Modern Day Financial System and Economic Development - Analysing the Relationship

Financial Functions and Economic Development

Functions of Facilitating Risk Management

It is generally believed that an important role of a financial system is to reduce the risk in trading and in pooling. There are two distinct types of risks: liquid and illiquid risks. For example, the liquidity of real estate is less than equities and therefore real estate has high liquidity risk. Liquidity risk arises due to the

uncertainties in the process of converting assets into a medium of exchange. Liquidity risk could rise because of asymmetries of transaction and information costs, and financial markets and institutions will arise accordingly. Thus, we can define liquid markets as the markets which involve less uncertainty in settling the trading. During the recent decades, the establishment of financial systems in response to liquidity risk has been always debated by economists, and the association of financial

systems and economic development has been evaluated in various ways.

The first way is introduced by Diamond and Philip that is named as the Seminal Model of Liquidity

.

According to that model, savers in markets have the possibility of receiving shocks after choosing between liquid project (High return) and illiquid project (low return), and that risk can encourage more investment in the liquid (low return) projects. Supposed that it is expensive to receive a shock in this model, so that the insurance contracts need to be ruled out and financial markets will exist, where individuals can trade securities with higher confident level. Stock markets reduce liquidity risk by facilitating the trade and thus more projects will be invested with the high return. On the basis of above discussion, information costs, with which agents can verify whether other investors receive shocks, are the main cause for the emergence of the stock market. Moreover, it is noticed that trading costs are also able to highlight the significance of liquidity. But if this economic activity is expensive, production technologies will be less attractive due to its longer period. Therefore, liquidity affects the production decisions, which can be measured in trading costs in secondary financial market and thus greater liquidity will result in transferring to longer period

and higher return technologies.

After the parts about liquidity risk, it in turn seeks to explore the association between financial intermediaries and the economic development. The definition of financial intermediaries is generally concluded as the combination of agents to provide financial services, and thus financial intermediaries can be used to strengthen liquidity, and also to reduce risk from liquidity. On the basis of the discussion in the previous part, the Diamond-Dybvig Model assumes that it is not possible to make insurance contracts in the market, and thus savers can get liquid deposits from banks. Furthermore, the liquid risk can be reduced by a completed insurance provided by the bank, while the long-term investments could be facilitated in high return projects. By reducing liquidity risk, investment can be increased in the high-return projects, which normally is described as the liquidity asset; and then the economic growth will be promoted. But all of those studies about the functions of banks are based on the assumption of lack of state-contingent insurance contracts (Diamond-Dybvig Model). But this assumption simultaneously brings a problem about describing how a bank reduces liquidity risk. In other words, if there is a market of equity, agents in the market prefer to using equities and then nobody has inventive to use financial institutions. After considering the main role of reducing the risk of liquidity, other risks associated with individual industries could also be reduced by an efficient  financial system.

Indeed, one primary role of financial markets is to provide services for diversifying and trading various risks. The ability of financial system to offer the service of risk diversifications can influence the process of economic development by changing allocation of resources and by arranging the saving rates. Therefore, financial markets tend to make portfolio investment shift to the higher-returns projects (Paul; Obstfeld).

The risk diversification not only has an effect on capital accumulation, but also makes changes of the technological innovative advances. Agents in the marker are trying to make technological advances to get profits for the innovators, and thereby successful innovation can improve the process of technological advances. The ability of holding a portfolio of innovation projects is able to reduce risk, and also investments are promoted in enhanced innovative activities. In conclusion, financial systems play an important role in facilitating technological advances and promoting economic development through their effects on improving risk diversification effectively.

Functions of Financial Systems and Allocation of Resources

In order to promote economic development, it is crucially important to allocate and mobilize sufficient resources for various investments and the quality of the allocation to different investments play a critically significant role on economic development. Economists have identified various mechanisms to explain the positive influence of financial intermediation on the capital productivity. Actually the allocation of resources includes three important critical points that are associated with the establishment of financial institutions—the diversification of risks, the management of liquidity risks, and the evaluation of managers’ skills in enterprises. But since the management of risks has been discussed in the previous subsection, this subsection will only concentrate on two parts. On the basis of these three factors, different economists present various arguments about the possible influence to the economic development. For example, Greenwood and Jovanovic contends that the influence on the growth is due to an increase in the resources invested in productive capital and an 

improvement in productive efficiency. Here, there are two points needed to be known:

a) the returns on investment are associated not only with some risks in the productive

process, but also with other risks associated with future product demand;

b) all intermediation activities can be carried out either by banks or financial markets.

Therefore, the development of financial markets helps agents reduce those risks with the efficient diversification of their investments, and simultaneously choosing more productive technological advances. On the basis of this view, because of the higher level of opportunity costs involved in flexible technology, the development of financial markets becomes much more attractive for investors. The dualism way of technology is able to be described as an important method of diversification of technological risk, while productive risks can not be diversified in the modern sector effectively due to less-developed financial markets and intermediaries, including stock markets and banks.

The assessments will take place in the process of monitoring the various kinds of investments, and the costs of these assessments include fixed costs basically. Supposed those fixed costs are enough high, individual investors would be encouraged from conducting that research. Furthermore, this will result in an increase

in the investment in bad risk projects and a decrease in the productive efficiency of investment, and thereby has negative influences on economy development. The emergence of those fixed costs can be described as an important incentive to found specialized financial institutions which is used to integrate the information on

investments. If such information can be collected for an enough amount of investors, financial intermediaries will spread the fixed cost among the whole participated investors. Therefore, investment projects are more productive and this has a positively critical influence on economic development accordingly.

There is another kind of view about the monitoring effect on financial intermediaries. Agents in markets have their own choices between two types of investment projects: the investment with high productivity but low risk; the investment with low productivity but high risk; the risky investment is constrained to the technological shock. Unless individual agents are able to spend more money in monitoring others, private investors can not normally observe the shock affecting their investment projects. On the basis of this view, the financial  ntermediation can also be described as a systematic network, which works to connect various individual

investors and facilitate the diffusion of information on the return of individual investments, so that financial intermediaries are able to obtain information about the shocks to affect investments. In conclusion, there are two summarization points needed to understood in this subsection:

a) Due to more informed breakdown of shocks, financial intermediaries can make investment go towards the invested projects with more yields and profits;

b) agents can reduce the risks in private projects better due to monitoring the systematical shock and there will be an increase in resources allocation invested risky but productive investments. The results both accelerate economic growth, as well as promote the development of entire economies.

Functions of Mobilizations of Savings

Another important function of financial intermediaries and markets is concentrating how to mobilize available savings efficiently in an economy. Indeed, the emergence of financial systems and intermediaries provides an efficient way of mobilization and pooling of available savings, which can integrate existing financial resources from individuals to group investments. Actually more advanced technological innovations can be used in the process of production, which initially required a certainly higher level of investments. The mobilization includes some instruments, with which investors are able to keep diversified portfolios, then to spend more investments in efficient firms and to raise the degree of liquidity of financial assets. Therefore, mobilization has a definitely positive influence on the allocation of resources, by improving the diversification of risks and the size of firms.

This means the financial intermediaries can offer investors the relatively higher expected returns in the process of resource integrations, which in turn results in an increase in capital productivity and also individual household can obtain the more profitable yields. However, for every individual investor it must be very expensive to mobilize and pool the savings by himself due to much high cost involved in the process of the integration of resources. Among various costs, there are two most important costs to be studied here: a) costs of transaction, which come from pooling savings from every investor; b) costs of informational asymmetries, which make investors feel better to give up the control of their long-period savings. In facts, around the mid-1880s some bankers have already used some connections in Europe to increase capital overseas

for investments in the America, while other banks also attempted to find the connections with banks and entrepreneurs in the USA to start the steps of capital mobilization. At the same time, other banks also wanted to sell securities to individual households through some other methods—such as advertisement. Furthermore, financial intermediaries are generally required to have a good reputation, and then savers will feel comfortable about consigning their savings in the banks , since agents of conducting the mobilization have to tell the investors with the rationalization of investments. Although many transaction and information costs have to be suffered under the process of the saving mobilization, there are various financial policies to solve these frictions and to improve the ability of pooling. For example, numerous multiple contracts are made in the mobilization, and these contracts take place between productive units and agents with surplus resources.

The joint stock company shows us an example of multiple mobilization, with which a new legal entity—the

firm—can be invested by many individuals. Also pooling might take place here with intermediaries, and here many investors consign their money in intermediaries which invest in firms . The efficient mobilization and pooling of savings not only have effects on the accumulation in capital, but also have positive influences on improving the allocation of resources, as well as creating the innovation of technological advances. When

financial systems are more effective at pooling the savings from individuals, they can deeply influence economic development. In addition, the development of financial intermediation can lead to releasing the constraint of liquidity, which agents in the  economy have to face when planning their consumption through the life. Consequently, when liquidity constraints could be released, the savings rate will fall down. This positive relationship between the liquidity constrains and the saving rate has been empirically evaluated by Jappelli and Pagano with a case study of OECD member countries. But here we have to underline an important assumption, since any discussions of the liquidity constraint on the economic development are based on that consumption: productivity gains are only connected to externalities in the accumulation of physical capital. However, if the liquidity constraint leads to the encouragement of savings, the negative effects will exist on economic growth.

This situation occurs if growth arises from the accumulation in human capital instead of only in physical capital, since the probability of individual borrowing in the time of schooling would be reduced. Therefore, through the affects of externalities, the emergence of liquidity constraints, based on the less-developed financial system, can make the choice of a low equilibrium with weak growth, and thereby a trap of poverty

correspondingly.

Functions of Being Payments System

Another significant distribution of financial systems to economic development comes from the establishment of an efficient and adaptable payment system. That means the influence from a financial system to the economic development can be discussed with reference to a well-performing payment system in the financial markets. Empirically, a creditable means of exchange is a necessary condition to promote the economic

development. If the payment system is now assumed not to exist, the transaction costs may offset some gains in productivity, which is linked to the division and the beginning of partial economic growth. And payment systems can interactively adapt with the process of economic development. Here, the definition of economic

development does not only imply the sustained productivity gain, but it also mean a maintained opening up of new markets and an efficient diversification of products. All of these economic activities lead to the more exchanges, which will make an economy more complicated. Then, there will be a growing demand of monetization, which should be necessary for sustaining the economic growth. Finally, there will be long-term trend towards a reduction in the money velocity and this conclusion been confirmed by many experiences from most developing countries. Furthermore, it is necessary to mention the need to reduce the opportunity cost of keeping money, which brings a stable movement trend of payment systems towards credit connections supervised by financial intermediaries, and this trend might be strengthened by the process of technological advances. But these technological advances can not only reduce the information costs that are linked to credits, but also they are easily able to make modernistic financial assets substitutable for conventional financial assets. That is initially shown by a long-term increase in the ratio of financial activities to entire GDP, and also working population in financial sectors is increasing sharply correspondingly, and thereby that will have a critically positive influence on the economic development. However, this fall seems to be confirmed by the wide money aggregates and the notion of wide money aggregates includes more complex kinds of financial assets, whose high cost implies that they only become accessible beyond a certain level of economic development.

Actually, the positive relationship between real GDP and the ratio of the financial assets to GDP (traditional

expression of monetization) was discussed and highlighted in initial studies on financial growth and economic development.

 

Conclusion

The above discussions have illustrated a functioning approach of the main functions of a financial system associated with economic development. But it seems to be too narrow a focus to evaluate the influence on economic development from every separate function, so that many economists encourage various functions into an integrated understanding of the functions of a financial system to help economic development. Actually it is better way to study the financial system functions with the integration of the different individual functions. In fact, by identifying the individual functions performed by the financial system, the functional approach can motivate a more complete understanding of relationship between financial growth and economic development.

There were some good studies provided by earlier economists to evaluate the associations between finance and development. For example, Schumpeter (1912) explores a board explanation of the roles of a financial system on economic development. It looks like Smith (1776) uses the key factor to explain the importance

of the process of specialization. Schumpeter uses the ties between firms and banks to explore the significance of the financial system on adopting the technological advance

and innovation. McKinnon underlined the significance about facilitating the use of the efficient agricultural techniques. Consequently, all economists believe that it is necessary to integrate all individual roles into a simple way about how the financial system affects economic development as a whole. Moreover, all of individual functions of financial system on economic growth must be interactively discussed and most economic activities should include the interaction of individual roles, rather than considering only one function solely.

Vivek Joshi

Director

Creative Head Consultants

Financial Planning for Household

Financial Planning for Household (Tips for Homemakers)

It has been said that you should plan your future and save for retirement but with changing times, rising costs along with skyrocketing inflation savings seems a farfetched idea and almost unrealistic still being a consultants and financial educator I proposed and suggest all to save and invest though may seem to be very negligible. I also ask my clients to have a basic term plan (Insurance product) along with a recurring deposit as they mostly turn good at the time of high inflation as well as offer good rate of interest. Let’s try to understand some key points about Financial Planning for Homemakers. The first stage will be to understand the need for financial planning.

The Need -  It is one very important skill essential for all to learn and follow as ardently as possible. It facilitates creation of strong financial foundation. Your life goals i.e. buying a home, planning for children’s higher education or wedding or may be planning for future contingencies or retirement. Financial Planning covers a wide variety of monetary topics and complete understanding of financial planning lays the groundwork for solid financial foundation. For a homemaker it is important to understand concepts like house hold budgets, understanding expenditure patterns, debt payments, value of information especially about investment instruments, interest rates as well as taxation.

As a home maker it becomes imperative for both partners to understand the financial needs of the family and try to provision for the same moreover gradually share with your partner financial responsibility and discuss contingency plans as well as investment alternatives in great detail. Understanding the value of disciplined saving and continuous investments cannot be underestimated. Furthermore we have to remember how compounding rewards us and long-term investments at early age finally reap unimaginable rewards.

Banks and Instruments – Bank deposits are safe as they are insured. Banks offer different type of deposits depending upon the need of the customer as well provide several allied services. Moving towards instruments as a house maker I would prefer to build my capital by simply planning my tax liability (reducing tax liability). There are several Tax saving schemes available suiting to the specific household needs so are several investment avenues available coming from government as well as debt securities coming from reputed corporate houses moreover there are several bonds, fixed deposits plus debentures coming from government as well as corporate that could be adjudged based upon the product features along with suiting specific requirements of the household.

Moving towards higher risk appetite we have mutual funds and equity shares available but I will not openly advocate investing in these till the time investor has understanding, ability to do research (home work before making an investment) and time to follow these instruments closely as per market fluctuations. These instruments can facilitate higher returns but come along with higher associated risk.

Next in line are protection related products like Insurance i.e. Life insurance may be a simple vanilla term plan or endowment plan or pension fund or a Unit linked Insurance Policy. A health policy or a mediclaim in his age of higher and almost unaffordable healthcare cost is also valuable so better have a family cover mediclaim plan.

Caution – The homemakers must be cautious of taking loans especially personal loans or loans for consumption. They should read the terms carefully before accepting the debt as well as understanding the implications of changes expected in the interest rate. Housing loans, mortgages and use of reverse mortgage (loan against your house-property) could also be used for the advantage but cautious approach is recommended.   Credit cards are also very important but has to be used judiciously otherwise credit card debt becomes a deathly hollow to emerge out of which becomes almost impossible and the cost of the debt is too high to be serviced by any household.

Avoiding Debt – In current scenario avoiding debt completely may not be possible so I propose some steps to avoid excessive debt. First is to set debt limits, second is to carefully for debt, do not give into temptations also make provisions for automatically money goes towards payment of your bills.

Comments about Gold – Gold is usually preferred in the jewellery form but that way a household stands a chance to lose the true value of the precious commodity. Investing in gold coins or bars is advantageous though managing physical commodity may become difficult. Suggested mode to enter into gold segment as an investor is to buy Gold ETF (Exchange Traded Funds)or some other funds that specifically make investment if gold. There are several schemes floating around in the investment market the only need is to take an educated decision.

Risks or hurdles in financial planning – In one of our recent program I talked about three fall-backs that any household could suffer if they are not cautious enough I also call the risks that loom large on any homemaker and these risks are as follow –

·         Intuition

·         Substitution

·         Consumption

The above three are supposed to be guarded against and managed proactively. Shedding some light on these three first we can say intuition is the biggest reason for a risk or especially an investment turning to be a bad investment. Investment decisions are to be carefully taken and should not be taken based upon a hunch or my sixth sense said so or I had a very strong intuition about it so invested. The methodology is risky and you are putting your hard earned money on line so be are full and avoid making costly mistakes.

Second is substitution, do not dissolve your good investments just because they are cash rich or you though that I have earned enough as replicating them or substituting them may become difficult. In case you have a dire need and left with no options than touch your good investments as in most of the cases a novice investor or a retail investor ends up substituting a good investment with a bad one.

Last but most important of all consume but have pre-decided limits and plan to save for future gradually build some propensity to save do not be lured by temptation and concentrate on building capital as well as financial capacity. Key point to remember do not liquidated your investments for the purpose of consumption. Children’s education, healthcare needs or contingencies are the only good reasons to dilute your portfolio other than that all expenses are to be met with current income or other provisions. We need to remember the Intuition, poor substitution and consumption will kill the value and will lead to financial troubles in the future so beware of these three risks.

Conclusion – Financial literacy helps in building security and prepares for financial emergencies. People who are financially literate are reluctant to buy financial products that they do not understand and they believe in preserving value of money. The financial education does generate sense of accomplishment so do not be shy in asking question about financial problems or issues and become an intelligent investor.

Vivek Joshi

Director

Creative Head Consultants

Relevance of Modern Management Principles for Government Organizations

Relevance of Modern Management Principles for Government Organizations

“Democracy, good governance and modernity cannot be imported or imposed from outside a country.”

Modern day India is marred and plagued by governance inefficiencies and the common man feels the pressure of poor decision making and the life of people like you and me are marred by cruel inefficiencies in distribution of resources and wealth.  All around there is a sense of poor performance, complacency, redundancy, lack of decision making skills rather the inability or lack of will on the part of Indian government or elected representatives to take decisions.  So called leaders (politicians) of modern day India fail to show any charisma or energy or even a mere glimpse of commitment towards improving the quandary condition of common man or the large part of Indian population. Huge debate that goes around is about sustainability of Indian economy and about our future as a country but somehow it is heartfelt that these burning issues are still manageable if our politicians make an effort to learn and adopt modern management principles and put them to use along with uncompromising commitment to improve the condition of masses in the country.

It is true though seems surprising that the colossal problem faced by such a big country can be resolved with the help of application of Modern Management Principles. Modern Management holds the very essence of building teams, developing organization and sustaining business units it also facilitates development and growth along with assisting the attainment of common pre-decided objectives. A cursory look at the definition of the term management will explain what I want to connote, “Management is the process of reaching organizational goals by working with people and other resources”. It is a commonly known fact in organizational domain that managers must concentrate on reaching organizational goals, and they should use their resources (all available resources) to accomplish those goals and the same common sense is applicable to government organizations in India.

The modern principles of management if once accepted and put to use by our government and government organizations will change the future of India. The Government has to learn to be prudent and start acting like top management or board of directors and keep itself separate from the activities of the bureaucracy. Government has to realize and rationalize that they cannot do all the work by themselves and politicians along with their attachments do not have capabilities and capacities to accomplish all things especially business activities or economic domain essentialities. The principle of Division of work could be applied here and running of big corporations and other public sector undertakings could be left with those who have commercial domain expertise. The decision about what activities government and its ancillary bodies will do or undertake has to be decided by the administration and accordingly the directives are to be issued. This step of separation of government (politicians) and associated committees and sub committees from commercial activities will facilitate government to focus on more important issues and will lend a free-hand to expert business managers to run Public Sector Undertakings as well as to make them commercially viable.

The second principle that could be brought into play is that of authority and responsibility. Since we propose that business managers be given autonomy in operating or running business ventures the government should also hold them accountable for keeping things straight and workable. Government organizations on this day seriously lack authority-responsibility equation. Most of the ministers they have authority to run the state of affairs as per their whims and fancies but once things goes wrong and the questions of accountability rises all look for escape goats so the responsibility can be shrugged off. In recent cases the ministers were so shameless that they did not even bothered to give any explanations rather they stated that they were having all authority to do whatever they did but had no accountability or responsibility commensurate with their actions. Therefore, it has to be mandated that all government officials or those who are trusted with the conscientiousness of running and carrying out the activities of government organizations have to be made accountable or responsible for all of their actions along with providing them with authority to discharge their duties effectively.

The next two principles to be implemented or accepted are discipline and unity of command. Discipline can be accepted as most important ingredient of any success recipe and unfortunately it is grossly missing in Indian public sphere. The office bearers of government organizations have to be disciplined and even those who were involved in corrupt practices in past are to be brought to justice so the signal could be send that better be disciplined or be ready to face consequences. Lately the kind of treatment offered to most of the corrupt politicians cannot be considered exemplary so an effort has to be initiated so as to discipline the officials and personnel involved with government organizations and offices. Unity of command has to be instigated so the interference of politicians can be minimized in government associations or bodies consequently the appointed officials can effectively discharge their duties without any directives or unfair involvement by elected public representatives or local honchos of minor political or regional groups supported by politicians. The transparency in all decisions being taken can be managed and principle of authority responsibility proposed earlier has to be held in totality.

Unity of direction is the next principle proposed for execution as every single effort from all directions is to be channelized for national growth. Personal agendas, schemas or petty objectives of political parties or political figure or other groups have to be scarified in the interest of the nation and all efforts as well as resources are to be directed towards betterment of masses and holistic development of India. Commitment from all stakeholders has to be generated so unified movement can be attained and the house of government organizations seems in order and unified for the effective and efficient attainment of a single objective, “The National Objective”. Vision plus Mission statements of all organizations should only be stating one thing, which is betterment of the poorest of the poor and equity among all sections.  Fair distribution of resources and wealth has to be ensured and action should be initiated so as to make sure that, engines of growth work with full force and the economy grows with bursting momentum. The GDP rise so will per capita income in addition to income distribution that will have to be fair and justified resulting into better living standards for everyone.

Any kind of corruption, nepotism as well as redtapism has to be uprooted as they create bottlenecks in creation of social equity. This is the time for our nation to not only think about food security (bill is still pending) or right to education but to ensure that social security is provided to all as it is society’s precious resources and wealth (money collected by the means of taxes) that government organization use to run their old, corrupt moreover inefficient operations. Common man makes compromises so as to allow government bodies and organizations to make money and to keep these white elephants moving. Efforts has to be accomplished towards making government organizations lean along with being effective and efficient so precious national resources could be utilized in a better manner and could be put to best use.

Our politicians need to learn that respect cannot be demanded rather it is to be earned and simply by using your power or clout you could not run things as per your wishes. Coercion is not right and should be avoided similarly accumulation of all authority is disastrous and should be replaced with decentralization and cooperation so others could also prove their worth and deliver in action. Officials of government organizations could take decisions to deliver results beneficial for our country. Government organizations are blemished by the presence of sheer power or absolutism where the ministers and departmental secretaries consider their right to use the assets and resources of a national enterprise for their personal gains. Bureaucrats and managers do not have any authority at all, even an attempt to bring out corruption, fraud illegal activity and illicit behaviour may result into the loss of life of the whistleblower, this is kind of dared activity looked down upon by politico-Mafioso. Coming across this kind of unfortunate state of affairs too often, it is felt that governmental organizations should be completely decentralized from the political clout and influences furthermore should be provided more freedom in their operations.

Flat independent structure represented by well qualified professionals should be created. Most talented and well qualified professional from premiere business schools and esteemed institutions of higher education should be hired and given the charge to run the operations in the manner of running a Strategic Business Unit (SBU). The principle of Equity should be followed and every commendable action should be appreciated similarly every condemnable action has to be renounced. Fair and just treatment has to be the order of the day and a code of conduct on the lines of professional code of conduct has to be drafted and followed to the word. None and that means no one has to be given any kind of privilege or relaxed treatment for any kind of misdeed due to his or her political connections or position. Law has to take its natural course and the justice should prevail.

Stability of Tenure for the employees has to be ensured but not guaranteed. The continuity of job has to be attached along with the conditions of effective and efficient discharge of duties. Performance appraisal at all levels including that of cabinet ministers involved with running of government organizations has to be made mandatory. Career Planning, potential evaluation, succession planning all has to be adopted as integral as well as indispensable part of the system. Mere election as a member of parliament or as an MLA should not guarantee of being given a ministerial berth but the educational qualifications, past experiences, professional accreditations and personal traits along with good performance in psychometric analysis has to be given proper weight-age before being appointed as operational or nominal head of a government organization.

Initiative, innovation, collaboration, Esprit de corps have to be instilled so the petty issues of self interest can be avoided and a collaborative unified approach could be adopted for nation building. Effective Leadership has to be instigated as no team can succeed without effective leadership. The leaders of these organizations have to lead from the front that too by setting examples. It should be remembered that nothing great was ever achieved without perseverance so the leader should set himself on a arduous journey and be prepared to face numerous impediments.

Principles essentially have no minimum standard of practice and can rise over time. Principles work to influence a broad set of practices conforming to a level of expectation by the community at large. The implication being, that if anyone in the community believes your practices to be skirting the issue, or non-genuine, then you have a problem of confidence in your actions and it seems that our modern day politicians are falling prey of the same distrust. Following management principles in best possible spirits could leverage everyone up to a high standard of practice, as minimal compliance with benchmarks and pre-decided standards will not really be tolerated by most of the members of our society.

Management Principles also encourage organizations to start right away at moving their current practices in-line with these principles, though still leaving room for continuous improvement over time. Successful organizations adhere to management principles, and periodically evaluate results to ensure the continuing effectiveness of their systems. Furthermore, the procedures and practices of government organizations should be benchmarked against those of successful organizations. As organizations and their environments change, the government organizations must become flexible furthermore adapt to future opportunities and threats by improving processes and practices.

VIVEK JOSHI
Director

Creative Head Consultants