The Free Market
Futility of Bureaucracy
The Free Market 20, no. 7 (August 2002)
During a recent debate with
I argued that just the opposite is true: September 11 was a spectacular failure of the FBI, CIA, INS, FAA, Department of Defense, and indeed the entire federal government to perform what it says is its most basic function, protecting American citizens against foreign aggressors. Indeed, the federal government still stands in the way of genuine airline safety by forbidding airline pilots, most of whom have military experience, from arming themselves to protect the passengers and crew.
More important, such failures are inherent, and regardless of how many new bureaucracies may be formed, things will not improve. Government failure is the normal course of events.
The government's proposals to "abolish" the INS and replace it with two new bureaucracies, and its "consolidation" of eight "national security" agencies into one mammoth "Department of Homeland Security" are classic examples of rearranging the chairs on the deck of the Titanic.
Government bureaucracies always fail to live up to their promises because they are not market institutions. As such, there is no possible way of ascertaining how efficiently the bureaucracy is run since there are no profit-and-loss statements in the government sector, only "budgets."
The amount of a bureaucracy's budget has nothing to do with how well it pleases consumers, since there are no consumers in the sense that there are consumers in a private-sector marketplace. Instead, budgetary amounts are determined by arbitrary bureaucratic rules and by politics.
Spending decisions within a bureaucracy are economically arbitrary as well, as Mises explains in his classic 1944 book Bureaucracy. There are no profits or losses and thus no feedback between the producer and the consumer. This becomes especially obvious in the rare occasion when a bureaucracy must cut its spending. There is no way to evaluate the relative contribution of any capital or labor input, or the merit of any output. It is all guesswork.
Because there is no rational economic calculation taking place, politics rushes in to fill the vacuum. In politics, failure is success. The worse any government bureaucracy performs, as a rule, the more money it gets. The budgets of all of the federal "national security" agencies have skyrocketed in the past six months precisely because of their spectacular failures.
The NASA budget rose after it exploded a space shuttle; the worse the government schools become, the more money they get; the war on drugs is a more abysmal failure each year, which guarantees that we spend more and more money on it; the list is endless. This is exactly the opposite of what occurs in the free market, where success in pleasing consumers is rewarded financially and failure punished.
All government bureaucracies have powerful incentives to grow, regardless of whether or not such growth actually serves the public. Every bureaucrat is inherently an empire builder, because that is how he advances in his career. The route to promotion in managing a bigger and better-paying bureaucracy is to prove that one can "manage" a large number of people.
And since there are no profits or shareholders in government, bureaucrats "profit" personally by spending taxpayers' dollars lavishly on perquisites—a large staff, travel, office space, etc. Thus, there are built-in incentives to maximize the number of subordinate bureaucrats, regardless of what this may mean for public service. Cost maximization characterizes all government bureaucracies, as opposed to cost minimization in private, competitive markets. Not to mention the notoriously shoddy quality of all government "services."
Since consumer welfare cannot guide decision making in government, decisions are based on mountains of Byzantine rules and regulations and red tape. As Mises wrote in Human Action, "Whenever the operation of a system is not directed by the profit motive, it must be directed by bureaucratic rules." This, of course, is fundamentally in conflict with running an efficient, profitable enterprise. This Iron Law of Bureaucracy means that no government bureaucracy could possibly be operated in an efficient manner.
In his 1966 book, Inside Bureaucracy,
- No one can fully control the behavior of a large bureaucracy. The larger a bureaucracy becomes, the poorer is the coordination among its actions. So much for the alleged "efficiency" of a consolidated, gigantic "homeland security" bureaucracy.
- Any attempt to control one large bureaucracy tends to generate another one. (Case in point: The INS is being "abolished" and replaced with two new bureaucracies.)
- The greater the effort made by top-level bureaucrats to control their subordinates, the greater the efforts made by the subordinates to evade control.
- All bureaucrats develop strong loyalty to the organization, as opposed to serving consumers, since that is the source of their job security and promotion. Hence, all the news by White House, FBI, and CIA "coverups" of their mistakes and failures in recent months.
- As a bureaucracy grows, the level of talent initially rises and then declines.
is a city of peons. Washington
- As bureaucracies grow older, their top officials shift their focus from performing "social functions" to ensuring the institution's budgetary growth. This means dealing ruthlessly with "whistle blowers."
- Each bureaucrat tends to distort the information he passes upward in the hierarchy, exaggerating those data that are favorable to him, and ignoring those that are critical. He also tends to tell his superiors only what he thinks they want to hear, which is not necessarily consistent with reality. And we think we can rely on these people to protect us from terrorists.
- Each bureaucrat will comply with those directives from his superiors that serve his own self interests, and will subvert those that don't.
- In any large bureaucracy a significant amount of what goes on is completely unrelated to the bureau's goals.
- As any bureaucracy grows, the proportion of wasted activity rises steadily. But it's only taxpayers' money.
- The larger a bureaucracy, the more resistant it will be to any change. Of course; there are no market pressures.
- Every bureaucrat is a vigorous propagandist for the expansion of his organization. Governments at all levels spend billions of dollars annually attempting to fool the public into believing that their failures are really successes.
There are bureaucracies in the private sector, of course, but the inefficiencies of corporate bureaucracy are disciplined by consumer and stock market pressures, the market for corporate control, the competitive labor market for management, and free-market competition in general. No such discipline exists in government, where bureaucratic failure is perversely rewarded.
In sum, the incessant promises by
Cite This Article
DiLorenzo, Thomas J. "The Futility of Bureaucracy." The Free Market 20, no. 7 (August 2002).