Trading efficiency for higher levels of employment

By Anonymous

Most discussions on involving the private sector in the delivery of essential public services focus on the powers of profit and technology to make operations and processes more centralized, efficient, and cost-effective.   For instance, private firms could take over an inefficient water utility, raise needed capital for investment, rationalize headcount, all the while delivering services more efficiently and at a lower cost.  However, a profit-maximizing approach may not always be the socially optimal solution.  A policymaker must focus on both delivering needed services efficiently but also ensuring that social objectives are achieved as well – namely, availability of jobs.  These two aims sometimes come at odds with each other and, especially when dealing with city services, efficiency should not always win.

The pure economic solution often finds itself at odds with policymakers and socially desirable outcomes.  For instance, Bogota, Colombia in 2007 faced a decision regarding its bus system in which, ideally, the number of bus operators would shrink from the 20,000 estimated buses on the street to a more economically-efficient 11,500 or so buses on the road.[1]  In a national economy that faced 12% unemployment (2010 figures), an astounding 32% underemployment rate[2], and over 50% of the population engaged in the informal sector[3], the problem was obviously not just simply an inefficient bus system but rather a symptom of an inefficient economy on the whole.  Contrary to a private sector decision-maker, a policymaker cannot simply view one sector in isolation and only through a purely economic lens.

So, how should policymakers realistically view efficiency in the delivery of essential services in a modern economy?  Policymakers and the public must be aware that there are often tradeoffs between efficiency and employment, and in many economies the employment situation is too grave to resort to wholesale private sector (read: profit-maximizing) initiatives.  Accordingly, many developing countries could look to China and its manufacturing policies that, especially in the 1990s and early 2000s, focused on labor-intensive activities at the expense of investments in labor-saving technologies.  This does not preclude investments in technology at all; rather, this encourages a focus on technologies and processes that help to more efficiently manage the people involved in the delivery of essential city services.  IBM’s Smart City command center in Rio de Janeiro is one particular example of using technology (sensors, video cameras, algorithms) to better anticipate potential crises and deploying city workers more rapidly and efficiently (e.g., to potential flood areas, crowd controls).

This focus on labor-intensive approaches to infrastructure and city services does not doom a city to grossly inefficient and incompetent operations, but it does acknowledge that in the name of a public objective (employment), maximum levels of economic efficiency will not be achieved.  Policymakers are tasked with not only ensuring the delivery of essential city services but with maximizing social welfare, so city services and utilities can and are often used as sponges to absorb excess unemployment and thus delivering a more desirable level of employment in the community.

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