4. Supply Side Policies for Increasing Productivity of Resources

-Designed to increase the output per unit labour so the amount of goods and services produced at each general price level increases. This will increase the aggregate supply of the economy.


1. Privatisation

Privatization is designed to break up state monopolies and create more competition. In order to maximise profits, companies are encouraged to increase the output per unit labour, which essentially decreases the cost of production per unit output. Competition among companies will encourage them to produce the best goods and services for consumers.

2. Deregulation of Markets

De-regulation or liberalisation means the opening up of markets to greater competition. The aim of this is to increase market supply and widen the range of choice available to consumers. Competition among producers should also lead to greater cost efficiency from them – as they are keen to hold onto their existing market share. 

3. Toughening up of Competition Policy

Most supply-side economists believe in the dynamic effects of greater competition and that competition forces business to become more efficient in the way in which they use scarce resources. This reduces costs which can be passed down to consumers in the form of lower prices. A tougher competition policy regime includes policies designed to curb anti-competitive practices such as price-fixing cartels and other abuses of a dominant market position.

4. A commitment to free international trade

Trade between nations creates competition among nations and should be a catalyst for improvements in costs and lower prices in goods and services for consumers as firms will now aim to have their goods produced and sold at a lower cost in order to be able to entice consumers to buy from them and not other countries' firms.

5. Investment in human capital

Government spending on education and training improves workers’ human capital. Economies that have invested heavily in education are those that are well set for the future. Most economists agree, with the move away from industries that required manual skills to those that need mental skills, that investment in education, and the retraining of previously manual workers, is absolutely vital.

It should also be noted that improved training, especially for those who lose their job in an old industry should improve the occupational mobility of workers in the economy. This should help reduce the problem of structural unemployment.


6. Investment in technology
By investing in research and development, newer methods and technology can be innovated. With the state-of-the-art technology, producers can produce goods more efficiently and their productivity increases because the output quantity per unit of labour increases.

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