August 19, 2016

Why bureaucracy stifles innovation

When a sector is liberalised, the new competition from private enterprises often results in state-owned enterprises to suffer losses or even shut down. Several state-run enterprises in Myanmar have been privatised in recent years in order to become more competitive. When the new owners succeed in making a formerly state-run company profitable, the employees that worked there before it was privatised are often blamed for past inefficiencies. However the real culprit behind the fall of many state-owned enterprises is the strict regulations governing or restraining its operations.
Firstly, tight regulations restrict the ability of employees to perform tasks in a timely manner. Their output is diminished by things like having to wait for permission to launch a new program. Innovation in the work place is possible only with prior approval from management.
A second issue is that regulations decrease the potential competitiveness of a firm. This is because the heads of state-owned firms cannot raise the quality of their products or lower prices on their own volition. Again, they must obtain approval to do so from their superiors, whereas private sectors businesses have a much shorter chain of command, which allows decisions to be made more quickly.
The level of bureaucracy at state-owned enterprises must be loosened, as doing so will vastly increase their chances of survival in Myanmar’s liberalised economy. State-run enterprises will simply be unable to compete if their employees’ hands remain tied.


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