Current Issues Exercise

More for Less? Debates over Efficiency
by Mark Lovewell

Efficiency might seem a straightforward concept, but it has many contentious aspects. For example, two Canadian commentators come to quite different conclusions concerning efficiency and its relevance. Political scientist Janice Gross Stein provides a skeptical view, pointing out efficiency's possible misuses, while philosopher Joseph Heath gives a more sympathetic treatment, arguing that Canada's stress on efficiency is one of the country's strengths. By studying their divergent perspectives, we can better understand efficiency and its significance.
      Efficiency has two related meanings, and it is important to determine which is implied whenever the term is used.
      Recall that economic efficiency, introduced on page 16 of the text, is defined as gaining the highest benefit from scarce resources. When economists refer to efficiency, this is usually what they mean. Keep in mind that economic efficiency requires agreeing on what is the most beneficial result.
      Productive efficiency, introduced on page 93 of the text, means producing a given quantity of output at the lowest cost. This is usually what non-economists are referring to when they use the term. It is a concept that is usually easier to measure than economic efficiency.

Janice Gross Stein
In her recent book The Cult of Efficiency, Janice Gross Stein highlights productive efficiency, which she argues is best viewed not as a goal, but rather as an instrument:

Efficiency is not an end, but a means to achieve valued ends. It is not a goal, but an instrument to achieve other goals. It is not a value, but a way to achieve other values. It is part of the story but never the whole. When it is used as an end in itself, as a value in its own right, and as the overriding goal in public life, it becomes a cult.¹

Education
Should governments fund vouchers that can be spent at private schools? Supporters of such plans argue vouchers would give students more choice, enhancing both the quality and efficiency of education. Looking at experimental voucher systems in some US cities, Stein concludes there is no overriding evidence that vouchers enhance either educational quality or efficiency. Vouchers may help low-income families escape deficient inner-city public schools, but this occurs only when vouchers include an income-cutoff, so that they are available only to low-income families. Otherwise, vouchers primarily benefit high-income families who already use private schools.
      Though little objective evidence exists that vouchers enhance educational quality, parents who use vouchers tend to believe they do. For this reason, Stein argues, voucher programs may be introduced in Canada in the near future.

Health Care
Some Canadian commentators propose provincially funded medical authorities should purchase health care services from private firms on behalf of each province's residents, while general practitioners should use tax dollars to do the same thing for their own patients. Stein looks at existing experiments with these sorts of publicly funded market systems in Great Britain and New Zealand. Again, she concludes there is little evidence these program lead to greater health care quality or efficiency. Those programs specifically geared to cost-cutting mean patients have less choice of health care alternatives than they would otherwise have. As with vouchers in education, Stein sees the promise of higher efficiency brought about by the participation of the private sector in health care as mostly illusory. But, despite the limited prospects of success, these new arrangements may nonetheless be introduced in Canada.

'The Cult of Efficiency'
Stein's critique of efficiency goes far beyond the way the concept is used in current debates over education and health care. She questions some of the underlying assumptions that economists use in highlighting various forms of efficiency. In particular, she is skeptical about whether individuals make everyday choices in the rational fashion assumed in economics:

If I have to choose between two hotels for my vacation, I will rank my preferences, compare the likely costs and benefits of each of the hotels, and then rationally choose the one that is most likely to best increase my satisfaction. Even if few of us actually make our choices in this way (and most of us don't), it is this picture of the rational decision-maker that is at the core of market dynamics, and increasingly, of our explanations of public choice as well.²

Joseph Heath
Unlike Stein, Joseph Heath does not see the pursuit of efficiency as a misplaced obsession. In his book The Efficient Society, he focuses on economic efficiency, highlighting a version known as Pareto efficiency, which is the notion that any action should be taken when it makes at least one person better off without harming others.
      Pareto efficiency assumes individuals should maximize their own utility as long as this does not interfere with the utility of others. Heath suggests that this view of efficiency has become the main guiding principle of public policy in Canada. "Efficiency is a value," he boldly states. "And whether we realize it or not, it is the central value in Canadian society."³
      This leads him to argue that Canada is one of the world's most efficiency-conscious countries — much more so, for example, than the US. Americans often choose liberty over efficiency, says Heath, which is why they are willing to enact gun laws that lead to much higher levels of violent crime than in Canada. This stress on liberty also means Americans tolerate a mix of private and public-funded health care that is much more expensive than Canada's as a percentage of GDP, yet gives unacceptably narrow coverage to American citizens.
      Based on Heath's argument, Americans' suspicion of government has reduced their economic efficiency, properly defined, as well as their overall quality of life. This is why Canada consistently outranks the US in the annual calculations of the United Nations Development Program's Human Development Index (introduced on page 233 of the text), even though Canadian per capita GDP is significantly lower than in the US. It is Canada's particular mix of public and private sectors, says Heath, that allows each sector to do what it does best. And it is this mix that makes the country so efficient.

Efficiency as a Value
According to Heath, the fact that Canadians have made economic efficiency their guiding value is something to be proud of:

Efficiency is not necessarily a cold, calculating virtue nor is it merely a mask for self-interest. Efficiency is a noble, humanistic value intimately related to a number of other values that we hold dear, such as cultural diversity, respect for individual rights, and the alleviation of suffering. Rather than trying to conceal our commitment to efficiency, we should pin it to our sleeves.⁴

Notes

1. Janice Gross Stein, The Cult of Efficiency (Toronto: Anansi, 2001), p. 6.
2. Ibid, p. 30.
3. Joseph Heath, The Efficient Society (Toronto: Penguin, 2001, p. xviii.
4. Ibid, p. xviii.

If directed to do so by your instructor, the following questions can be answered online and emailed to him/her or yourself.

1		Why do voucher systems lead to higher levels of parent satisfaction in their children's education, despite the lack of evidence that educational quality is increased by vouchers?
2		Critics of Canada's publicly funded medicare system argue that free health care, available to all Canadian citizens, is inefficient. Outline some of the arguments that these commentators make, concentrating on productive efficiency. Would it be possible for programs that increase productive efficiency in the delivery of health to also reduce economic efficiency? Explain.
3		Why does the American right to bear firearms, such as handguns, go against the principle of Pareto efficiency? What are the efficiency benefits of the tighter gun control laws found in Canada?
4		Though the average quality of life may be higher in Canada than in the US, some highly skilled Canadians choose to emigrate south of the border. Why? Is this 'brain drain' of highly skilled workers a potential cost to the Canadian economy?