Efficiency

Economics has been defined in many ways over the last 200 years. I will define it simply as the production, distribution and consumption of goods and services.  It is interesting that Adam Smith, who many proclaim to be the father of the study of economics didn’t leave us with a definition.  He was an academic moral philosopher.  His major book, “An enquiry into the nature and causes of the wealth of nations” (1776) laid the foundations of many of the key aspects of the economics we know today. I will be enquiring into the works of Adam Smith in this blog.

One of the key perspectives that Smith proposed and which has become the cornerstone of most societies, in one form another, was that the market system was the most efficient way of achieving individual needs and wants.  The market to be at its most efficient must allow for a free interaction between sellers and buyers.  He put the emphasis on free which he said was only possible through competition.  He also introduced the concept of division of labour that was leading edge thinking at that time.  The division of labour is a structural aspect of efficiency.  Wikipedia lists six different types of efficiency.  This is not surprisingly in this age of so called complexity.  Here I will be talking about an efficiency where an activity (this includes thinking!) is undertaken and completed at the minimum input cost.  In the market where the sole imperative is to make a profit, efficiency then becomes simply a measure of the difference in monetary value between the costs of inputs and the price of outputs.  The concept of efficiency is a mathematical equation and, generally speaking, can be applied in a range of market conditions.

The minimization of overall cost and time that efficiency strives for usually only takes into consideration the self interest of the entity initiating it, be it an individual, a small business, a corporation, or a government.  It can be said that the moral imperative here is to use the minimum resources so as to provide the maximum number of future generations with access to these resources.  This model of efficiency was created by the neo classical economists and remains the cornerstone of economics as it is taught in universities today.  Can efficiency evolve?  Yes it can – if we take a bigger perspective on the meaning and purpose of these concepts.

Adam Smith’s classic work was based on his own experiences and not on a theoretical dogma or ideology.  It is important to read his first book, “The theory of moral sentiments”, prior to reading the “Wealth of nations” so that the moral or ethical context for the “Wealth of nations” can be clearly understood.  Being consciously aware of context in economics, as in any human experience or endeavor, is critical for a deeper and fuller understanding of what is actually going on.

Striving for efficiency motivated by self interest alone has generally become all pervasive in the economic and social belief systems of people in the developed world, and in many cases in the ruling elite in developing countries. Smith’s view was that through this self interest the good of the whole society was somehow served.  A key justification for globalization, competition, mergers, privatisation and innovation, to mention just a few, is rooted in the objective of increasing efficiency. This type of efficiency is embraced as a absolute truism by the shareholder society that has developed over the last 200 years.  Efficiency as a belief has spread throughout our societies.  For example, I recently came across it in a philosophical enquiry into the meaning of the word ‘crisis’.  The article stated we need to become efficient in responding to crisis. 
 
It’s interesting to look at an extreme example of efficiency.  In the book “Eichmann in Jerusalem: a report on the banality of evil” Hannah Arendt examines the 1961 trial of Adolf Eichmann for crimes against the Jewish people and crimes against humanity during the Nazi period.  Eichmann’s key role was the planning and implementation of the transportation of mainly Jewish people to concentration camps.  One of his claims during the trial was that he simply wanted to do his work efficiently and that “with his organisational gifts he was able to coordinate evacuations and deportations in good order.  He also confessed that he did this work of shipping people to their death in full awareness of what he was doing.” Efficiency in this case apparently overrode morality.

Another case is in the fishing industry. The drive for efficiency in the global fishing industry has been the key cause of dire over fishing and the destruction or wild fish stocks. Fleets of industrial bottom dredging trawlers, to quote the editorial in the 12 June 2009 Guardian weekly,” rip up everything in their path.” The editorial continues “eating fish is good for us but catching it in the way we do devastates the sea”. The result says the Guardian weekly is that nine tenths of European stocks are over fished and around a third are beyond safe biological limits: that is the adult population is too deleted to provide replacement stock.

What is the context in which economists and people in general hold the belief in efficiency today?  Is it a context where the individual’s interests are paramount?  Is it a context where the company’s concerns are primarily about profits?  Is it a context where politicians or governments determine priorities?  Is it a context where global institutions are more concerned about global consequences?  Is it a context that embraces the whole universe?  It seems that the nature of efficiency and self interest will be different in each of these contexts.