Index 1: EFFICIENCY
Efficiency can be measured in a narrow, as well as in a broad sense. A narrow approach to efficiency can translate into specific measures, such as cost per case, cost per patient procedure, or cost per service type. A good couple of local examples would be the unit cost per refuse collection or the net cost to maintain an acre of park land.
A broader approach to the concept of efficiency, however, looks at the extent to which government is fostering an economically efficient system of production and distribution, and reduces uncertainty. The most important public good that local government can provide to businesses and the population at large is predictability. Unpredictability in local government policy or regulations increases the risk factor in the business environment and produces large disincentives for investment. Cities, regions, and even states that continuously struggle to attract outside investment or suffer as this area does from “brain drain†are often characterized by laborious and capricious administration of local regulations and incentives.
A broader definition of efficiency looks at the allocation of public spending and the institutions of government and its capacity to manage the economy and to implement its policies in a stable and predictable manner. A broader definition adheres to the adage that it is more important to do the right thing than to do things right. It is thus more important to achieve the outcomes that businesses and people want, i.e. a stable environment, rather than becoming optimally efficient in delivery. Efficiency improvements in a narrow sense may be achieved either by increasing outputs while employing the same inputs, or by maintaining the same output while employing reduced inputs.
Adopting a broader definition emphasizes the importance of achieving the right outputs, in preference to the goal of using inputs with optimal efficiency. For instance, the ratio of judges to population constitutes a narrow measure of efficiency of government, as it focuses on a specific area, i.e. the redress of claims. Another such example would be the number of civic and criminal cases pending before the courts for more than a year (case backlog). The average time required for the issuance of a business license, could be a very useful indicator of the overall administrative efficiency of government. Excessive government regulation not only increases the level of economic activity of the informal sector, but it also enables regulators to collect bribes from potential entrants, thus linking efficiency with the issue of transparency (corruption).
Looking at the broad spectrum of possible indicators that would fit the profile of being broad enough and would also relate to the predictability of the government policy issue, it is suggested that the one indicator that fits that profile is the volatility in budgetary expenditure shares and the volatility of revenue shares. Budgetary expenditure and revenue volatility, more than any other single indicator, captures the element of providing a predictable policy environment and it is broad enough. A stable policy should be reflected in stable budget allocations. Budgetary volatility tends to be high in places where businesses report that government policy-making is arbitrary and unpredictable.
PAGE 3: TRANSPARENCY
