Financial “products” or “instruments” are contracts that can be negotiated on capital markets. There are several ways to classify such products. The approach taken in this website is to focus on the technical characteristics of such instruments. However, we also present an alternative classification based on market segment which more closely reflects economic realities.

Technical viewpoint: Securities / balance sheet transactions / derivatives

Securities

Securities cover all direct financing instruments of companies, banks, states or public entities. A security represents a share of a medium or short-term (Medium term note, commercial paper) claim or long term claim (bonds), or a share in the capital of a company (equities or shares). For the issuer of the security, it is a financing instrument and for the buyer an investment instrument. Securities can be traded over the counter or through organised markets (such as the NYSE or Euronext) in variable amounts, either whole numbers (shares), decimals (certain shares in UCITS) or nominal amounts for bonds. Securities are negotiable instruments, in other words they can change hand after they have been issued on what is called the secondary market, provided of course that a counterparty exists for the exchange. In this section we will deal with related subjects such as securitisation and corporate actions.

Balance sheet transactions

Balance sheet transactions include all transactions involving an immediate or deferred recognition in the balance sheet of operators (purchase/sale transactions or issuance of securities, but we have chosen to isolate the “securities” section given the extent of the subject…). Loans/cash borrowings, uncovered or guaranteed by collateral (repos) represent the simplest element as basically simply cash loans or borrowings. Currency transactions concern currency markets and cover purchase/sale transactions in currencies, either spot or futures. These products are only traded over the counter.

Derivatives

Derivative products include all transactions generally referred to as “off-balance sheet” as not recorded in the balance sheet of the financial institution. They are referred to as “derivative” because they have been developed from or in some way “out of” basic financial instruments. As the imagination of markets is limitless, the number and variety of such products is practically infinite and it is therefore difficult to make an exhaustive presentation. In addition, derivative products usually mix various types of basic asset: equities and bonds, currencies and interest rates. Derivative products are traded on organised markets (options markets and futures markets) or over the counter: interest rate swaps, credit derivatives, FRAs.

Risk approach: classification by economic characteristic

A presentation that is closer to economic reality consists in classifying products by market or by the type of risk traded.

Interest-rate products

Interest-rate products include all those whose income and valuation depends on an interest-rate and which therefore fluctuate according to market rates. The associated risk is an interest-rate risk. In this category can be found securities representative of claims such as bonds and MTNs, cash loans and borrowings, repos and derivative products whose underlying asset is interest-rate sensitive: interest-rate swaps, FRAs, interest-rate futures, interest-rate options and caps and floors etc.

Equities

The equity and equity derivatives markets are based on securities (shares, investment securities and hybrid securities) which represent a share in the capital of a company or which provide access in the case of hybrids (convertible bonds, bonds with equity warrants). Equities can change hand through purchase and sale transactions but also temporarily through the lending/borrowing of securities. Equity derivatives (futures, options and warrants) facilitate hedging transactions or enable investors to take a position on market fluctuations or associated equity risk.

Foreign exchange

The forex market (or foreign exchange market) is the place where spot or term trading of currencies occurs. In this market, prices, i.e. the currency exchange rate, can fluctuate very rapidly. FX options and futures enable operators to hedge against currency fluctuations, in other words to hedge FX risk. Traders specialised in currency transactions are called forex brokers.

Credit derivatives

Credit derivatives enable operators to take a position (speculation or hedging) vis-a-vis the credit risk of a company, country or market sector.

Commodities

Commodities are raw materials traded spot or more frequently derivative products (futures) traded on international markets.

Structured products

Shares in funds, asset-backed securities (ABS) and other structured products are composite products that are difficult to classify in a particular category. In the case of an ABS or CDO, for example, the main risk is related to securitised assets and can take many forms. Furthermore, if the structure includes a CDS or a guarantee provided by a monoline insurance company, the quality of the security also depends on the CDS underlying risk or the guarantor. Such instruments, by their nature composite, cannot like the others be assimilated to a specific economic risk.

A financial intermediary is an entity that facilitates a financial transaction between two parties. Such an intermediary or a middleman could be a firm or an institution. Some examples of financial intermediaries are banks, insurance companies, pension funds, investment banks and more.

One can also say that the primary objective of the financial intermediaries is to channel savings into investments. These intermediaries charge a fee for their services.

Examples of Financial Intermediaries

Bank: These intermediaries are licensed to accept deposits, give loans and offer many other financial services to the public. They play a major role in the economic stability of a country, and thus, face heavy regulations.

Mutual Funds: They help pool savings of individual investors into financial markets. A fund manager oversees a mutual fund and allocates the funds to different investment products.

Financial advisors: Such intermediaries may or not offer a financial product, but advises investors to help them achieve their financial objectives. These advisors usually undergo special training.

Credit Union: It is also a type of bank, but works to serve its members and not public. They may or may not operate for profit purposes.

Other financial intermediaries are pension funds, insurance companies, investment banks and more.

Functions of Financial Intermediaries

A financial intermediary performs the following functions:

• As said before, the biggest function of these intermediaries is to convert savings into investments.
• Intermediaries like commercial banks provide storage facilities for cash and other liquid assets, like precious metals.
• Giving short and long-term loans is a primary function of the financial intermediaries. These intermediaries accept deposits from the entities with surplus cash and then loan them to entities in need of funds. Intermediaries give the loan at interest, part of which is given to the depositors, while the balance is retained as profits.
• Another major function of these intermediaries is to assist clients to grow their money via investment. Intermediaries like mutual funds and investment banks use their experience to offer investment products to help their clients maximize returns and reduce risks.

Advantages of Financial Intermediaries

• They help in lowering the risk of an individual with surplus cash by spreading the risk via lending to several people. Also, they thoroughly screen the borrower, thus, lowering the default risk.
• They help in saving time and cost. Since these intermediaries deal with a large number of customers, they enjoy economies of scale.
• Since they offer a large number of services, it helps them customize services for their client. For instance, banks can customize the loans for small and long term borrowers or as per their specific needs. Similarly, insurance companies customize plans for all age groups.
• They accumulate and process information, thus lowering the problem of asymmetric information.

The structure of financial markets can be studied from different angles, namely, functional, institutional, or sectoral. Accordingly, financial markets, institutions, and instruments can be classified in any one or more of these ways. The functional classification is based on the term of credit, whether the credit supplied is short-term or long-term. Accordingly, markets are called money markets or capital markets.

The institutional classification tells us whether the financial institutions are organized on commercial or cooperative principles and whether they belong to the organized or unorganized sector. The sectoral classification identifies credit arrangements for various sectors of the economy: agriculture, manufacturing industry, trade and others.

Various classifications are not intended to be water-tight or mutually exclusive. Their aim is to give a broad idea of the scope of financial markets, their several dimensions and functions. Combining the first two bases of study, we give a single functional- cum-institutional classification in Figure 3.1

Functionally, financial markets are broadly sub-divided under two heads money markets and capital markets. The former are markets in short-term funds; the latter in long-term funds. We have interpreted the term money market more broadly to include within its folds also the notional money market of monetary theory.

This market is co-terminus with the entire economy. The asset it deals in is money; the demanders are the holders of money (the public) and the suppliers are the government, the RBI and banks. Money itself is acquired in the normal process of selling goods, services, and assets in all markets, as money is the common medium of exchange (in all monetised transactions).

There is no special or separate market for money like the ones we have for bills, bonds, or equity shares. In academic discussions of monetary theory and policy whenever the term money market is used, we mean the market for money as explained above. But in business parlance the term money market is almost always used in the sense of short-term credit market.

Structurally, the short-term credit market is divisible under two sectors: organized and unorganized. The organized market com­prises the RBI and banks. It is called organized because its parts are systematically coordinated by the RBI.

Non-bank financial institu­tions such as the LIC, the GIC and subsidiaries, the UTI also operate in this market, but only indirectly through banks and not directly. Quasi-government bodies and large companies may also make their short-term surplus funds available to the market through banks.

Besides commercial banks that dominate the organized money market, there are co-operative banks. They are a part of co-operative credit institutes that have a three-tier structure. At the top there are state co-operative banks (co-operation being a state subject). At the district level there are central co-operative banks. At local level there are primary credit societies and urban co-operative banks. The whole co-operative credit system is linked with the RBI and is dependent on it for funds. The RBI deals directly with only state co-operative banks. For reasons of size, methods of operation and dealings with the RBI and commercial banks, only state and central co-operative banks need be counted into the organized money market; the rest (co-operative credit societies at local level) are only loosely linked with it.

The unorganized market is largely made up of indigenous bankers and moneylenders, professional and non-professional. It is unorganized because the activities of its parts are not systematically coordinated by the RBI or any other authority.

Private moneylenders operate throughout the length and breadth of the country, but without any link among themselves. Indigenous bankers are better organized on local basis, as in Bombay and Ahmedabad. But this kind of organization is also only a loose association.

For the success of monetary and credit policy, the character of the money market is important. The unorganized sector of the market is practically insulated from monetary and credit controls. It is neither subject to reserve requirements, nor capital or investment require­ments. Its dependence on the RBI or banks for funds is very limited.

Therefore, it is not affected directly by (say) the policy of monetary restraint of the economy. The RBI has no control over the quality and composition of credit in this market either. This works as an important limitation to the working of monetary policy in India. But since 1947 the situation is rapidly changing with the fast expansion of banking in the country and the relative shrinkage of the unorganized sector of the money market. There are three main components of the organized sector of the money markets.

They are:

(i) Inter-bank call money market

(ii) Bill market, and

(iii) Bank loan market.

The unorganized sector also has its comparable markets. But its call money market is very small and restricted only to the Gujarati shroffs (one component of indigenous bankers). The other two markets are quite important. The indigenous bills are called hundis, and the hundi market is quite active. The indigenous bankers and moneylenders are still the major source of short-term loans for the small borrower.

The main function of the money market is to provide short-term funds to deficit spenders, whether the government or others. It does this mainly by mobilising short-term surpluses of both financial and non-financial units, including state governments, local governments, and quasi-government bodies.

Banks do it by ‘selling’ deposits of various kinds, participation Certificates and bills discounted. Then, there are treasury bills sold ‘on tap’ by the RBI. The RBI itself serves as the lender of last resort to the market. Funds have also to be moved between regions and from one place to another according to demand. An efficient and well- developed system does it fast and at low cost.

Also, it does not allow regional or sectoral scarcities of funds to emerge. The surpluses in some centres or sectors get immediately transferred to others in short supply. Thereby an even supply of funds and liquidity is maintained throughout the economy. For this, banks and other constituents of money market must have an inter-connected network of branches and offices, rapid communication and remittance-of-funds system, and well-trained staff.

The real economy may also nave a seasonal pattern, giving rise to seasonal ups and downs in the demand for funds. In the Indian economy this kind of seasonality mainly arises from the seasonal character of agriculture and some agro based industries (such as sugar) and their large weight in the overall economy. Thus, traditionally, the Indian money market has been facing two seasons’ busy season from October to April and slack season from May to September.

During the busy season the main (Kharif) crops are harvested and marketed and sugarcane is crushed. So, the demand for bank credit to traders and sugar manufacturers goes up. During the slack season this demand for funds goes down. The RBI has been following a pro seasonal monetary policy so that any special stringency of funds does not arise during the busy season which may hurt legitimate economic activity.

For some time past, with increased double cropping of cultivated land, hefty increases in the output of wheat (a major rabi crop) and autumn rice, growth of perennial industries, and a higher proportion of bank credit going to manufacturing industries, the previous seasonal ups and downs in the demand for funds have largely lost their importance. This trend is likely to gain in strength over time.

The capital market deals in medium-term and long-term funds. Like money market, the capital market also is divisible into two sectors organized and unorganized. The organized sector comprises the stock market, the RBI, banks, development banks (such as the Industrial Develop­ment Bank of India), LIC, GIC and subsidiaries, and the UTI.

The unorganized sector is mainly made up of indigenous bankers and money-lenders chit funds, nidhis and similar other financial institu­tions; investment companies, finance companies and hire purchase companies; and company deposits. The role of the unorganized sector in the capital market is of very limited importance.

When most people hear about Social Security benefits, they think of retirement benefits. In fact there are many types of Social Security benefits that a wide variety of people are eligible for.

Retirement Benefits

About 71% of people receiving Social Security benefits do so as retirees. Retirement benefits are available for people who are at least age 62 and have worked enough in their lifetime to become eligible. To be eligible, you must have earned at least 40 work credits. 4 credits are available each year that you work (in 2015, 1 credit is available for every $1220 in earnings). Although you can begin collecting partial benefits at 62, maximum benefits are not available until age 70, so it is important to understand the benefit amounts and make an educated decision. The amount of your benefit is based on an average of your earnings in the 35 years in which you worked the most, but there is a cap on how much you can receive.

Social Security benefits eligibility for the spouse of a living retired worker occurs if the spouse is at least 62 years old, has a child who is under age 16, or a child who is disabled. Divorced spouses are entitled to collect retirement benefits through their former spouses if the marriage lasted at least 10 years, they’ve been divorced at least 2 years, and have not remarried. Spouse can receive up to half of the amount the worker receives or their own SSI benefit, whichever is higher. Note that the spouse’s benefit does not come out of the worker’s benefit. It is a separate amount.

Survivor Benefits

The Social Security death benefit is a one-time payment of $255 that may be available to the spouse and children of a deceased worker. Ongoing survivor benefits are payable to the family of a worker who is deceased in the following situations. The spouse can collect SSI if he or she is at least 60 years old, if he or she is disabled and at least age 50, or if he or she is the parent of a child younger than 16 or a disabled child. Spouses receive either their widow/er payment (which may be 100% of the spouse’s amount if the survivor waits to claim it at full retirement age) or their own SSI payment, whichever is higher. The parent of a deceased worker is also eligible for a Social Security benefit if the parent is at least age 62 and was dependent on the worker for at least 50% of his or her support.

There are also Social Security benefits for children (including adopted children or dependent stepchildren) of a deceased worker. Children are eligible for benefits if they are under 18, under 19 and still in high school, or an adult who was disabled before reaching the age of 22.

Disability Benefits

Social Security is not just for retired people. Social Security disability benefits are available for people who have been working but become disabled and unable to work. If you are under 24 when you become disabled, you must have worked one and a half years during the three years before your disability began. For people over age 24, there must be a medical condition that is severe. The disability must be on is on the Social Security impairment list, the person must be unable to do any of their previous jobs, or be unable to any other job they qualify for. The disability must last, or expect to last, at least one year.

There are also benefits available for the spouse and child of a disabled worked. A spouse is eligible if he or she is at least 62, has a child under age 16 or a disabled child, or is divorced but was married to the worker for 10 years. Children (including adopted children or dependent stepchildren) of disabled workers are also eligible if they are under 18, under 19 and still in high school, or are adults who were disabled before age 22.

Supplemental Security Income Benefits

Another special category of benefits is provided for people who are aged (age 65 or older), blind, or disabled and who have limited income and resources. To find out if you or a family member is eligible use the online screening tool.

Social Security in India

In India, the modern social security measures were planned and implemented after independence. They were too meagre and limited to the organized sector workers only, which constituted about 8 per cent of the total workforce, despite a majority of the workforce (about 93% in 2004-05) comes in the unorganized sector (self-employed or casual workers).

Importantly, the need to ensure social security for all, especially those in the unorganized sector, is an overarching concern recognized in the Eleventh Five-Year Plan (2007-12). The Constitution of India provides strength and spirit to the social security for organized and unorganized workers through its Directive Principles of the State Policy.

Social security legislations came into existence as a part of indus­trial policy after large-scale industrialization. Some social security benefits in the form of Acts for the organized workers working in the big industrial units (factories, mills, etc.) were also enacted during the British period. But major social legislations were passed only after independence.

The important social legislations and social security measures relating to industrial workers may be cited as under:

1. The Workmen’s Compensation Act, 1923
2. Provident Funds and Miscellaneous Provisions Act, 1952
3. The Employees State Insurance (ESI) Act, 1948
4. The Maturity Benefit Act, 1961 (amended in 1976)
5. The Payment of Gratuity Act, 1972
6. Universal Contributory Health Insurance Act, 2004
7. The Aam Admi Bima Yojana, 2008
8. The National Health Insurance Scheme, 2007
9. The Indira Gandhi National Old Age Pension Scheme

To mention a few, followings are the ameliorative programmes and schemes for the tribals, rural and urban poor:

1. Five-Year Plans and Community Development Projects (CDPs)
2. Food for Work and Antyodaya Yojana, 1977
3. Integrated Rural Development Programme (IRDP), 1976
4. National Rural Employment Programme (NREP), 1977
5. Jawahar Rojgar Yojana (JRY), 1980
6. Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), 2006
7. Integrated Tribal Development Plan
8. Swarna Jayanti Gram Swrozgar Yojana, 1999
9. Swarna Jayanti Shahri Swarozgar Yojana
10. Sarva Shiksha Abhiyan, 2001
11. Indira Awas Yojana
12. Rajiv Awas Yojana, 2009
13. Pradhan Mantri Gram Sadak Yojana
14. Bharat Nirman, 2005
15. Jnanani Suraksha Yojana, 2011
16. Pradhan Mantri Swastha Surksha Yojana
17. Total Sanitation Programme or Nirmal Bharat Abhiyan, 2012

Thus, while a large proportion of the organized sector workers have been be benefiting from legally mandated and budget-provided social security benefits since independence, but most of the workers in the unorganized sector have been left out (only less than 10% of the total unorganized were benefited).

According to the World Labour Report, 2000, the public sector expenditure on social security in India was as meagre as 1.8 per cent of the GDP, whereas it was 4.7 per cent in Sri Lanka and 3.6 per cent in China. The eligibility criterion is also too tight as the exclude many a vulnerable persons.

The below poverty line (BPL) criterion is a minimalist and inappropriate approach to extend social security to the unorganized workers. About 55 per cent of the population though not comes in the category of the poor in India but is vulnerable. Not only this, most of the unorganized workers suffer from the lack of awareness about social security and social welfare measures.

It has been argued that globalization has adversely affected social welfare programmes of the state. The state often promotes rather than accepts global­ization. This is why it is bound to impact on the policy regime and welfare character of the state.

Social welfare and social security are intimately linked up but they are pursuing different ends. Social security refers to a state of mind as well as an objective fact. It is mainly directed towards providing income security as a preliminary to a state of social and psychological well-being.

Social welfare, on the other hand, is broadly understood as ‘the end product of possession of goods, positions in life and supply of services to help him to live in wholesome contentment and communication with others in the group’.

Narrowly speaking, social welfare refers to a set of institutional or personal services provided either by the state or voluntary organizations to prevent the incidence or to reform or rehabilitate the victims of disabilities, or disorgani­zation or delinquencies or destitution and so on.

Bureaucracy in business is a hierarchical organization or a company that operates by a set of pre-determined rules. In a large business, there are typically several diverse functions that need to be performed by specialized sub-institutions that report up the management chain.

A small business can operate under rules that managers create as they go along and do not necessarily need a written set of policies. A small number of employees can manage all of the necessary tasks without much diversification. However, once a small business grows to a certain size, its functioning will rely increasingly on assigning responsibilities on a formal basis to various employees. Additionally, a larger company will need to write rules that apply to every function the business takes on, from internal rules for compensation to external policies for deciding how to manage customer returns.

A bureaucracy allows such a large business to create a set of rules. Bureaucratic organizations have an organizational chart for each department that delineates responsibilities and functions. Bureaucracies also establish a protocol for decision-making.

Business bureaucracies are typically made up of several layers of management. The chief executive officer or president is typically at the top of the organization. Vice presidents report to the CEO or president, and directors report to the vice presidents. Below the directors, employees report to supervisors, who report to managers. Managers, in turn, report to the directors.

Whether you are just starting out in an entry-level role or are moving up to become a manager, understanding business bureaucracy can help you better understand your workplace and advance your career. You can use the benefits of bureaucracy to create a fair working environment, institutionalize your company’s rules, improve processes and facilitate transparency. In this article, we explain the key characteristics of business bureaucracy and the pros and cons of bureaucracy in business.

Business bureaucracy

Bureaucracy in business is a hierarchical organization or a company that operates by a set of pre-determined rules. In a large business, there are typically several diverse functions that need to be performed by specialized sub-institutions that report up the management chain.

A small business can operate under rules that managers create as they go along and do not necessarily need a written set of policies. A small number of employees can manage all of the necessary tasks without much diversification. However, once a small business grows to a certain size, its functioning will rely increasingly on assigning responsibilities on a formal basis to various employees. Additionally, a larger company will need to write rules that apply to every function the business takes on, from internal rules for compensation to external policies for deciding how to manage customer returns.

A bureaucracy allows such a large business to create a set of rules. Bureaucratic organizations have an organizational chart for each department that delineates responsibilities and functions. Bureaucracies also establish a protocol for decision-making.

Business bureaucracies are typically made up of several layers of management. The chief executive officer or president is typically at the top of the organization. Vice presidents report to the CEO or president, and directors report to the vice presidents. Below the directors, employees report to supervisors, who report to managers. Managers, in turn, report to the directors.

Four key characteristics of a bureaucracy

You can recognize a business bureaucracy by four key characteristics:

1. A clear hierarchy

Business bureaucracies have a clearly laid out chain of command that is understood by every employee. Decision-making power flows from the top of the organization. Not unlike a beehive, where each worker bee has its place below the queen bee, each employee has a particular place in a business bureaucracy.

2. Specialization

Each member of a bureaucracy has a specific role, from finance or accounting to sales or marketing. Each employee is aware of their role and develops expertise that is specific to their job.

3. A division of labor

Each task is divided into its component parts in a bureaucracy. The specialization of roles reflects this division of labor. Different departments and individual employees contribute to various parts of the business’s overall task, whether that is producing and selling a product or providing a service.

4. A set of formal rules

Business bureaucracies have standard operating procedures that provide written guidance for each role within the hierarchy. Written instructions provide job descriptions for each employee as well as other rules within the business, such as the conditions of employment. The written regulations should be unambiguous to ensure that each employee understands their role.

Pros and cons of bureaucracy in business

In many forms, business bureaucracy can be a helpful tool that can be refined over time. Some common advantages of bureaucracy include:

1. Bureaucracy centralizes power

This allows each employee to have defined rules for their work. There is a measure of equality among employees at each level, which minimizes confusion about who is in charge of any given decision or outcome. Additionally, this form of organization encourages specialization by clearly defining each employee’s role. This allows employees to develop expertise and knowledge in their area while helping the business to become more efficient as well. Bureaucracies inevitably become more complex as the scale and complexity of an organization get larger to manage this increasing complexity effectively.

2. Bureaucracies promote impartiality and fairness

They provide mechanisms for resolving workplace disputes and apportioning tasks and help avoid the duplication of labor by promoting specialization. The rules established by a bureaucracy discourage favoritism and can protect employees from a supervisor who might otherwise exercise their discretion unfairly.

3. Bureaucracy protects employees

Its rules can help protect employees from workplace health and safety hazards and poor employment practices. When each employee is covered by the same, clearly defined employment practices and rules, the system feels fairer to all employees. By doing so, bureaucracies encourage a positive company culture, which can in turn increase employee satisfaction, productivity and retention rates. Put simply, bureaucracies help make a business a better place to work.

4. Bureaucracies help to create best practices

By promoting such best practices in written rules and creating a corporate structure, bureaucracies create predictable outcomes and can save time and resources when they are appropriately followed. In addition to these benefits, the bureaucratization of business can also present significant cons that can hinder employee output and create other problems:

5. Bureaucratic rules and structures can be backward-looking

Bureaucracies identify SOPs that worked well in the past, but not necessarily ones that will work well in the future or identify areas where processes might be improved. They can therefore inadvertently hinder innovation by making businesses less agile and reducing operational efficiency. For example, an overly-rigid bureaucracy can make it difficult to fire a poor performer due to an arduous termination process.

6. Bureaucracies can hinder transparency

Unless you are at the top of the organizational structure, in a large business, you likely will not have access to senior decision-making processes—even if you are in a supervisory role. This could mean that you are unaware of major decisions, such as an upcoming merger or restructuring.

7. Bureaucracies tend to have extensive rules or policies

These can sometimes seem useless, overly onerous or misguided. If you work at a large company, your company handbook likely includes any useful policies, from office dress code to expected behavior and responsibilities. However, there are also likely a few policies that appear unnecessary or unfair, such as a seemingly challenging process for requesting paid time off.

8. Bureaucracies can minimize freedom

Bureaucratic processes can restrict the ability that any individual employee has to act independently or make decisions without approval from above. Even if it seems like the right thing to do, an employee may not be able to decide because they could face bureaucratic consequences, such as a reprimand or even termination, or because the process of getting approval is too time-consuming.

9. Bureaucracies can be sources of inefficiency

For example, employees at a certain level might receive fixed salaries and benefits and work to complete the same tasks. While this makes the compensation scale more fair for everyone, it can make positions without a near-term prospect for promotion feel like a dead end. Additionally, these inefficiencies can be difficult to alter. Even as the market evolves and business conditions change, a bureaucracy may struggle to stay updated. This can mean that inefficiencies are further institutionalized over time.

How to minimize unnecessary bureaucracy in business?

Some forms of bureaucracy are helpful, if not vital, to organizing a business, while others can impede the work of an organization. Once you have identified which elements of bureaucracy are useful and which are not, you can implement the following steps to minimize unnecessary bureaucracy in your team or organization:

1. Keep your goals in mind

Business bureaucracy can be inefficient when employees become overly-focused on processes rather than results. Instead of focusing on completing procedures at the expense of being productive, try to find the shortest or most efficient route to achieving your goals.

2. Make your priorities clear

This can help you navigate bureaucracy at work. While having meetings and completing paperwork may be part of your everyday tasks in the office, your actual job priority is probably something else, whether that is writing code, making sales or crunching numbers. Prioritize these tasks so you can avoid doing bureaucratic functions at the expense of your actual job.

3. Eliminate unnecessary paperwork

Creative solutions can help you avoid tedious bureaucratic work. For example, instead of filling out the same information on different forms, you might create an automated way to store this information and insert it automatically into a document. Thinking creatively can help you cut down on time doing tasks that are not particularly productive. Additionally, look for other routine processes that could be streamlined or eliminated.

4. Empower your employees

Management roles can help cut out unnecessary bureaucracy by empowering their employees. Teams can slow down their productivity if they have to wait for permission from their supervisor for every task. Instead, give your employees clear instructions, room to work and the authority to make less critical decisions independently. You can further facilitate your team’s independence by looking for action-oriented people to hire.

5. Reward your team

Praising team members for taking action is another way to keep them working productively and avoid becoming mired in bureaucracy. Rewards from simple praise to promotions and bonuses can be distributed to employees who take the initiative and proactively work to streamline processes. These rewards are a signal to your team and the company that you value action more than bureaucratic processes at the expense of productivity.

Controlled Price Mechanism system prevails in socialistic and communist countries where the Government has exclusive rights on production, distribution and consumption. Here, central authority is required to solve the basic central problems of what to produce, how to produce and for whom to produce.

The Central Authority has to decide upon the various commodities which the economy should produce with the available resources. Moreover, it makes the arrangement to provide goods and services to the consumer at controlled prices.

The Government plays two types of roles in socialistic economy:

(i) It can directly influence the price mechanism.

(ii) It can indirectly influence the price mechanism.

Main Features of Controlled Price Mechanism

The basic features of controlled price mechanism are as below:

(i) Prices are fixed by the government.

(ii) Central Planning Authority takes all the decisions on production on behalf of the government.

(iii) The authority determines the level of new investment.

(iv) The authority allocates resources in different sectors for optimum utilisation.

(v) The authority distributes the different goods among the consumers through ration shops or fair price shops.

(vi) The government fixes the prices of the different factors of production like wage rate and interest rate etc.

Role of the Government

The government plays two types of roles in the process of price mechanism:

Direct Role

It includes the following sub-points:

(i) Price Ceiling

(ii) Public Distribution System and Rationing

(iii) Price Floor and Agricultural Development

(iv) Public Sector Production and Industrial Development

(v) Government Imports

(vi) Government Expenditures for the Purchase of Commodities.

(vii) Government Exports.

Indirect Role

It is again sub-divided into two ways, such as:

1. Monetary Policy

It consists of several policies taken by the Central Bank of the country such as,

(i) Monetary policy during recession;

(ii) Monetary policy during inflation.

2. Fiscal Policy

The government can play an indirect role in the economy through its fiscal methods. It affects the revenue and expenditures of the government.

The main items included in the fiscal policy are as follows:

(i) Tax policy

(ii) Public debts

(iii) Expenditure policy

(iv) Trade policy

(v) Income redistribution policy

(vi) Government expenditures on social overheads.