A Weak Payment Ethic Threatens Growth

Israel's low payment performance score deters investors, reduces national competitiveness, and threatens growth prospects.

D&B's payment performance score examines the extent of delayed transactions in the Israeli economy. According to the recently published index, Israel's payment ethic has improved.

Payment performance has implications on the growth potential of the Israeli economy:

A. International competitiveness: payment performance has implications on an economy's capacity to grow and to compete internationally on human capital, knowledge, and investments:

  • The business environment: payment ethic is indicative of labor relations.
  • Financial viability: payment performance reflects firms' capacity to repay debt in the current market conditions, and therefore provides an indication of the level of risk to which investors are exposed.
  • The quality of business management: market viability is the by product of firms' ability to achieve their business goals. This depends on the firm's internal organization as well as on the quality of its resource management.
  • Rule of Law and Ethics: The payment ethic reflects the relationships firms have with each other and the enforcement of contract law.

For these reasons, a low payment performance score deters investors and hurts the growth potential of small businesses that have difficulty withstanding delayed income. A non-competitive market reduces investors' returns and drives them to other markets.

B. Engines of Growth - The payment score in different branches of the economy is an indication of inefficient use of resources. For example, despite last year's improvement, the construction industry has the lowest payment score of any industry in the economy. This is an indication of political and management obstacles in the provision of land, one of the chief engines of growth in the Israeli economy.

The Reut Institute argues that transparency and control mechanisms in private and public firms in Israel are essential for promising the kind of economic growth that is needed to improve the quality of life of all of Israel's citizens.

Sources

Ynet, 4/18/07, full article (in Hebrew).