ( 1955 ), Yerucham ( 1951 ) and Mitzpe Ramon ( 1956 ) would function as residential towns for the employees of future industry and mining. Eilat was established in 1951 in favour of a future sea-port.

Because of the great magnitude of immigration, and the resulting huge need for housing, the building of the new towns had to start as soon as possible. The towns were built before an economic base was created. Until 1953 most inhabitants could be employed in the construction of roads and houses in the new towns. However between 1953 and 1957, when the basic spatial structure had been developed and when the expected rise of light industry did not appear, the employment situation in the new towns of the Negev rapidly worsened. Consequently the conditions of living in the towns got worse as well and the first people started to leave the Negev, towards the centre of the country. These were especially people with the best perspectives: a process of selective migration was set in motion. In the short run, the government tried to improve the situation in the development towns by social benefits and the creation of various kinds of social services. However new sources of employment had to be found for the long run.

The severe unemployment might be considered as an indication of the failure of the Central Place Strategy as a strategy of regional development in the case of the Negev. This failure had several causes: a) with the implementation of the central place concept, the specific circumstances in the Negev had not been taken into consideration. Christaller deducted his theory from a gradually grown urban structure in an agricultural area. The Negev cannot be compared with such an area. Furthermore the Central Place Concept was based on the exchange of goods between a centre and its complementary region. Without such an area the central place loses its central function: it would not have a proper market for its products. Many of the development towns in the Negev, especially those southeast from Be'er Sheva, were based on an economy which depended at an early stage on mining and industry instead of agriculture. These towns lacked a rural hinterland. Because of the resulting lack of exchange between the towns and their hinterland and the small size of the towns, the development towns could not support themselves. b) The development towns northwest from Be'er Sheva, Sederot, Netivot and Ofakim, could not develop into service centres for the rural settlements. The main reason was the fact that the kibbutzim and moshavim, which existed prior to the establishment of the New Towns, had their own network of suppliers and customers. In respect of the purchase and sales of products, the rural settlements were orientated directly to the national centre, Tel Aviv. Later, in the Lakhish-region, this problem was solved by establishing the rural settlements and urban settlements at the same time. Another problem of the northwestern development towns was their location. Sederot, Netivot and Ofakim are on a relatively close distance to eachother. This caused competition between these three towns.

It can be stated that also in the agricultural part of the Negev the Central Place Strategy did not work out, because of the specific character and independence of the smallest places in the hierarchy.

§ 3.2.2 The shift to the growth pole strategy

In the early sixties the Israeli government launched a program of industrialization for the development towns, in order to find a solution for the high unemployment rates in the Negev towns. One of the consequences of the failed central place strategy was the relatively small size of the development towns and the dispersed character of the Negev's urban structure. This made the market in the towns too small for a high level of services which is necessary for industry. The spatial structure was also not suitable for an efficient supply of goods and services; because of the deconcentrated settlement pattern, many outlets were necessary resulting in high transport costs. Since independence, Be'er Sheva has grown rapidly compared to the other Negev towns : from 1800 inhabitants in 1949, to 65.200 in 1965. A consiberable part of the Negev's total population resided in the town: 49,8% in 1965. Because of her relatively large size, Be'er Sheva retained its status of regional capital and has as a result reinforced itself. Consequently, the industry which settled in the development towns, orientated towards Be'er Sheva for the use of services. Be'er Sheva was capable of supplying these services because of its large size and a consequent developing service sector. Many companies established their head offices in Be'er sheva as well.

The rapid growth of Be'er Sheva and the resulting spatial polarization did not stay unnoticed. In respect of a new regional development policy ( after the failure of the central place strategy ), a choice had to be made: from a principle of equality, the existing urban pattern could be maintained by an equal allocation of attention and means among the development towns; a more effective strategy would be the support of polarized development, by focusing on Be'er Sheva in respect of regional growth. Because of different reasons a choice was made in favour of the latter option: the growth pole strategy was adopted.

First, Be'er Sheva had to be developed to such an extent, that it could counterbalance the rapidly growing region around Tel Aviv. This became very urgent, because of an exodus of highly educated people from the development towns to the centre of the country and because of the lack of a spontaneous establishment of industry in the Negev. Secondly, the shifting away from the central place strategy should be considered in the context of political changes: the old, socialist Zionist politics, which were focused on agriculture, shifted towards a pragmatic, more liberal kind of politics which favoured the development of industry. Thirdly, the Israeli planners were following the developments in the field of spatial policy in Europe, because of a lack of an Israeli planning tradition. At that time in Europe the growth pole concept of Perroux, was a very popular planning concept in many countries. Israel followed this trend.

The Israeli government confirmed her choice by officially declaring Be'er Sheva the capital of the Southern District. A more concrete governmental act was the establishment of regional governmental bodies in Be'er Sheva. Initially the growth pole Be'er Sheva was supposed to become a centre of industry for the processing of raw materials, but during the years the town developed into a regional centre for services and commerce. The main motoric elements of the growth pole were a regional hospital, the 'Soroka Medical Centre' ( 1962 ), and the 'Ben Gurion University of the Negev' ( 1965 ). An immediate consequence of the new policy was the strong attraction Be'er Sheva exerted on new investments and companies, which was at the cost of further development in the development towns. Another consequence was the moving of highly educated people from the development towns to Be'er Sheva, a kind of selective migration on a regional level. This had negative effects on the quality of the workforce in the development towns. All these consequences are examples of 'backwash' effects, which occurred mostly during the first years of the growth pole, in the first half of the sixties. From 1965, the economic growth of Be'er Sheva started to spread over the region: the 'spread' effects of the growth pole came into existence. More on this in § 4.2.1.

The instruments of regional development consisted during the period 1948 - 1967 of: direct investment from the government, direct placement of immigrants in development towns and the promotion of private investment. Because of the focus on industrial development, only development instruments for industrialization will be taken into consideration.

§ 3.3.1 The executive bodies

Many ministeries were involved in the implementation of regional policy. It can be stated that each ministery had its own 'regional development section'. In respect of regional development in the Negev, the leading ministeries were: the Ministery of Housing, which was responsible for the building of housing and townplanning in the development towns and the Ministery of Commerce and Industry, which was responsible for the industrialization of the development towns. The involvement of many ministeries often led to a lack of coordination and inefficiency

Another important institution concerning regional development was the Jewish Agency. This organization was ( is ) concerned with organizing of immigration to Israel and the absorption of immigrants in rural settlements and new towns.

§ 3.3.2 Investments by the government and the private sector

The Negev lacked several important favourable location factors for the establishment of industry. This was caused by the following circumstances: the long distances for the transport of raw materials and products, the bad infra-structure, an insuffiently developed service sector and the absence of agglomeration effects, a low level of education of the civilian workforce and difficult living conditions. Since the beginning, these features of the Negev were serious obstacles for the settling of industry in the Negev.

Until the middle of the fifties, direct investment by the government and the companies of the "Histadrut", the biggest labour union, were the main instrument for industrialization in the Negev. Both institutions could afford investments in an area with unfavourable conditions, because of their dedication to goals other than generating profits and because of their large financial resources. The government was concerned with the exploitation of the region's natural resources and the Histadrut was operating in the development towns.

With respect to private investments, the local circumstances in the Negev had to be compensated by financial and material support from the government. As early as 1950, the government passed a law in which extra support for companies that settle in peripherical areas has been made possible: the "Law for the Encouragement of Capital Investment".

After an amendment to the law in 1959, the amount of support for companies was made dependant on the area of settling. The country was divided into 'priority areas'. The Negev was among the areas with the highest priority, the A-status. At these locations companies benefitted from maximum support such as cheap loans, grants and subsidies, tax holidays, low rents for land and infra-structural facilities. For the selection of companies which were nominated for support, the concept of 'approved enterprises' was introduced. Approved enterprises are industrial companies of which 20% of total investments is made in 'A' areas and 30% in 'B' areas. Maximum support was given to companies which created employment in the development areas and which contributed to the attraction of new investments in the area. The Law for the Encouragement of Capital Investment has been responsible for the rapid industrialization of the Negev's development towns.

In the industrialization process in the Negev, two industrial branches played a major role: mining and textiles. In the review on the industrial developments in the Negev until 1967, these two branches will be the most comprehensively discussed.

§ 3.4.1 The first industrial developments

The period until 1955 is characterized by the establishment of public companies for the exploitation of the Negev's natural resources and the beginning of industrial activities in the development towns by Histadrut companies. These first industrial developments were initiated by several important people in the government and the Histadrut, without the existence of systematic and consistent industrial policy. In these first developments private entrepreneurs did not take part, because of the great importance the socialist government gave to the public sector for the development of industry.

In 1949, all natural resources, of which most were located in the Negev, were nationalized. Shortly after this, the first public companies were established for the exploitation of these resources. In 1952 'Dead Sea Works' was established, a company which extracts salt from the Dead Sea by means of huge evaporation ponds. The new company took over the old installations on the southwestern shore of the Dead Sea from the 'Palestine Potash Company', a private company which had been established by the English and jewish investors in 1931. During the first four years there were many problems in starting up production and there were social problems and a high turnover among the workers, who were mostly youngsters who had been attracted by a sense of adventure and high wages. In 1955 production started and the company had 30 employees.

Other public companies which were established in this period are: 'Negev Phosphates Ltd.' at the mining locations of Zin and Oron and near the town of Arad, in order to exploite the large deposits of phosphates in the Negev and 'Timna Copper Mines Ltd.', a copper mine near Eilat. Both were established in 1951. In order to extract pure sand and clay from the Ramon crater and the Big crater for the production of glass and ceramics, the company 'Clay and Pure Sand Ltd' was established in 1953.

The investments in mining in the Negev were 13,2% of total investments in industry and mining in 1967. The export of raw materials rose from 2% in 1956 to 7,8% of total exports in 1966. A big problem for the mining companies was their lack of profitability, which had to do with a low efficiency, foreign competition and high costs of transportation. However the companies' continuity was warranted because of government backing. To improve the companies' productivity, in a later stage the scale of production was increased: with a larger scale, the costs per product could be decreased.

In the meantime the Histadrut's large building company, 'Solel Boneh', was occupied with the building of the development towns. This company was the main source of employment for the development towns. A sister company of Solel Boneh, 'Koor Industries' which had been established in 1944, established the first industry in the Negev's development towns. Thanks to the personal efforts of Be'er Sheva's first mayor, David Tuviyahu, in 1952 Koor industries started a chemical plant in Be'er sheva: 'Makhteshim Chemical Works Ltd.'. The first years of its existence were difficult: there was no solid economic base in Be'er Sheva, there was a lack of skilled workers, the raw materials had to be transported over long distances and the company was situated far from seaports with respect to exports. However the main reasons for the companies settling in Be'er Sheva were the dedication of the Histadrut to the development of the Negev and the contacts and background of mayor Tuviyahu, a former senior employee of Solel Boneh.

§ 3.4.2 The industrialization of the development towns

The period from 1956 until 1965 is considered to be the 'golden era' of industrialization of the development towns. Several factors contributed to this.

First, the reparation payments from the German Republic poured in, an amount of $ 850 million. This made a strong increase in investments possible. Secondly, the important role of industry for the development of new towns was increasingly acknowledged, after the failure of the central place strategy. This caused the urgence of a more centralized and consistent industrialization policy for the development towns. A third important factor was the appointment of Pinchas Sapir as the minister of Trade and Industry in 1955. Sapir was a strong personality and he had many contacts with captains of industry. In this way he succeeded in persuading many private entrepreneurs to invest in the Negev or in the north of the country. Thanks to improvements in the Law for the Encouragement of Capital Investment in 1955 and 1959, the private companies benefitted from large-scale government support. The sudden shift of attention to the private sector should be considered in the context of a crisis in the relations between the government and the Solel Boneh - Koor conglomerate. The Histadrut company has grown rapidly during those years and had become an important block of power. The government tried to reduce its power by various means including the division of the company into two separate firms, Solel Boneh and Koor Industries.

During the industrialization of the Negev's development towns the specific circumstances in the towns had to be taken into consideration. First of all, the urban structure in the Negev was characterized by an inefficient, deconcentrated settlement pattern, a heritage of central place strategy. Secondly, a severe unemployment had occurred in the development towns after the building boom reached its peak. Thirdly, the population in the towns was quite homogenous: most people had an oriental origin and were badly educated, or not at all.

Specific kinds of industry had to be found to solve these problems. In the Negev case, the textile industry seemed to be the best solution. The textile industry is an example of 'footloose' industry. This means that it is locationally indifferent, because the costs of transportation are a small percentage in the total costs of production. This made the establishment of a textile factory in even the remotest settlement possible. Other features of the textile industry are a high labour intensity and a low educational level of the work. The textile industry was therefore suitable for employing large numbers of unskilled people. The established textile factories in the Negev were large and privately owned.

Another example of new industry for the development towns was industry for the processing of raw materials, such as the glass industry. In the following section examples of the textile industry, the glass industry and other kinds of industry in the development towns will be discussed.

In 1958 the textile factory 'Kittan Dimona' was established in Dimona. The company started its activities in an unfavourable period due to a surplus on the Israeli market. However, production was started at the instignation of minister Sapir, because the creation of employment had the highest priority. From the beginning it was clear that the factory was going to be dependant on massive government support for a long time. After several years the factory was taken over by the CLAL-concern, a large investment company which had been established in 1962 by South American jewish investors and some Israeli politicians, among whom Pinchas Sapir. In 1965 Kittan Dimona employed 1350 people.

In 1960 a second textile factory was established in Dimona by private entrepreneurs: 'Dimona Textile'. Initially the founders wanted to establish the factory in Yerucham because of the large amount of government support there. However, the location of Dimona turned out to be more favourable with a better supply and higher level of services and a better infra structure. The choice for Dimona, one of the bigger development towns, should be considered as an example of the tendency of companies to settle in bigger centres instead of small centres; another indication of the failure of central place strategy in the Negev. In 1965, the company had 480 employees. The textile industry had a prominent position in Dimona: a percentage of 61% of the industrial employment in 1965. In 1966 the two textile factories had a share of 43,4% in total employment in Dimona.

In the development towns of Netivot and Ofakim, the textile industry was also an important source of industrial employment. In Ofakim there was a textile factory employing 590 people in 1965, a share of 40% of industrial employment. A second important industry in these towns was the building industry ( cement, concrete ).

Because of the pure sand deposits in the Big Crater and the maximum amount of government support, glass industry developed in Yerucham. The first factory was established in 1966 by Moshe Borenstein, a large producer of soft drinks. The company in Yerucham, 'Tempo', produced bottles for Borenstein's factories elsewhere in the country ( Tempo also produced soft drinks ). One of the reasons for settling in Yerucham was Borenstein's personal ties with Sapir. A year later a second glass factory was established by Koor Industries: 'Phoenicia'. A special reason for settling in Yerucham was the dedication of the Histadrut, owner of Koor, to the development of the Negev towns. Phoenicia also produced bottles and the company employed 52 people in 1967. In 1968, Tempo employed about 300 people.

In Eilat, the copper mine of Timna remained the largest employer: about 600 workers in 1963, which meant 73% of industrial employment. Apart from a number of small workshops no major industry has settled in Eilat. On the other hand, the port of Eilat expanded rapidly in the period 1951-1965, because of the increased exports of Dead Sea minerals. The tourism sector was also rising; to 700 hotel beds in 1965.

Halfway through the period of industrialization in the Negev towns (1955-1965), the last new town in the Negev was established in 1961: Arad. The main purpose for the creation of Arad was its function as a residential town for the employees of Dead Sea Works. A possible settling of workers close to the industrial area, at the Dead Sea, was not a suitable option, due to the bad conditions for living. On the shores of the Dead Sea the climate is very hot and humid. Other locations, for instance Dimona or Be'er Sheva, were too remote for daily commuting. Although Arad is located close to the Dead Sea, it has a mild climate due to the town's location on the top of a hill. More than 40% of the workforce worked in 1967 at Dead Sea Works. Besides a branch of Solel Boneh, some small workshops and the 'Nafta Gas Company', no major industry has settled in Arad during the sixties.

The share of industry in Be'er Sheva was compared to the other towns in the Negev, relatively small: 20,6% in 1961, in comparison with Dimona with a share of 48,4% in 1961. The small share of Be'er Sheva had been caused by its function as regional centre and its resulting well developed service sector. The growth pole Be'er Sheva had non-industrial motoric elements, such as the universty and the hospital. Despite these facts, an important kind of industry did settle in Be'er Sheva: the chemical industry. As mentioned in an earlier stage, the factory of Makhteshim, established in 1952, had developed into a big employer. In 1961, a second chemical plant was established: 'Bromine Compounds Ltd.', a subsidiary of Dead Sea Works, which produced chemical products out of the element bromine, a mineral from the Dead Sea. In the early sixties, the textile industry also played an important role with a share of 21,4% of total industrial acitivity in 1961. Other important industrial branches were ceramics and metal.

Until about 1964, regional development in the Negev consisted of the creation of a settlement structure in accordance to the system of central places from the theory of Christaller. In these first years, public companies started to exploit the region's natural resources and the big Histadrut companies occupied themselves with the building of the development towns and the establishment of a chemical plant ( Makhteshim ). In the middle of the fifties it became clear that the central place strategy was not a suitable development strategy because of the specific circumstances in the Negev. To solve increasing unemployment, large-scale industrialization of the development towns was initiated in 1955. The textile industry played a major role in this process. In the meantime Be'er Sheva was expanding rapidly and consequently attracted much economic activity; a spontaneous development of spatial polarization was set in motion. This development was acknowledged by the government in the beginning of the sixties, by officially making Be'er sheva the regional capital: this was the beginning of the growth pole strategy. During the first years of the existence of the growth pole Be'er Sheva, backwash effects dominated. from 1965, spread effects occurred increasingly.

§ 3.6.1 The rate of industrialization in 1965

The statistics show a great share of industry in the towns of Dimona, Ofakim and Eilat. These three towns belong to the bigger towns in the Negev. The high rate of industrialization in these places can be explained by: a) the choice of companies in favour of the bigger places in respect of the higher level of services, a bigger supply of workers and a better infra-structure in these places ( see: 'external economies' or 'agglomeration effects' in § 1.2.2 and § 1.3.2 ), and b) the 'top-down' creation of the hierarchy of settlements. The bigger places were established first and later the smaller ones.

The relatively small share of industry in Be'er Sheva has been caused by its function as regional capital and regional service centre, which has been stressed by its recieving the growth pole status.

§ 3.6.2 An evaluation of the industrial structure by

comparison with the indicators of industrial diversity

The industrial structure is going to be screened on industrial diversity. The indicators are: a) diversity of industrial activities, b) the presence of growth industry, c) variation in educational levels of employment, d) variation in company size and e) variation in company ownership ( see: Introduction ).

The industrial diversity of activities was low in the Negev in 1965. The rate of industrial homogenity can be shown by a figure: the Be'er Sheva sub-district scores 0,644 compared to a national score of 0,353. This means that two industrial branches were dominating in the Negev: mining and textiles.

Both branches were characterized by the large size of the companies, a large share of unskilled labour and a low productivity. So, also measured with the criteria ( indicators ) b), c) and d), the industrial structure had little diversity. Finally, the mining companies were publicly owned and the textile factories had private owners. So there was a balance in public and private ownership, although the role of the government in the process of industrialization was dominant at that time.

The Six Day War of June 1967, might be considered a turning point for the Israeli economy: structural changes started. This had far-reaching consequences for the development towns. Some changes are direct consequences of the war, others are the consequences of national and international political and economical developments. For the development towns, this new political and economical situation meant a loss of their number one status in spatial policy: besides the development of the peripherical regions, other goals also received a high priority.

§ 4.1.1 Changes on a macro-level

On macro-level, the decades after 1967 are characterized by economic stagnation in Israel. After a short period of economic growth between 1967 and 1973, with a growth in the Gross National Product ( G.N.P ) of 12% in 1970, a long period of economic recession started: a decrease of G.N.P growth rates from 3,5% in 1975 to 2,8% in 1980. The major causes were the world recession after the oil crisis of 1973 and a strong increase of the Israeli defense expenditures after 1967, which meant a heavy burden for the national budget. The share of defense expenditures tripled after the war, from 10% of the G.N.P during the period 1960-1966, to 22% during the period 1968-1972, up to 29% during the period 1974-1978.

A second structural long term change was the end of the hegemony of the Labour party. The grown-up children of the immigrants who settled in Israel after 1948, no longer accepted the far-reaching government intervention in society. In 1973, the small right-wing parties merged into one block: the Likud party. After the Yom Kippur War of October 1973 the Likud party gained many of voters because of the general dissatisfaction with the socialist government, which was considered to be responsible for insufficient preparations and the resulting total surprise of the war. In 1977 the Likud party came into power for the first time, after a long reign of the Labour party which had been in government since 1948. During the Likud government, privatization of public companies and reduction of the size of the public sector, became important political issues.

§ 4.1.2 Changes as direct consequences of the war

An important consequence of the Six Day War was the great expansion of the defense-industry. The government aimed at total import substitution of all military equipment and gave extensive support to this booming industrial branch, regardless of the location of this industry. This caused the settling of the defense-industry in the centre of the country instead of in the periphery. Furthermore the defense-industry attracted other kinds of industry, especially high-tech industry, to the centre.

A second change was the development of an export orientated industry. The economic growth between 1967 and 1973, partly caused by the expanding defense industry, led to an increase in consumption and investment, which caused inflation and a trade deficit. The government supported therefore all kinds of export orientated activities even though these companies were, in most cases, located in the centre of the country. As a consequence, many export orientated companies were not motivated to move to the peripheral regions.

A third change was that the areas, which had been occupied since the Six Day War, the West Bank, the Gaza strip and the Sinai, became new regions that needed development. A part of the regional development budget, which otherwise would have been spent only in the Negev or the North, now went to the benefit of the new regions.

The consequence of all the above mentioned changes, was the government shifting its attention to national issues, at the expense of regional development. This reinforced the centre's headstart position.

Officially the regional development policy was continued in the direction chosen in the former decade. The continuation of the growth pole strategy is an example of this. However in reality the development policy had lost its prominent place on the national agenda: decisions on the establishment of new industry in the Negev, were made in the context of national issues instead of being made for regional development reasons. The establishment of the chemical industry in the Negev for the purpose of the relief of population concentrations in the centre, is an example of these new politics.

During the second half of the seventies and the beginning of the eighties, the government still tried to improve the one-sided industrial structure in the Negev, by a policy that aimed to move the electronics industry from the centre to the peripheral regions. This new strategy was too much on an ad-hoc base and was too late to have any effect on the already settled high-tech sector.

The rest of the eighties is characterized by a severe economic crisis in Israel, which caused high unemployment and hyperinflation. Because of the gravity of these national economic problems, the attention for developing the Negev was dropped. Until 1989, little happened in the Negev in the field of regional development.

The mass immigration of Russian jews since 1989 caused a revival for the Negev. The region was once again important for the absorption of many new immigrants.

§ 4.2.1 The continuation of the growth pole strategy

As mentioned before ( § 3.2.2 ), after 1965 the spread effects of the growth pole Be'er Sheva began to work. The two motoric elements of the growth pole, the Ben Gurion University and the Soroka Medical Centre, played an important role in this proces. Since the establishment of the university in 1965, the contribution to regional development has been its major goal. The faculty of Humanities & Social Sciences has had an important role in the education of teachers, administrators, psychologists and other professionals, who would use their know-how and skills in favour of the development towns. The faculties of geography and economics played an advisory role for companies that had settled in the Negev or wanted to settle there. The opening of university subsidiairies in three surrounding development towns in the beginning of the seventies, made vocational training for new immigrants in their own town, possible. This was important, because employers had many difficulties finding sufficiently educated workers in the development towns.

The Soroka Medical Centre was the centre for the clinics which were established in each development town. The Medical School in Be'er Sheva was occupied with the education of doctors and medical personel. The school also attracted medical professionals from other parts of the country and the graduates were stimulated to work and settle in the Negev.

The effect of the spread effects on the developments in the region, has been reinforced by government intervention. In the beginning of the seventies, Be'er Sheva lost its A-status, because the town was supposed to be able to grow self-supportingly. All attention and means now went to the Be'er Sheva's surrounding areas. Because of the less attractive location of Be'er Sheva due to the loss of some incentives, many companies left the town to settle in the development towns.

Gradus and Stern (1980) state that the balance of backwash and spread effects turned out to be favourable in the Negev. This means that the growth pole strategy proved to be succesful.

§ 4.2.2 A new purpose for the Negev

Compared to the centre of the country, the Negev had one outstanding advantage: a large amount of open space. Since 1948 this feature has been the major reason for the settling of tens of thousands of people in this sparsely populated region, in order to relieve the overpopulated centre. Because of this great supply of uncultivated land, the Negev received a new purpose during the seventies: the new location for dangerous or polluting industrial activities, which caused disturbances in the densely populated centre of the country.

Already at the end of the sixties, a nuclear reactor was established, east from Dimona. Later, the chemical industry came to the Negev. The chemical plants have been clustered into industrial complexes that are located far from the development towns ( between 10 to 30 km. from the urban centres ), for safety reasons. The locations of these 'industrial islands' have been chosen regarding the following criteria: a) the vicinity of raw materials, b) a sufficient amount of open space, c) the minimum potential risk of air pollution for the surrounding towns, d) the minimum potential risk of pollution of aquifers, e) an efficient transport of goods and persons. An example of such a complex is the one on the Rotem-plain, east from Dimona. Another example is Ramat Hovav, a chemical complex located south of Be'er Sheva. The latter is also a location for the storage and treatment of chemical waste. ( both complexes are discussed in § 4.4.2 ).

§ 4.2.3 A structure-policy for the Negev

Starting in 1975, until the end of the eighties, the diversification of the industrial structure in the peripheral regions was the main theme of regional development. The crisis in the textile industry during the seventies ( see: § 4.4.1 ) made clear that the industrialization policy of the sixties, which focused on a quick, large scale creation of employment in the Negev towns, had failed. The main characteristic of the yet developed industry in the Negev was: the prominent presence of big, capital intensive companies, which belonged to stagnating branches ( see: § 3.6.2 ). The first changes, initiated by a Likud government, started with cutting subsidies, privatization, the closing down of factories and restructuring; all in the textile industry. However the most important structural change was the emergence of the chemical industry in the Negev: a development that took place beyond the structure-policy, but that created a new industrial base. Although the chemical industry became the most important industry, the diversification policy, from 1975 on , focused on the electronics industry as the key to diversification. The main reason was that the high-tech sector was the only growing industry at that time.

The electronics industry was concentrated in the centre of the country and consisted of the electronics departments of the publicly owned defense industry and of private firms, producing consumer electronics, which had been clustered around the defense industry. The electronics industry had to be dispersed throughout the country with the help of the Law for the Encouragement of Capital Investment.

This dispersal policy failed for the following reasons: a) the most important location condition for the high-tech sector is the availability of high-skilled personnel; the development towns lacked such people, due to a process of selective migration, b) the incentives for settling in the development towns could not compensate for the lack of agglomeration effects in those places, c) the impossibility of the discouragement of the settling of high-tech firms in the centre; the firms might settle in another country, if the government tries to regulate corporate settling. The electronics firms which did settle in the development towns, where in most cases just factories were the simple mass production took place. These factories benefitted from the extensive subsidies and grants and at the same they did not need high-skilled labour. The 'cream' of such a company, the R&D department, was in these cases often settled in the Tel Aviv-region.

The new industrial activities in the Negev, the chemical industry and the electronics industry, could not compensate for the great loss of employment caused by the decline of the textile industry. The economic stagnation in the Negev, that had started in the beginning of the seventies, continued and reached rock-bottom in 1985. Consequently, during the eighties relatively little happened in the field of regional development in the Negev.

§ 4.2.4 New perspectives for the Negev

With the mass immigration of Russian jews, starting in 1989, the development of the Negev was again an important issue. During the period 1990-1993 about 530.000 new immigrants settled in Israel; 91% of them came from Russia or ( Eastern ) Europe. In 1990 a peak was reached: the number of Russian and European immigrants rose to 189.650. Compared to mass immigration during the first four years of statehood, in respect of the absorption of immigrants many things had changed: contrary to direct placement of immigrants in peripheral regions, the immigrants of the nineties were free to settle in the area of their choice. A large share of the Russian immigrants, 48%, chose to settle in the centre of the country and only 18,3% settled in the Southern District. This still meant an absolute number of 91.000 people that settled in the Negev or in the southern coastal plain.

The government considered the mass immigration as a chance to give a new impetus to the peripheral regions. Practically this meant a large-scale construction of houses in the Galil ( the north ) and in the Negev. Under the regime of the Minister of Housing, Ariel Sharon, more than 100.000 houses have been build and 25.000 caravans have been placed, at a cost of $ 5 billion. The majority of these houses and caravans was located in the Negev, 74.000 units. This absorption policy was heavily criticized when the negative consequences became clear: a) too much attention was spent on housing instead of industrial development and infra-structure, b) the program was based on a number of 1,5 million immigrants, while only half a million eventually came, c) the majority of the houses was build in the Negev, in the development towns with high unemployment; however most immigrants settled in the centre of the country where the employment situation was better. The most important consequence of the Sharon-policy was the large number of unoccupied houses in the Negev. This caused a depressing atmosphere in the development towns, which caused people to move away.

In 1992, after a new cabinet took office ( Labour party ), the building activities were stopped and attention was given to the employment situation in the Negev. Contrary to the policy of the former decades, the role of small, local enterprises became important. First, stimulating small business was the least expensive option for the creation of employment for the many new immigrants. Second, only by means of small business could the development towns become independant from the government; small enterprises have more ties with the local community, which makes them relatively more succesful than big, externally managed, state companies. Third, small enterprises had the best possibilities to make use of the knowledge and technological know-how of many Russian immigrants and to give them a chance to develop innovative ideas into products in so called 'technological incubators' ( see: § 4.3.4 ).

In 1992, Be'er Sheva was given back its A-status, to make the city more attractive to new investors. In this way, after two decades of decline, the growth pole was reanimated: the spread effects were worn off during the former twenty years, because Be'er Sheva had also heavily suffered from the recession. After the last vacant houses were occupied, construction restarted. Be'er Sheva was to become a metropolis, the Negev's 'locomotive', with a projected population of 250.000 people. Besides housing and the creation of employment, special attention was paid to the creation of a 'metropolitan atmosphere'. An example of this is the construction of a modern shopping-mall in an American style, in the new centre of the town. The townplanners have also started to pay attention to the integration of the old centre and the new centre of the town, to create one clear city centre.

§ 4.2.5 The Negev Regiopolis

The urban structure which has emerged in the course of the years, is described by Gradus and Stern (1980) as a 'regiopolis'. They consider the settlements in the Negev as an integrated system of towns, villages and industrial complexes, which are indeed physically seperated from each other by open spaces, but are on the other hand interdependant: a change in one place will result in a change in the other. All places are connected to one central city, in this case Be'er Sheva. Because of the close interrelations in the regiopolis, the whole regiopolis can be regarded as a growth pole for the region. For the cohesion in the regiopolis and the spread effects on the region, a good infra-structure is essential.

In respect of regional development in the coming years, Gradus and Stern favour an approach, which treats the Negev as a single unit. This will only be possible by means of one single regional development body, which will be the sole executive body for regional development in the area.

During the seventies and the eighties, the Law for the Encouragement of Capital Investment has remained an important instrument of regional development. From 1985, the armamentarium has been extended by new instruments: the creation of the free-trade zone in Eilat and in the nineties several instruments for the promotion of small business and the high-tech sector in the region, like the 'small-business development centres' and the 'technological incubators'.

§ 4.3.1 The Law for the Encouragement of Capital Investment

The actual Law for the Encouragement of Capital Investment has been based on the law of the same name of 1959, in which the regions of priority were listed for the first time. The executive body for the implementation of this law is the Investment Center, which is a part of the Ministery of Industry and Trade. The purpose of this centre is being the only governmental body, to which companies have to apply. This is supposed to lead to efficient, less bureaucratic procedures. A company which wants to be nominated for recieving subsidies, needs the predicate of 'approved enterprise' for the proposed investment project. An approved enterprise needs to match the following criteria: a) an extension of employment, b) an economically viable project, c) a high added value and d) a good market potential. The title of approved enterprise is also given to export-firms, high-tech enterprises and to companies that are active in infra-structural development.

The companies can make a choice out of three kinds of government support: 1) subsidies, 2) tax-holidays + loan guarantees or 3) a combination of subsidies and loan guarantees. The following table gives a view of these three kinds of government support, depending on the level of a region's priority.

Table 2: The kinds of government support, depending on the level of a region's priority.

source: Pacioli Research Project (1993)

Companies which settle in the centre, have as option 2 also the alternative of a four years tax-holiday, in case they do not apply for a guarantee.

The subsidies are valid for the fixed assets of a company. The government guarantees will cover a part of loans for all kinds of investments. The loans however should be given by an authorized financial institute only. The entrepreneur must finance a part of the investments himself: $ 100.000 in the case of settling in the centre and $ 75.000 in case of A- or B-areas.

The table shows that the A-regions benefit most from government support. This makes the Law of the Encouragement of Capital Investment an instrument of regional development. Almost the whole Negev has the A-status, with the exception of a narrow strip between Be'er Sheva and Qiryat Gat, which is an B-status area that continues to the north along the eastern edge of the coastal plain up to Jerusalem

§ 4.3.2 The Free-Trade Zone of Eilat

In November 1985, Eilat and its vicinity was proclaimed a free-trade zone for the promotion of tourism, international trade, export orientated industry, the settling of people and the creation of jobs. The major advantages of a free-trade zone are low taxes and duties. These advantages are supposed to compensate the town's remoteness.

With respect to the trade of goods, the free-trade zone means that there are no customs, purchase tax, excise tax and import deposits, when the goods are sold in foreign currency to tourists, or Israeli citizens who leave the country from Eilat. Also all goods and services which are purchased in Eilat are exempted from V.A.T and in favour of the export of goods, the customs activities are done as quick and as efficient as possible.

The inhabitants of Eilat benefit from a tax reduction of 10% on income tax, which is imposed on income that has been earned in the area. An employer gets a tax reduction of 20% in respect of the employers share in the tax on wages.

Finally, companies which are located in the port area of Eilat benefit from lower tax rates for company tax, property tax and municipal taxes.

§ 4.3.3 The Small-Business Development Centers

In 1988, the Jewish Agency initiated the first small-business development center in Dimona. This is an education- and advisory center for starting entrepreneurs with the purpose of promoting local enterprise in towns with 5000 inhabitants and more, with special attention for the development towns. The centers supervise entrepreneurs, regardless of the kind of business they want to start. However in the development towns the specific local circumstances have to be taken into consideration: the focus is on enterprises that specialize by making use of the local comparative advantages, like for instance the presence of a certain industrial branch or the specific know-how and skills of the local workforce.

The Jewish Agency and several funds finance the centers. Projects can also be adopted by jewish communities abroad. In general, the enterpreneurs themselves are supposed to make a business plan and should finance 5 to 10% of the investments from their own capital.

§ 4.3.4 The Technological Incubators Program

In 1991, the technological incubators program started, initiated by the Ministery of Industry and Trade and supervised by 'The Office of the Chief Scientist', the highest authority in the field of science and technology, which is a part of the ministery mentioned above. The program might be considered in the context of the attention for the high-tech sector since 1975 ( see: § 4.2.3 ), on one hand, and the acknowledgement of the role of small-business since the nineties ( see: § 4.2.4 ), on the other. A technological incubator is a centre in which all kinds of facilities are offered in favour of starting entrepreneurs in the high-tech sector. The program's goals are as follows: a) the support of starting entrepreneurs who have innovative ideas and the supervision on the development of these ideas into commercial products, b) the creation of possibilities for the utilization of know-how and ideas that exist among the relatively highly educated Russian immigrants, and c) the creation of employment for highly educated immigrants ( mostly Russian ).

A technological incubator consists of 10 to 20 projects, in which the ideas must be developed into commercial projects within a period of 24 months. Another option for a project is the eventual attachment to an existing company, after the two-year period. An incubator has a general manager and each project has its own mentor. Among the facilities of an incubator are: the execution of technological- and marketing studies, the recruitment of R&D personnel, the availability of operational space and equipment, the availability of secretarial, administrative, and juridical services, fund raising supervision.

The following institutions finance the technological incubators: a) The Office of the Chief Scientist, which finances the projects ( $ 250.000 a project a year, with the maximum of two years ) and the organisational activities of the incubators, b) The Jewish Agency, which finances the services and daily activities of an incubator, c) private investors, who make a financial contribution to the projects' budgets.

On December 1, 1994. there were 163 projects in Israel, most of them in the fields of chemicals, software, and electronics. The technological incubators in the Negev have 47 projects and the incubators are located in Ofakim, Be'er Sheva, Sede Boker, Dimona and Arad. The incubator program is important for the Negev, because of the great number of Russian immigrants who live the Negev.

The industrial developments in the Negev since 1967, should be considered in the context of change in the region's industrial structure: the large, government supported textile factories went into crisis and their places have been taken by new branches, especially the chemical industry. These were able to grow more independantly and they brought necessary industrial diversification. All mining companies, except a few, kept their prominent position and became more profitable. The chemical industry and the mining companies were owned by the government and the Histadrut alone. The establishment of new companies was therefore a direct instrument of regional development. Since 1970, several new industrial branches have settled in the development towns, under the influence of the Law for the Encouragement of Capital Investment. However these new industries, together with the industry that already existed before 1967, experienced difficult times since the middle of the seventies. Only since the beginning of the nineties, has the economic situation improved, due to national economic growth. One of the consequences was: an impetus for industrial activities in the Negev, especially in Be'er Sheva and its vicinity.

§ 4.4.1 The crisis in the textile industry

In the seventies the textile industry lost its' prominent position in the industry of the development towns. Its' share in the industrial employment in the Negev, decreased from 26,3% in 1972 to 16,1% in 1981. The causes for the decline can be devided into internal- and external causes.

a) Internal causes: 1) the continuous large government support has prevented a change towards a more efficient production and a timely replacement of machinery. This resulted in factories becoming outdated and uneconomic. 2) The textile factories faced increasing shortages of workers. Especially, young people were no longer prepared to do the jobs, which were characterized by heavy and monotonous work, low wages and a low social status. Many of them preferred social welfare payments to a job in a textile factory. One of the consequences of this was the decreasing share of the textile industry in the employment of the development towns, because the factories started to recruit arab workers from the West Bank to fill up the vacancies. These people were prepared to do this kind of work.

b) External causes: 1) heavy foreign competition. The Israeli textile industry had a hard time competing with the fast growing textile industry in South East Asia. These countries were able to produce cheaply because of the larger scales of production and lower wages. In many cases these countries also closed their own markets by means of protectionist measures. To keep a position in the export markets, the Israeli textile industry needed to restructure its' production and to focus on advanced, fashionable textile products. 2) The reduction of government support for the textile industry. On one hand, the protection for the textile industry against foreign competition stopped, when the government abolished all import restrictions. These restrictions no longer fitted in the new economic policy which focused on exports. On the other hand the financial support for the textile factories was greatly reduced by the government after the oil crisis in 1973 and the resulting national economic crisis. There was also the increasing power of the Likud-party, which favoured the reduction of government intervention in the economy. The consequence of the reduction of subsidies was that many textile factories could not survive anymore.

The final consequence of all the above mentioned was the closing down of many textile factories and the need for the remaining factories to rationalize their production by heavy investments in new machinery and by reorganization. This led to massive redundancies and a consequent decrease of the share of the textile industry in the industrial employment in the Negev.

In 1972, thirteen textile factories were operating in the Negev, with a total of 4840 employees ( 26,3% of the industrial employment ). During the period 1972-1981 five factories closed down and 1343 people were made redundant.

The textile factories in Dimona, Kittan Dimona and Dimona Textile, that have been discussed in § 3.4.2, survived. At Kittan Dimona a reorganization was executed in 1977: the production was adjusted to the exportmarkets, 400 people were fired; from 1450 employees in 1977 to 1050 in 1981, and a system of merit payments was implemented. The reorganization was succesful: the company's exports rose from $ 12 mln. in 1977 to $ 30 mln. in 1980.

At Dimona Textile most of the dismissals took place in the years '73-'74: the number of employees was reduced from 1000 in 1973 to 545 in 1974. In 1979 the company changed owners. The new owner was a Swiss Sefardic jew, Mr. Gaon, who bought the factory to help the Sefardic community of Dimona. Investments in new machinery were necessary and with the change of ownership a start could be made to restructure the production: from the spinning of cotton to the manufacturing of clothing. In 1981 the number of workers had risen again to 630.

§ 4.4.2 The chemical industry in the Negev

During the seventies the share of the chemical industry in the industrial employment in the development towns had sharply increased: from 11% in 1972 to 20,1% in 1981. The total number of employees in 1981 was: 4690 people. Compared to figures on a national level, an increase from 4,5% to 5,9% of chemicals, it can be stated that in 1972 the chemical industry already was an important branch in the Negev. With a share of 20,1% in 1981 it was in a leading position in the Negev's industry: the chemical industry had taken over the primary position from the textile industry. The chemical industry in the Negev is characterized by large companies with a high capital intensity: between $ 0,5 mln. and $ 1 mln. per employee. Another feature is that a major part of the production of the chemical companies is for export.

The majority of the chemical factories is located in two big chemical complexes: 'Rotem' and 'Ramat Hovav'. The former, Rotem, is located between Arad and Dimona. The industrial park is situated close to a phosphate quarry. Most of the chemical activities that are taking place there are based on this raw material. Ramat Hovav was established in 1978 as a new location for the expanding chemical factories in Be'er Sheva: the companies Makhteshim Chemical Works and Bromine Compounds. The complex is located 12 km. south from Be'er Sheva along the oil-pipeline, which leads from Eilat to the coastal plain. In the course of the years more companies have settled there and in 1979 a national centre for the treatment of chemical waste was also established at Ramat Hovav.

Before 1967, three chemical companies had been established in the Negev: Makhteshim Chemical Works, Negev Phosphates and Dead Sea Bromine Company with its subsidiairy Bromine Compounds ( see: § 3.4.1 and § 3.4.2 ).

Makhteshim ( a subsidiairy of Koor Industries ) expanded rapidly during the seventies. The company's exports increased from $ 1 mln. in 1967 to $ 77 mln. in 1980. The company produces mainly chemicals for agriculture, like pesticides. In 1982 the company employed 1500 people, of which 25% high-educated R&D personnel. In 1991 the sales reached $ 166,2 mln and the number of workers rose to 1600. Makhteshim is located in Be'er Sheva and in 1978 a new chemical complex was built at Ramat Hovav, to where the most dangerous and polluting activities were transferred. This was necessary because the old factory had become a part of Be'er Sheva's built-up area, due to the rapid expansion of the town.

Negev Phosphates has also grown steeply: production rose from 1,2 mln. tons in the administrative year of 76/77 to 2,1 mln. tons in 82/83. The number of employees increased from 1221 in 1977 to 1490 in 1982. In 1991 the company employed 900 people and the sales were $ 196 mln.. The company's chemical activities are the production of chemical products from phosphates. Its chemical plant is located at Rotem.

Dead Sea Bromine Company and its' susidiairy Bromine Compounds also expanded during the seventies: production rose from 20.000 tons in the administrative year 76/77 to 56.000 tons in 82/83 and eventually the sales in 1991 were $ 322 mln.. The number of employees of Dead Sea Bromine Company was 462 in 1977 and 622 in 1982 ( Bromine Compounds not included ) and together the companies employed 1479 people in 1991. The company uses the element bromine from the Dead Sea to produce several kinds of chemical products such as disinfectants, chemicals for agriculture and fire-resistant materials. Dead Sea Bromine company is located at Sedom, adjacent to the installations of Dead Sea Works. In 1978, Bromine Compounds, which has been located in Be'er Sheva, transferred a part of its production to a new plant at Ramat Hovav. By doing so the company followed the example of Makhteshim Chemical Works.

Since 1972, several new chemical companies have settled in the Negev. Similar to Dead Sea Works, Dead Sea Bromine Company, Clay & Pure Sand and Negev Phosphates, the new firms also belonged to 'Israel Chemicals Ltd' ( I.C.L ), a large holding company, of which the state is the major shareholder. I.C.L has been established with the purpose of promoting the Negev's chemical industry. A number of its subsidiairies, as for instance Dead Sea Works and Negev Phosphates have the status of 'National Project'. This means that decisions on new investments and further development should be made in respect of national interests as well as corporate interests.

In 1972, 'Dead Sea Periclase Ltd' was established. This company produces magnesium-oxide out of the materials from the Dead Sea. A major part of production, 99% in 1984, is exported and because of the high quality of the products, the company is the worldwide market-leader. Its production rose from 25.800 tons in the administrative year 76/77 to 34.400 tons in 82/83. The number of employees remained fairly constant between 1976 and 1983; about 170 people. In 1991, sales reached $ 39 mln. and the company employed 181 people. The company's location is on the Rotem-plain.

In 1977, at the same location, the company 'Rotem Dashanim Ltd.' was established. Based on phosphates from Negev Phosphates and minerals from Dead Sea Works, the company produces fertilizers. The 1991-sales were $ 200 mln. and the number of workers was 350 in the same year. About 95% of production is exported.

§ 4.4.3 The mining companies

The share of mining in the Negev's industrial employment has decreased between 1972 and 1981, from 10,1% to 6,4%. This is mainly caused by the sharp increase in the share of the chemical industry during the same period. The decrease in the number of employees in mining is less dramatic: from 1867 employees in 1972 to 1434 in 1981. After an initial period, which is characterized by high investment and heavy losses, most of the mining companies started to become profitable in the early seventies.

Dead Sea Works is the most important mining company in the Negev. It is concerned with the extraction of potash from the Dead Sea. The extraction is done by the process of evaporation: the salt water streams into large, shallow, evaporation ponds and after a while the water evaporates due to the high temperatures in the area and the salt stays in the ponds. The salt consists of several components, which are the basis for a range of chemical products.

Dead Sea Works has developed into the most profitable mining company in the region. The net-profits rose from $ 0,37 mln. in 1971 to $ 6,3 mln. in 1980. Production increased from 0,8 mln. tons in 76/77 to 1,3 mln. tons in 82/83. Despite the sharp increase in production and profits, the increase of employees was not spectacular: from 900 employees in 1977 to 1288 in 1982 and a decrease in 1983 to 1090 people. Among the causes is the company's high capital intensity: an increase of production can be achieved by a higher occupational rate of machinery, investments in additional machinery and larger scales of production.

Negev Phosphates is another important mining company in the Negev ( the company's financial figures can be found in § 4.4.2 ). The extraction of phosphates takes place in Zin, Oron and in the Small Crater ('Makhtesh HaKatan'). About 87% of the phosphates is used for the production of fertilizers and 13% for the production of chemical products. In 1980, 88% of the production was exported; this makes the company vulnerable to fluctuation of prices on the world-market.

During the seventies the production of Clay & Pure Sand went down, from a production ( 85% pure sand and 15% clay ) of 14.800 tons in 76/77, to 10.600 tons in 81/82. The company, which is located in the Big Crater ('Makhtesh HaGadol') and the Ramon Crater, has never had an important share in the region's employment. In 1977 it employed 38 people, in 1980 74 people and in 1982 the number of employees went down to 49 people

Timna Copper Mines near Eilat, was the only mining company which experienced a dramatic decrease of production during the seventies. After major cut-downs of production, 559 people were fired in the course of the years and recently ( 1991 ) only 20 people were employed. The reasons for this decline are: low prices on the world-market, strong foreign competition and high production costs due to the low percentage of copper in the ore. The decline practically meant the end of the role of industry in the further economic development of Eilat. The great loss of jobs at Timna, has been largely compensated by the fast growing tourist sector in Eilat.

§ 4.4.4 The industry in the development towns

The crisis in the textile industry has had radical consequences for the industrial employment in the development towns of the Negev. In the eastern towns, like Arad, Dimona and Yerucham the loss of jobs was compensated by new jobs in the developing chemical industry and in the expanding mining companies, both in the eastern part of the Negev. In the western town like Netivot and Ofakim, the great loss of jobs could not be compensated that much. In this paragraph the other branches of industry in the development towns will be discussed: on one hand companies that have survived after 1967 and on the other hand the new kinds of industry that have settled in the development towns during the seventies and the eighties.

The glass industry which has been established in Yerucham in '66/'67, the companies Phoenicia Glass Works and Tempo, has survived in spite of worsened economic circumstances. The main reason for this survival was the constant dedication of Histadrut to regional development.

In 1979, the owner of Tempo, Moshe Borenstein, sold the company to Phoenicia ( a subsidiairy of Koor Industries, a Histadrut company ). The main reasons were that Tempo was not profitable and it turned out to be cheaper for Borenstein's softdrinks factories to buy bottles from Phoenicia. Since 1979, Phoenicia has had to deal with the following problems: a) the company has difficulties in competing on remote markets, like Africa and Europe, because 80% of the total costs consist of transportation costs. Besides that, the proximate Iranian market was closed for Israeli products at the end of the seventies. b) The factory was managed from elsewhere, from the office of Phoenicia Flat Glass in Haifa. Therefore communications between the management and the local personnel were bad, which resulted in little attention being spent on the workers' needs, like education and vocational training.

In 1970 Phoenicia employed 60 people and Tempo 500 people. After the merger of these two companies in 1979, 550 people worked at the new company. Due to economic problems a lot of people have been fired since 1979 and in 1981 the number of employees was 475 people. This latter number was still too high for an efficient production, but the Histadrut aimed to sustain employement in Yerucham as much as possible. However during the second half of the eighties, at Phoenicia mass redundancies were eventually inevitable due to the crisis in the Histadrut-companies: the number of employees shrank to 205 people in 1991.

An example of a new company that has settled in Yerucham is 'Negev Ceramics Ltd.', a company producing tiles. The company settled in Yerucham in 1971, for the following reasons: a) the proximity of raw material ( clay ) in the Small Crater, b) the extensive financial support for this capital intensive company by way of the Law for the Encouragement of Capital Investment and c) the personal ties of the owner with minister Sapir. In 1975 the company employed 170 people. In the same year, an unprofitable production line had to be closed down and the number of workers decreased to 75 people in 1981. Because of specialization and a high quality of the products Negev Ceramics experienced growth during the eighties. In 1991 the company had 140 people on the pay-roll.

In 1980 a large cosmetics firm settled in Yerucham: 'Careline Pharmagis Ltd.', a subsidiairy of 'Agis Industries Ltd'. In 1991 the company had 120 employees.

In Ofakim a new textile factory was established in 1977: 'Adgar Textile Industries Ltd.', with 134 employees in 1991. Ofakim had to deal with high unemployment after the loss of many jobs in the ( old ) textile industry ( a net loss of 356 jobs in the period 1972-1981 ) and the loss of jobs in the agri-industry ( 295 dismissals in the same period ).

In Netivot however, the employment in the agri-industry increased in the period 1972-1981, adding 249 jobs. In the food sector the employment also increased: between 1972 and 1981, 92 jobs were added. An example of food industry is 'Hadas Food Industries Ltd.', a company that settled in Netivot in 1978 and which produces preserved vegetables. In 1991 Hadas employed 42 people.

In 1987, during a period in which regional development policy focused on the dispersal of the electronics industry, a factory of Motorola, an American electronics company, settled in Arad. The reasons for the company's settling in Arad were: a) the financial support the company would get because of the settling in an A-status area and b) the efforts of the mayor of Arad, who attracted the company with the help of the then Minister of Defense Yitzchak Rabin. The factory, 'Motorola Darom Israel Ltd.' produces cellular phones and other telecommunication equipment. In 1995, about 700 people worked at this company. Motorola's factory in Arad is seen as a succes story; an example for the other development towns.

In Arad, also other industry settled. The establishment of 'Arad Towels Ltd.' in 1976, meant the introduction of textile industry in Arad. This company, which specializes in the production of towels had 220 employees in 1991. In 1995, the company's sales are ( up to now ) $ 18,8 mln. and the number of employees is 150. Arad Towels is an example of the modern Israeli textile industry, which is to a large extent specialized in quality products. Another kind of industry in Arad is a subsidiairy of 'Israel Edible Products ( TELMA ) Ltd.', a large food company.

§ 4.4.5 Technological centres in the Negev

The main reason for the establishment of technological centres in the Negev is the presence of the Ben Gurion University. The university has a large technological faculty, which in many cases is the initiator of technological projects and from which many of the centres' advisors are sent. Being a motoric element of the growth pole Be'er Sheva or ( according to Gradus and Stern ) of the Negev Regiopolis growth pole, the universtity causes technical polarisation in the region because of strong functional linkages between 'know-how' and high-tech. Two examples of technological centres, which are in fact technological incubators, are: the 'Initiative Center of the Negev' ( I.C.N ) and the 'Advanced technologies Center'.

The Initiative Center is located in Be'er Sheva, close to the Ben Gurion University. It consists of a few small office buildings, which is meant for small, starting enterprises that are occupied with production, product-development and R&D in the field of high tech. Officially the centre is not limited to high-tech; it has the status of 'business incubator'. However, most of the enterprises operate in the field of high tech. The starting entrepreneur benefits from: low rents, availability of 'venture capital', a network of advisors and a range of office facilities and services.

The Advanced Technologies Center was established in 1991 under the supervision of the Nuclear Research Centre Negev ( N.R.C.N ), in 'Temed Industrial Park' on the Yamin-plain, southeast from Dimona, close to the chemical complex on the Rotem-plain. This technological incubator is designed for the development of advanced technological projects which are supposed to be self-supporting after a two year period. Advice, know-how, and a range of services is supplied by, the N.R.C.N, the Ben Gurion University, the Sede Boker Institute for Desert Research and Temed Industrial Park. The projects operate in the following fields: energy, biology, electronics, medical instruments, laser technology, chemicals, environmental technology and computer software.

If the projects, after two years, turn out to have a commercial potential, the entrepreneurs have the possibility of starting a production unit in Temed Industrial Park, in cooperation with 'Rotem Industries Ltd.' ( a subsidiairy of Israel Chemicals ).

1967 was a year in which a new era for the Negev began: a long period of stagnation. The main cause was the fact that due to external and internal, political and economic developments, the development of the Negev became subordinate to more urgent problems on a national level. The spread effects of the growth pole Be'er Sheva in the early seventies were outbalanced by the closing down of many textile factories in the development towns. The emerging chemical industry, which took over the number one position of textiles, could not compensate for the great loss of jobs. The mining companies, which experienced a strong economic growth, were not capable of this either. From 1975, the government led, with the help of the Law for the Encouragement of Capital Investment, a structure policy in favour of industrial diversification in the Negev. The fast growing high tech sector got a leading role in this. However, because of its specific needs the high tech sector settled mainly in and around Tel Aviv. After a long period of economic decline, the Negev became important again for the absorption of many Russian immigrants in 1989. In 1992, the growth pole Be'er Sheva got a new impetus and with the help of new development instruments, efforts were made to improve the employment situation of the Negev, both quantitatively and qualitatively. At the present, an integral development of the Negev is favoured. The Negev should be considered as one functional system: a 'regiopolis'. Infra-structure plays a crucial role in it, in favour of the system's cohesion.

§ 5.1.1 New developments in and around Be'er Sheva

Recently, around Be'er Sheva especially, new industrial developments have been set in motion. Private contractors are busy building new company space, in order to rent to entrepreneurs. Several new companies have already settled in these new industrial parks.

Near Omer, a suburb in the northeastern part of Be'er Sheva, a so called 'Free Export and Processing Zone' ( F.E.P.Z ) will be developed in the near future. An F.E.P.Z is an industrial area, which is financed by private investors and where foreign companies are exempted from taxation and import duties. The companies do not fall under Israeli internal regulation and all transactions are done in foreign currency. The future-F.E.P.Z near Omer will be an industrial park for American high-tech companies. These companies will be able to make use of the local 'human resources' ( for example Russian engineers ) and for the regions it means employment for the highly educated. It is expected that about 7000 jobs will be created by this project.

§ 5.1.2 The privatization of state companies

Since a Likud-government took office in 1977, several state companies have come into the process of privatization. The major goal for privatization is the improvement of efficiency by an increase in competition.

In February 1992, the government sold 19% of her shares of Israel Chemicals Ltd. to the public. In 1995, the conglomerate became almost entirely private: the jewish billionaire Shoul N. Eisenberg acquired a share of 72% in I.C.L for the amount of $ 231 mln..

Since 1990, the American company 'Shamrock' has made efforts to get a major share in Koor Industries ( Histadrut company ). In 1995, the government and the Histadrut agreed on the selling of 22,5% of Koor's shares to Shamrock.

§ 5.2.1 Old plans

A number of plans for Negev projects await execution for a long time. The reason for the constant delay is the lack of financial resources. An example of such an ever recurring plan is the railway to Eilat. This railway would be the final extension of the current railway, which ends in Dimona. The future-railway would be important for the transportation of potash from Dead Sea Works to the port of Eilat and quick transportation for passengers traveling between Eilat and Tel Aviv. Another example of an old plan is the plan for the 'Med-Dead'-canal. Such a canal would make the generation of hydro-electric power possible, because of the differences in altitude between the Mediterranean Sea and the Dead Sea. This canal could also serve as a source of cooling-water for the Negev-industry.

§ 5.2.2 New projects

In the near future a new industrial complex will be established in the Negev. This new complex, 'Ramat Beqa'', will be located in the middle of the triangle Be'er Sheva-Dimona-Yerucham. The purpose of this new industrial area is to be a new location for the defense-industry, like 'TA'AS' and 'Israel Aircraft Industries', which until now are located in and around Tel Aviv. Because of the large size of these companies and the strong attraction they will exert on other industrial activities, Ramat Beqa' will mean a major increase of employment in the region.

In respect of the current developments on the West Bank and the resulting military deployment, many army-bases, which are now located on the West Bank, will be transferred to the Negev. This will also benefit the employment situation in the Negev.

The developments and plans mentioned above will raise the pressure on the Negev's environment. Because of an increasing environmental consciousness in Israel, a growing number of people is starting to consider the desert a vulnerable eco-system. The political pressure on planners and politicians is increasing, not to treat the Negev as a 'wasteland', but to treat it carefully. In practice however, environmental interests clash with economic interests and often decisions are made in favour of the latter ones.

In January 1995, the 'Knesset' ( the parliament ) made a proposal to exempt Dead Sea Works from regulation on the environment and physical planning, because of the great economic importance of Dead Sea Works. This proposal encountered much resistance from many people, among whom the Minister of Environment Sarid.

In March 1995, the local population of western Be'er Sheva and the agricultural settlements in the vicinity, held a demonstration against the enlargement of 'Duda'im', a large garbage dump west from Be'er Sheva. The dumpsite is the largest in Israel and it receives garbage from all over the country.

Prior to the conclusion, this chapter will be an evaluation of the role of the development policy in the process of industrialization in the Negev. Subsequently, the industrial structure in the Negev will be evaluated, using the three criteria of industrial diversity.

§ 6.1.1 From 'ad hoc' to 'made to measure'

It took until 1975, before industrial development in the Negev received a top priority in the regional development policy. The creation of the settlement pattern in the Negev, according to the Central Place Strategy, was taking place in an era in which the policy makers were still orientated towards agriculture. The possible future-settling of industry in the development towns was not taken into consideration. After these initial years, the development of industry was just a component of programs and plans ( until 1975 ). The major part of industry, which has settled in the Negev during this period, came to the Negev for other purposes than regional development or came as a solution to short term problems.

Examples of industry with other purposes are: a) the mining companies, which were established for the exploitation of the national resources in favour of national interests and b) the chemical industry, to which the Negev was a new location, because of the undesirability of their location in the densely populated centre of the country. Other kinds of industry have been developed in the Negev with the purpose of creating as many jobs as possible. This strategy lacked a consistent, long term policy based on structural improvement. Examples of these 'job-creation' industries are the textile industry and the raw material processing industry.

Although in the beginning of the sixties the Growth Pole Strategy caused the settling of more industry in the region, Be'er Sheva developed into a 'service growth pole' instead of an industrial growth pole. Among the main causes were: a) the spontaneous development of Be'er Sheva into a regional service centre, because of her relatively large size; b) the motoric elements of the growth pole belonged to the service sector instead of the industrial.

Since 1975, with the execution of the diversification policy for the peripherical regions, industrialization has played a key-role in regional policy. This new approach came too late: the electronics industry, which was supposed to play the leading part, was already settled around the fast growing defense industry in the Tel Aviv region. Because of its strong functional linkages ( technical polarization ) with the defense industry and the importance of agglomeration effects for this branch of industry, the policy of dispersing the electronics industry over the country, was not very succesful. A crisis in the high-tech sector, halfway through the eighties, eventually put an end to the diversification policy.

From 1989, with the arrival of masses of Russian immigrants, regional development policy focused on the development of industry from the bottom: the support of small business. This new approach is supposed to be a 'made to measure' approach: it is based on the specific features of the local population and the region. By using several new instruments a range of projects has been initiated. Although it is still too early to evaluate these projects, much is to be expected from this strategy, because of it matches reality to a high degree.

§ 6.1.2 The effect of the instruments

Until 1985, the Law for the Encouragement of Capital Investment has been the main instrument of the industrialization policy. This instrument has led to the settling of many companies in the Negev. However, a negative consequence of the L.E.C.I was the fact that especially the financially weaker firms were attracted, which as a result became dependant on government support. Although massive government support, by means of the L.E.C.I, has postponed the loss of many jobs, a crisis in the Negev's industry, in particular the textile industry, could eventually not be prevented. The crisis showed that at some companies, massive government support has taken away any stimulance to produce more efficiently or to invest in new machinery. After the reduction of financial support since 1967, it became obvious that many companies were not capable of becoming self-supporting, because they lagged far behind the latest developments. In these cases the L.E.C.I has had a restraining influence on the development of a stable industrial base in the region.

Several important new instruments for the promotion of local enterprise, like the 'Small Business Development Centers" and the 'Technological Incubators', are of too recent to be evaluated.

The present industrial structure will be screened on industrial diversity, using the following indicators ( criteria ):

- diversity of industrial activities:

* is there a presence of growth-industry ?

* is there a sufficient number of jobs for the highly educated ?

- diversity of company size

* is there a balance between large- and small companies ?

_ diversity of company ownership

* is there a balance between the number of public- and private companies ?

Before the industrial structure is evaluated on the following pages there will be a schematic overview of the present industrial structure in the form of two tables.

Table 3: The industrial employment in the main branches, 1993, in %

source: Negev Center for Regional Development (1994)

table 4: The main companies in the Negev, facts & figures

sources:

1. Israel Chemicals Ltd. (1982,1983)

2. Shinan-Shamir (1984)

3. Dun & Bradstreet (1992)

4. Municipality of Be'er Sheva

5. direct observation

* : this figure is valid for 1984

§ 6.2.1 Diversity of industrial activities

a) The presence of growth industry

Table 3 shows that chemicals and mining provide almost half of the total industrial employment in the Negev. These two branches are prominent in the Negev. The electronics sector can be found on a second position. This high ( local ) score should be relativized when the share of electronics in the Negev is compared to the national share of this branch. Also shown in the figures is the great decline of textiles in the Negev: from a prominent branch to a share which is below the national average.

In spite of an improvement in the economic results in chemicals and mining during the seventies and eighties, these two branches can not be considered as a growth industry. Israel's headstart in chemicals and mining is diminishing due to growing foreign competition from newly industrializing countries. Furthermore the figures on export in table 4 show Israel's dependency on world market developments.

The second position of electronics might be seen as an indication of a relatively large share of growth industry in the Negev's economy. Only part of it is true: although growth in the high-tech sector will have positive effects on the Negev, the possibilities of this sector of becoming a motoric element of the regiopolis are limited. The high-tech companies in the Negev are in many cases not centres of technological know-how to which other industries can be attracted, but they are mainly factories for the mass-production of electronic products ( for example Motorola in Arad ). It's still unsure if the efforts of the Ben Gurion University in developing technological incubators, will bring a larger share of R&D to the region.

Other types of industry, such as textile-, food-stuffs-, paper-, cosmetics- and ceramics industry do not belong to growth industries. It should additionally be mentioned that textiles, cosmetics and ceramics are very dependant on fashion trends.

b) jobs for the highly educated

The region's highly educated have possibilities of finding jobs in the intermediate- and higher organizational levels of the largest companies, like the Dead Sea Works group ( including bromine chemicals ), Negev Phosphates and Makhteshim Chemical Works. However the number of these types of jobs will not be sufficient to employ the large number of highly educated Russian immigrants. From the former paragraph (a) we also learned that the share of R&D in the Negev's high-tech sector is relatively low: also this sector doesn't provide enough employment for the highly educated.

The other branches are hardly engaged on R&D ( with the exception of the cosmetics industry ). These companies are also too small for a large intermediate- and top management. It's clear that these kinds of industry have little to offer to the highly educated.

The diversity of industrial activities is low in the Negev: the share of growth industry is low and employment for the highly educated is limited.

§ 6.2.2 Diversity of company size

The most prominent branches, chemicals and mining, consist of a small number of large firms with numbers of employees varying from 150 to 1500. The three biggest firms in the Negev, Dead Sea Works, Dead Sea Bromine Co. and Makhteshim, belong to this group. In the electronics sector, the third prominent branch, Motorola Darom in Arad takes the major share. Among the other branches, it is the fourth prominent branch, the textile industry, that is caracterized by the presence of big firms. A reason for this is its high labour-intensity. Other kinds of industry, as for instance the glassindustry, consist of one single factory ( Phoenicia ). It can be stated that the smaller firms can be found in the less prominent branches.

In the Negev, a small number of large firms provides the major part of the region's industrial employment. The share of intermediate- and small firms , which have the strongest local commitment, is too small.

§ 6.2.3 Diversity of company ownership

The government and the Histadrut ( semi-government ) have always been the most important employers in the Negev. All mining companies and most of the chemical factories belong to Israel Chemicals Ltd., until recently a state-company ( see: table 4 ). The largest chemical firm in the region, Makhteshim, belongs to Koor Industries, a Histadrut-company. The other branches consist of private companies ( except Phoenicia ).

Until recently the balance public/private in respect of company ownership was about 1:1 ( the government and the Histadrut mainly controlled mining and chemicals, which together have a share of 49,7%, see tables 3 and 4 ). With the sale of a majority of I.C.L shares to Mr. Eisenberg, the balance public/private changed in favour of the private sector. The reduction of government involvement will have a favourable effect on the efficiency and profitability of the I.C.L companies. However, this probably will be at the expense of employment.

Table 5 shows that the prominent branches, chemicals and mining, are spatially concentrated around Be'er Sheva and in the northeastern part of the Negev. The chemical plants, which are mainly located in industrial complexes, and the mining companies, which are located at the mining locations, provide employment to Be'er Sheva and the eastern development towns, Arad, Dimona and Yerucham. The electronics industry is concentrated around Be'er Sheva, because of the University, and in Arad ( Motorola ).

The other industry can be found in Yerucham, Be'er Sheva and in the northwestern development towns, Ofakim and Netivot. The latter two towns have the least benefit from the employment in chemicals and mining and also the growth of the high tech sector does not affect them so much. Although Ofakim still has the advantages of its proximity to Be'er Sheva and the presence of a technological incubator, Netivot is located relatively far from Be'er Sheva and has to put up with a strong competition from Sederot in respect of economic relations with Qiryat Gat and the rest of the southern coastal plain.

In Eilat, industry is not playing a significant role anymore: the town has focused on tourism and the transshipment of oil and import- and export goods.

table 5: The locations of the Negev's most important companies.

location                                                            company

Industry

Sedom                                                             Dead Sea Bromine Company Ltd.

Rotem-plain                                                     Negev Phosphates Arad Ltd.

                                                                          Dead Sea Periclase Ltd.

                                                                          Rotem Dashanim Ltd.

Ramat Hovav                                                   Makhteshim Chemical Works Ltd.

                                                                          Bromine Compounds Ltd.

Zin                                                                     Negev Phosphates

Be'er Sheva (141.000 inh.)                            Makhteshim Chemical Works Ltd.

                                                                          Bromine Compounds Ltd.

                                                                          Rotem Industries Ltd.

Dimona (30.000 inh.)                                      Kittan Dimona

                                                                          Dimona Textile

Yerucham (6800 inh.)                                     Israel Glass Works Phoenicia Ltd.

                                                                          Negev Ceramics Ltd.

                                                                          Careline Pharmagis Ltd.

                                                                          Brand R Steel Ltd.

Arad (18.300 inh.)                                           Motorola Darom Israel Ltd.

                                                                          Arad Towels

Ofakim (18.800 inh.)                                       Adgar Textile Industries Ltd.

                                                                          Shaniv Paper Industries Ltd.

Netivot (13.600 inh.)                                        Hadas Food Industries Ltd.

Mining

Sedom                                                              Dead Sea Works Ltd.

Zin                                                                     Negev Phosphates Ltd.

Oron                                                                  Negev Phosphates Ltd.

Makhtesh HaKatan                                          Negev Phosphates Ltd.

Makhtesh HaGadol                                          Clay & Pure Sand Ltd.

Makhtesh Ramon                                             Clay & Pure Sand Ltd.

Eilat (33.300 inh.)                                             Timna Copper Mines Ltd.

sources:

1. Israel Chemicals Ltd. (1982, 1983)

2. Central Bureau of Statistics (1994), in respect of inhabitants

3. personal observation

In this analysis, attempts have been made to give a complete description and analysis of the industrialization process in the Negev since the fifties, under the influence of the regional development policy. The role of the development policy in the industrialization process has been evaluated in the previous chapter. Together with the interim evaluation of the Negev's industrial structure at the end of the sixties, these findings form the base on which the hypothesis can be accepted or rejected.

The hypothesis has been formulated in the introduction as follows: "Because of the limitations of the implemented regional development strategies, until now there has been a lack of industrial diversity in the Negev."

Based on the findings it can be stated that part of the hypothesis can be accepted: it's true that until now the Negev has always lacked a diversity of industrial activities, especially in respect of the small share of growth industry and the insufficient employment for the highly educated. There has also been a constant lack of diversity in company size: the majority of the employees has worked in large companies, that were managed from elsewhere. The emergence of local initiatives in small business are only of recent date. The diversity of company ownership has been reasonably good, although state companies and the companies of the Histadrut have dominated the most important branches for a long time. This has changed recently, with the privatization of major public companies.

The hypothesis as a whole, however, must be rejected: the lack of industrial diversity in the Negev can not be explained from the limitations of the implemented strategies, but from other factors: autonomous spatial processes and the role of the government in the process of regional development.

The low industrial diversity should be considered in the context of regional inequality, a phenomenon which has been discussed in chapter 1. With the help of important themes from theories on regional inequality, an explanation can be given for the Negev's lack of industrial diversity, during the development years.

On one hand the lack of diversity was caused by autonomous spatial processes, on the other hand the causes were the unintentional effects of government intervention, which have even in a few cases reinforced the autonomous processes.

§ 7.2.1 The Negev's industrial homogeneity caused by autonomous spatial processes

The constant lack of diversity in industrial activities in the Negev can be explained by the Negev's constant lagging behind the Tel Aviv metropolis. Because of its large initial headstart, Tel Aviv has, in an early stage, developed into the national centre of economic activities. Important factors in this process were its large size and the resulting agglomeration effects. During the fifties and the sixties, a period of economic growth in Israel in which the transition was made from an agricultural society to an industrial one, the central region attracted much economic activity. This caused the attraction of even more economic activity: the process of cumulative causation was set in motion.

With the emergence of an urban- and economic structure in the Negev, regional inequality became an important issue: there was a wide gap between the Negev and the centre in respect of income, employment and the level of services.

A spontaneous settling of industry in the Negev did not happen, because the Negev suffered from the backwash effects of Tel Aviv's cumulative growth, such as the moving away of economic activity, capital and the highly educated, from the peripherical regions.

Tel Aviv's attraction to firms caused a negative vicious circle in the Negev. This was the main reason why it took a long time before agglomeration effects could occur in the Negev-towns. The retreat of firms, capital and highly skilled labour prevented the development of agglomeration effects. Consequently the Negev was not an attractive location for advanced industry, to which agglomeration effects are very important.

One of the backwash effects, the selective migration or 'brain drain' caused another vicious circle in the Negev. Due to a lack of highly skilled labour, advanced- and growth industry did not settle in the Negev. Consequently, the employment situation for the newly highly educated in the Negev did not improve, which caused these people to move away as well. The Negev was left behind, time after time with a low-skilled workforce.

The autonomous processes of cumulative causation and selective migration have caused among other things industry to settle in the Negev, which was mainly characterized by simple production processes and a high percentage of low-skilled labour.

§ 7.2.2 The unintentional effects of the development policy on the diversity of industrial activities

The constant dilemma of the government between regional development on the one hand and national economic growth on the other, has left its traces on the Negev's development history. In spite of the fact that especially during the first two decades the development of the Negev had top-priority, the government could not afford to neglect the development of Tel Aviv. This has caused a negative effect on the effectivity of regional policy during the whole period of regional development. When national problems became urgent, the government had to make an explicit choice in favour of national development, at the expense of regional development. However important chances for regional development have been passed by: one of the most important is the missed opportunity of concentrating the defense industry in the Negev. A settling of this branch in the Negev would have meant an enormous impetus for the Negev, without endangering the national interests ( the defense industry received extensive government support, regardless of its location ).

On a lower level, the causes for the low rate of diverstity can be found in the regional development policy itself. A major cause of the constant lack of agglomeration effects in the development towns was the choice for the Central Place Strategy as a development strategy for the Negev. The deconcentrated urban structure that has developed as a result, prevented the occurance of agglomeration effects: the towns in the Negev were too much and too little. For example, in the separate towns the economic potential was too small for the development of a service sector. Regarding the urban structure as a whole, it can be stated that such a system turned out to be inappropriate for the development of industry, especially advanced kinds of industry. This was not caused by the limitation of the strategy of being a ideal model, but more by the unsuitability of the strategy as such for the development of the Negev, considering the specific physical circumstances in the Negev. Only after quite a number of years this strategy was abandoned, when the shift was made to the growth pole strategy at the end of the sixties. This change was rather late.

A major limitation of the growth pole strategy, the growth pole's backwash effects, had a negative influence on only parts of the region: the development towns. For the region as a whole this was a more or less desirable process: there was a great need for concentration of economic activities after the bad experiences with the deconcentrated central place structure.

The extensive incentives and subsidies as developmental instruments have not succeeded in creating industrial diversity. On the contrary they have caused the settling of especially financially weak firms in the Negev. Succesful and profitable firms were not in such need of support and they could afford a relatively expensive but attractive location in the centre of the country.

Finally, a major share of the Negev's industry, chemicals and mining, which was owned by the government and the Histadrut, was not very diverse in activities. One of the reasons for this one-sided industrialization strategy, was that these two branches have been developed in the Negev in favour of goals other than just regional development.

The, for the Negev, inappropriate settlement structure, the unintentional selection effect of government support and the one-sided concentration of public companies in only two branches, are all the consequences of government policy and are partly responsible for the low diversity of industrial activities.

§ 7.2.3 The dominance of large firms

An explanation for the low diversity of company size in the Negev's industrial structure, can also be found in the government's role in the development of the Negev.

First, the mining companies and the chemical industry which were publicly owned, needed large scales of production for the sake of efficiency and in order to get sufficient returns on the huge investments.

Second, the high unemployment in the development towns during the fifties could only be resolved quickly by the settling of large textile factories where many jobs could be created at once. The large size of the textile factories was the main reason for the important role of just this branch in the development policy.

Third, for a long time the Negev lacked local entrepreneurship in the form of small business. One of the main reasons has been the far-reaching influence of the public sector in the Negev's economy. The government took care of almost everything, which eventually lead to dependency and a passive attitude of the local population.

The lack of local private initiative, the characteristics of the prominent branches and job-creation by the textile industry, have caused the dominance of large firms in the region.

§ 7.2.4 The balance between public- and private companies

In respect of the ownership of the Negev-companies, the initial high share of state- and Histadrut companies can be explained by the dedication of these companies to goals other than just profit making. In the course of the years, the share of the private sector increased because of the extensive government support by way of the Law for the Encouragement of Capital Investment. However the public companies have remained dominant, because of the importance to the nation of the exploitation of national resources and the desirability of a new ( remote ) location for the chemical industry, far from population centres. The continuity of these companies was guaranteed also, because of the large financial resources of the government and the Histadrut. The recent sale of I.C.L, By which the share of the private sector in the Negev sharply increased, should be considered in the context of efficiency improvement and a market-orientated government policy since the first Likud-government of 1977.

The dedication of the government and the Histadrut to goals other than profit-making and their large financial resources, have caused a consistently leading role for the public companies in the industrial developments of the Negev.

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