Increasing efficiency


  • Reversing decline in efficiency

Context

Efficiency means the good allocation of scarce resources towards conflicting aims. Efficiency only has meaning in the context of an agreed set of objectives. The search for efficiency is not merely a matter of finding technically optimal solutions; it is also a political process. Governments seeking change have to start with existing institutions that have their own historical inertia and underlying political interests. The process of reform therefore involves negotiation and compromise, accepting "second-best solutions" that are politically feasible. Individual countries attach different weights to particular social and economic objectives.

Over recent decades, governments in most developing countries have played an activist role in development, building infrastructure and often engaging directly in productive activities. Their policies have also been critical in determining the environment in which the private sector operates. Much of this activism has produced encouraging progress: over twenty years, developing countries have on average achieved growth rates that had not been managed before, either by the developing countries or by today's developed market economies at a similar stage of their development. In relation to expectations and potential, however, progress in many countries has been unsatisfactory. < To bring performance into line with potential, governments must play a central role in ensuring: a stable macroeconomic environment, by adopting sustainable monetary, fiscal, and foreign exchange policies; a system of incentives that encourages resources to be allocated efficiently and used optimally; a pattern of growth whereby benefits are widely shared. < Since the world is beset with uncertainty, governments need the flexibility to respond to unforeseen events and to resolve the inevitable conflicts between competing interest groups. After the experience of the past ten years, the importance of macroeconomic management needs no underlining. In a hostile world environment of modest growth, high interest rates, and fluctuating exchange rates, the macroeconomic policies of developing countries will continue to be critical in ensuring price stability balance of payments equilibrium and conditions conducive to growth.

Faced with widespread poverty and slow economic growth, governments are naturally keener than ever to promote development. But their progress is constrained by weak institutions and management. These constraints vary greatly among countries, and their capacity to deal with them reflects differences in population, incomes, natural resources, and political systems. In many countries, however, managerial weaknesses are explained in part by the shortage of experienced and well-trained people. While this bottleneck will ease as education spending yields dividends, the immediate need is to use existing resources, including managerial skills, more effectively and economically.

Although managerial capacity places an overall limit on a country's development, it is far from homogeneous. The skills needed to frame macroeconomic policy differ from those needed to run a productive enterprise; and large organizations place greater demands on management than do small ones. Governments tend to be involved in the management of big organizations, such as running state farms and marketing boards, rather than relying on peasant farmers, small traders, and individual truckers. And the mistakes that big organizations make have more serious consequences.

The main criterion for judging economic management is "efficiency" -- a concept that has meaning only in the context of an agreed set of objectives. The search for efficiency is not merely a matter of finding technically optimal solutions; it is also a political process. Governments seeking change have to start with existing institutions that have their own historical inertia and underlying political interests. The process of reform therefore involves negotiation and compromise, accepting "second-best solutions" that are politically feasible. Individual countries attach different weights to particular political and economic objectives.

In every country efficiency has two distinct but related aspects that are critical to economic performance: efficient resource allocation-through prices, markets, and administrative interventions; and operational efficiency-to maximize the use of labour and capital through the sound management of enterprises, projects, and programmes in both the public and private sectors.

These in turn contain both static and dynamic dimensions. In static terms, efficiency may be defined as maximizing the present value of output from a given level of inputs. Alternatively, when the goal is to achieve a particular social objective (such as malaria eradication) or to provide a specific service (for example, a telephone link), efficiency may be defined as cost minimization.

Although both policy and institutional aspects of efficiency are interwoven, for the purposes of analysis it is useful to distinguish between them. In both, however, the state plays a pivotal role: it is government that determines the policy environment in which enterprises and farmers must operate; government that provides the social and Physical infrastructure that underpins productive activities; and government that frequently contributes to production through state-owned enterprises.

The virtues of micro-economic efficiency can be magnified or undermined by the choice of macroeconomic policies. Successful macro-management requires a strong capacity for policy analysis, backed by mechanisms to translate policies into actions and a reliable monitoring and evaluation system.

Narrower

  1. Spatial planning
  2. Reforming tax systems
  3. Reforming state-owned enterprises
  4. Reducing underemployment
  5. Intensifying existing resource use
  6. Increasing state efficiency
  7. Increasing production efficiency
  8. Increasing military efficiency
  9. Increasing internal efficiency of public programmes
  10. Increasing intellectual efficiency
  11. Increasing efficiency of use of available health care
  12. Increasing efficiency of system of crime detection
  13. Increasing efficiency of regulations
  14. Increasing efficiency of public spending to alleviate poverty
  15. Increasing efficiency of public spending
  16. Increasing efficiency of manual farming
  17. Increasing efficiency of international marketing
  18. Increasing efficiency of federalism amongst states
  19. Increasing efficiency of domestic skills
  20. Increasing effectiveness of water usage
  21. Increasing effectiveness and efficiency of international meetings
  22. Increasing effectiveness and efficiency of intercultural meetings
  23. Increasing economic efficiency
  24. Increasing cooperation
  25. Increasing bureaucratic efficiency
  26. Improving systems of international trade
  27. Improving management of government finances
  28. Improving feeding of domestic animals
  29. Improving administration of aid
  30. Facilitating interdisciplinary exchanges
  31. Extracting natural resources
  32. Establishing shipping procedures and documentation
  33. Establishing policy to ensure global food security
  34. Ensuring constant product markets
  35. Assuring full catch utilization
  36. Advancing energy efficiency
  37. Acquiring technological skills
  38. Increasing efficiency of financial markets


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