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Home | Library | A Free-Market Operative in the Bowels of Bureaucracy

A Free-Market Operative in the Bowels of Bureaucracy

November 11, 2009

Tags Big GovernmentThe FedFinancial MarketsLegal SystemInterventionismMonetary TheoryMoney and BankingMonopoly and CompetitionPolitical Theory

During my 15-odd years working in municipal government, I often felt like an undercover agent infiltrating the mob. It became increasingly clear that my belief system and that of the bureaucracy were opposed. The bureaucratic "mob" kept pressuring me to do things contrary to my free-market principals. But like a good agent, I always exerted enough influence to achieve outcomes beneficial to the public interest. Finally, my assignment came to an end.

Nevertheless, my time spent inside the bureaucracy was invaluable. I witnessed firsthand not only the pitfalls of government regulation, but also the inefficiencies inherent in bureaucratic institutions themselves. I left with a clear understanding of how the bureaucracy encumbers our system of free-market capitalism. Read the full debriefing below for a personal view inside bureaucracy.

The Bureaucratic Mind

Not every aspect of organizational life can be legislated. Therefore, to fully understand how an organization operates, you must understand the bureaucratic mind. When my real-estate clients ask me to evaluate a specific proposal, the first thing I tell them is that I must feel out the regulatory authorities having jurisdiction before I go further. If I feel a serious uphill battle against the forces of bureaucratic inertia, I advise my clients to stop at this point.

It became obvious to me at the onset that certain individuals remain in government for an extended period of time, forming their own pressure groups to secure their survival. To a great extent, the bureaucrat reflects the will of his political master. In order to move up the hierarchy, he must gain the favor of City Hall. Those that succeed form the bureaucratic core; they attain higher positions and gain the ability to exert undue influence on policy outcomes.

Most of these hard-core bureaucrats are products of a left-wing-liberal tradition. Many of them came into political life during the '60s, and they are being replaced by a new generation whose opinions were formed under their tutelage. They attended left-liberal schools and majored in subjects that are geared to engender social change — urban planning, social work, and law, for example.

As a student of the social sciences, I can attest to the left-wing brainwashing that goes on in our institutions of higher learning — especially in the highly coveted classrooms of the Ivy League. There certainly is a belief that things are not right socially and that society must be changed. Most bureaucrats see the government as the instrument necessary to bring about the desired change.

In addition, many bureaucrats do not understand the workings of the free-market system because their mentors have fed them the intellectual poison of such anticapitalist thinkers as Karl Marx, John Maynard Keynes, and the Frankfurt school. Rarely have they been exposed in a positive light to the theories of the free-market thinkers. They have been taught that a capitalist is an exploiter whose success is based on luck and the hard work of others. The fact that a capitalist risks valuable dollars and creates goods and services is conveniently overlooked.

I once gave a speech on the market-stabilizing role of the speculator to a bureaucratic audience that seemed in a state of shock. They could not believe that a speculator could have any positive role in society. To them, the words "speculator," "capitalist," and "capital" convey only negatives.

Conversely, the words "government," "regulations," and "bureaucracy" convey only positives. In the bureaucratic mind, there is a misguided belief that society must be protected against the selfish interest of the capitalist. They fail to understand that it is the capitalist — through his taxes — who pays their salaries!

Even those that believe in a free-market system soon find that their thinking becomes distorted under the heavy load of bureaucratic peer pressure. For example, I was often required to interact with an attorney who kept a copy of Antonio Gramsci's Prison Notebooks on his desk. He often referred to it for guidance in the same manner that a preacher would refer to the Bible!

As a bureaucrat, almost everyone that you interact with — coworkers, union reps, community groups, politicians — has a leftist bent. Eventually, even the conservative realizes that to advance in the bureaucratic setting, he must accept their left-liberal philosophy.

One thing that I can tell you for certain is that the bureaucrat is not altruistic. I have never seen anyone refuse to accept a salary increase or a promotion of any sort. In fact, the bureaucratic push for self-aggrandizement is as powerful as that of any Wall Street trader that I have ever met. The only difference is that the Wall Street trader plays for money while the bureaucrat plays for perceived power.

An Expert in What?

The bureaucracy operates in a state of constant confusion. There are always issues that must be resolved. The trivial becomes insurmountable. I often wondered, why does this place operate in such a state of disarray?

The main reason for this confusion is a lack of expertise on the part of most management and the subsequent inability of most line personnel to properly execute directives. As a result, even small problems are pushed up until they reach the desk of someone who has the competence to resolve them. If a private business were to operate in this manner, it would be bankrupt in a New York minute.

This lack of expertise is pervasive. On one occasion, I spent hours with an "engineer" who was trying to determine the cause of a significantly sloping floor. Finally, in frustration, I pointed out that the problem was caused by floor joists spanning more than the allowable limit. He then devised a $600,000 remedy that was based on replacing the entire interior framework of the building.

"You can fire your congressman or your senator but not a division head in some government agency."

Unwilling to waste taxpayer dollars, I had my team introduce a midspan support that stabilized the building — and saved the taxpayer hundreds of thousands of dollars. So much for real problem-solving expertise!

Because the bureaucracy is an employer of last resort, most people are hired and promoted in an attempt to achieve socially desired goals — race or gender balancing, for example. In such a situation, the best and the brightest do not find their way to the top. Frustrated, they seek their interests elsewhere. Those that remain, in most cases, are the ones lacking an entrepreneurial drive. This situation is reflected in the product of bureaucratic action.

The bureaucracy is also clouded by ideology. Certain solutions are never considered because they go against the grain of bureaucratic thought. For example, during the Koch administration in New York City, there was an all out effort to take "troubled buildings" in rem. This disastrous policy caused the City an average loss of $400 per month per residential unit. Furthermore, it did not solve the problem of disinvestment.

A free-market approach was never considered because it went against the ideological grain of the administration. This thinking filtered down through the ranks of the bureaucracy.

Economic Calculation

We can extend the concept of economic calculation to the bureaucracy. Individual actions are efficient because each individual knows what he wants. He satisfies his desires in the market place by using his time and money to purchase things that satisfy his wants. Extend this action to all individuals and we have an efficiently functioning market.

Bureaucrats cannot produce efficient results because their actions are not efficient. The reason is simple: they don't spend their own money. When an individual acts, he acts with diligence because he needs to achieve the most satisfaction, based on his scale of utility, for his limited dollars. The bureaucrat knows no such limit. He is financed with your money.

Even the most conscientious bureaucrat, and there are many, cannot achieve efficient results. How does he know what is best for individual members of society? He can only base his actions on the instructions given to him by superiors. His superiors, in turn, can base their decisions only on the rules and regulations given to them through the political process. And the political process, as we shall see, is based on pressure-group action where "only the votes survive."

We have all heard stories that a government employee pays substantially more for an item than his counterpart in the private sector. Some attribute this disparity simply to incompetence on the part of the bureaucrat. In actuality, the problem is more complex and stems from the structure of the bureaucracy and the inability of the bureaucrat to squeeze out the best price. The bureaucrat can only discern price information by viewing the price structure of the private market. Since he is not risking his own capital, the outcome of his action can lead only to inefficiencies.

When a private businessman is purchasing a service, he shops around for the best price. A subcontractor, for example, will not submit a ridiculous bid when he knows that the reviewer is attuned to the price scale. In a private concern, the reviewer must have a strong hold on market prices. If he does not, he will overspend and jeopardize the success of the project — and of his capital.

The bureaucrat has neither this ability nor this limitation. First, he is guided by regulations and procedures; therefore, he must act within these constraints. Second, if he overspends, more taxpayer money is simply allocated to achieve the desired result. The bureaucrat is no match for the individual businessman who can use his knowledge of market pricing to achieve an efficient outcome.

The Force behind Bureaucratic Action

My experience is that bureaucratic action is merely the will of political pressure groups. Various groups pressure politicians to enact legislation that benefits them. Those that are successful are able to impose regulations that hinder their competition. The bureaucracy is the principal administrator and enforcer of the regulations subsequently imposed.

"Even the most conscientious bureaucrat, and there are many, cannot achieve efficient results. How does he know what is best for individual members of society?"

The best example of this is tariffs. Taxes on foreign goods are imposed to benefit an industry that has the clout to induce politicians to act in its favor. I have seen many different groups form such constituencies to affect political outcomes. All of these groups seek an advantage over the rest of society. They are unable to secure that advantage in the competitive market, so they use political action to suppress the free-market system.

Community groups organize in central cities to seek tenant rights at the expense of property owners. Welfare groups organize to seek a redistribution of wealth from its producers (the taxpayers) to its consumers (the welfare recipients). These groups often come together to form a solid anticapitalist block on the Left.

Most politicians accept these groups and actively encourage their operations. The reason for this is obvious. These pressure groups provide a base for their election and subsequent reelection. In New York City, for example, many local politicians are identified with particular community groups.

Because of the collaboration between politicians and these pressure groups, the groups receive preferential treatment. This is why ACORN receives millions of dollars in taxpayer funding.

Those among us who are creative and provide a valuable service to society are successful in the free-market system. We do not need the assistance of the politician or his enforcers in the bureaucracy. Those that are not successful employ the government to level the playing field. However, the playing field is leveled only for them. The rest of society is saddled with the cost and other inefficiencies that this relationship creates.

Growing By Leaps and Bounds

The bureaucracy continues to grow with a force that seems inexorable. It doesn't matter whether we are in a recession or a depression. And it doesn't matter whether we turn the reins of government over to Republicans or Democrats. The trajectory of bureaucratic growth is ever upwards.

Simply examine the number of agencies that exist at the local, state, and federal levels. Every aspect of our society is under some form of regulation. The Obama Administration has appointed more tsars in 6 months than controlled the Kremlin in 200 years.

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The danger of bureaucracy is its incipient nature. Once established, a bureaucracy grows incrementally, below the radar of the common man. It becomes a powerful branch of government, even though its members were never elected by the public. You can fire your congressman or your senator but not a division head in some government agency.

And with every increase in the power of the bureaucracy, there is a corresponding decrease in the liberties of a free society. Productive members of society must constantly retool to adjust to the extra burdens imposed upon them by bureaucratic action.

To date, these free-market operatives have been successful. Eventually, every aspect of productive life will be so controlled that capitalist drive and ingenuity will become relics of the past; and along with them, the "Great Experiment" in liberty handed down to us by the Founding Fathers.

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