What are supply side policies? (Including evaluation)

Definition: These are government policies that aim to increase productivity and shift the aggregate supply curve to the right.

Privatisation

Privatising inefficient state-owned industries gives a profit motive for firms to cut costs, increase productivity and improve quality

Inefficient state-owned firms were now open to market discipline, so underperforming directors would be sacked by the board or shareholders. This is due to the profit motive and firms will take cost-cutting measure, invest in more capital and be active in R&D

However, some industries are best without the profit motive as private firms can have ruthless cost-cutting measures e.g. Railtrack built faulty rails to save costs when National Rail was privatised

Deregulation

Removing old rules preventing competition, increases productivity

Firms are opened to market discipline as new firms can enter the industry, stimulating competition. Firms under competitive pressure usually reduce costs or increase non-price competitiveness such as quality of the product. An example in BT which held a monopoly till 2002 and Royal Mail which could deliver all post under £1 under 2006 and London Electricity.

However, deregulation can lead to a rise in advertising costs which does not go towards an improved product

Education

This raises productivity of the future workforce as it boosts literacy, numeracy and other skills

The spending can identify weak schools, raising their spending and will improve their resources and skill of teachers e.g. in 2008 £30m was given to improve science teaching

However, improvements in education and training will have lengthy time lags which can take over 10years