We associate a bureaucracy with words like stodgy, slow, formal, inefficient, procedural, wasteful, and expensive.
Where do we find bureaucracies?
Usually in large companies and organizations. In government offices on a local, city, county, state and federal level. There may be less obtrusive bureaucracies in smaller establishments.
What do bureaucrats and bureaucracies do?
They have an abundance of meetings, discuss procedures, determine rules and regulations, create processes and systems. These aren’t intrinsically bad. We need good policy.
In a small enterprise, the bureaucrat may be the general manager or the owner. In large companies, you’ll find bureaucrats in upper and middle administration. They’ll be euphemistically called the “management team”.
The team is usually hired by top level administration, by the board of directors and by the owner(s). They have direct accountability to directors and stockholders. Managers and owners are accountable to shareholders, customers and employees.
Bureaucracy is necessary. Too much, and your organization gets stiff, inflexible, outdated, out of touch. Too little, and your institution remains disorganized, confused and impulsive.
In a small business, the owner is the bureaucrat. He or she decides the policies, procedures and systems of the business. He is accountable to his suppliers and customers. If she fails to deliver a competitive product or service, the business will fall short of revenue. If she avoids paying vendors, she will soon be unable to restock her inventory. If he is incompetent in hiring the right employees and nurturing that relationship, he’ll assuredly lose team members and his business will go defunct.
In any private enterprise there is direct accountability. There is competition. Customers, employees and investors have choices.
The customer can make purchases from a competing seller. A potential employee can select an alternative company to provide his services. An investor can underwrite another business.
Accountability and competition incentivize businesses to provide better service, products and partnership. Otherwise, they will fall behind the competition.
The role of profit and loss in the private sector is critical. There is no private enterprise, no free market, and no capitalism without the profit and loss dichotomy.
Profit and loss is a vote from the public which communicates to private enterprise how they are doing. It is their report card. You cannot play sports without keeping score. You cannot run a business without a scoreboard. Consumers vote with their money, and that translates into a win or a loss.
A private enterprise must always be concerned about operating efficiently. The organization that can provide the best combination of service, price and product will win customers, attract investors, recruit the most qualified employees, and dominate the market. Businesses must always keep operating costs down, or profits can quickly disappear. Very thin margins are common. A win can easily turn into a loss.
Private enterprise is held accountable by its constituents. There are shareholders, investors, lenders, customers, employees, managers and suppliers. Scrutiny forces businesses to be very conscientious. This is extremely challenging as most businesses fail. Even private charity and nonprofits, with no revenue, is accountable to their donors.
Businesses are responsible to their customers, investors and employees. Employees are answerable to customers and management. Investors and owners share a mutual interest in generating profits.
The only way for a private or public corporation to remain relevant is to serve the public, their customers, shareholders and employees. There is a feedback and accountability loop which incentivize all parties to continuously improve; to refine their product and services, processes and economize.
The scoreboard system of profit and loss, free competition, and the relationship dynamic between shareholders, customers and employees, stimulate accountability. There is impetus to make improvements; even the much maligned bureaucrats are forced to progress or risk being unnecessary. Customers, as well, must compete with other consumers for the best products and services, by sometimes paying more.
However…
Where is the accountability and what are the incentives in a government run bureaucracy?
Government bureaucracies are run by politicians or political appointees. Who is their customer? Investor? Who are their employees? How are they judged? What are the metrics? How are they incentivized?
Governments are funded by tax dollars. Tax dollars are not collected by selling products and services as in a competitive marketplace. It is sold by force. You are coerced to buy government services, through taxation.
Government services have little to no competition. A government service may be substandard, poor or insufferably obtrusive. Government programs are paid for by tax payers regardless of whether you want them or use them. A small fraction of the population may want a particular service, however, the entire tax base may be forced to subsidize (ie purchase indirectly through taxation).
Government employees account for approximately 20% of the work force. This doesn’t include the military and jobs that have direct contracts with the federal or local governments. If you include the military, the post office, public school and university employees, police officers, fire fighters, bureaucrats, bureaucrat assistants, bureaucrat assistants to the assistants, and private businesses that are funded by government contracts. The tally must be staggering!
Now include welfare recipients, social program recipients, the total dependent population funded by tax payer dollars. Keep in mind that the federal government can not only tax but also print money to fund their budget. I would venture to guess, the final number could be as high as 60%.
Politicians are voted in by the public. They hire their team and place people in charge of various offices and programs. These bureaucrats then hire their own team. There may be several dozen layers of bureaucracy.
Politicians gain office through their personality, charisma, and a populist agenda that’s broad, vague and utopian. Their tenure may last 2 to 6 years, before they must run for reelection.
Politicians and bureaucrats are paid hundreds of thousands of dollars. Their assistants are paid hundreds of thousands of dollars. Include government benefits, and the total salary packages are unscrupulous!
Government offices and programs are well intended. They are for public services. Public works. Public good. They are here to serve you and I.
Government entities are usually monopolistic and funded with no direct authorization. Government offices, employees and bureaucrats are paid by tax dollars. Paid by force, without alternatives or choice. Monopolies, by nature, charge higher prices and provide inferior service.
Tax payers are the de facto customers of government bureaucracy. Whether the services are used or not, you are forced into a subscription plan with no cancellation options.
In the private sector, if you are unhappy with a company, you can choose to take your business elsewhere. The reduced revenue will be a clear signal. In the public sector, there is no such option or indicator.
Vendors are always paid, since it’s funded by tax payers. If the government needs more money to fund services, they can raise taxes or inflate money.
There are no investors in a government bureaucracy. No shareholder to hold them accountable. Just voters, tax payers, and citizens. Bureaucrats put in power by politicians. Politicians with no interest in presiding over efficiently run bureaucracies.
There must be skin in the game. You need owners and shareholders with capital at risk. Bureaucrats without skin in the game, playing with other people’s money, are incentivized to do all the wrong things.
Employees of government bureaucracies are mostly concerned with job retention. Their goal is to hold on to their cushy government position without risk of termination or lay off. Why improve operations and risk getting yourself laid off due to redundancy or budget cuts. Your goal is to always increase your department budget, not reduce it.
Your second motivation as a government bureaucrat is to just get along. Get through the day with minimum stress and contention. Why wrangle coworkers, managers and subordinates. No reason to implicate anyone for sloth, or expect any level of excellence. Increased budgets are assuring.
The feedback system of responsibility does not exist.
The people in government are no different than you and I. It’s the rules of engagement, the incentives and the feedback system that do not work.
When you’re financed by other people’s money, in a monopoly system, with no competition, no skin in the game, with no direct accountability to the very customers you serve, then the results are going to be nothing less than poor.
There is a continuous siren call for the government to “do more”. There is a twofold misunderstanding. Government bureaucrats cannot magically solve community problems, and government programs are not free.
Government bureaucracy, is by nature inefficient, slow and wasteful. Their very structure disincentives innovation, productivity and frugality. The government is run by regular people, but are inappropriately motivated to do the opposite of privately owned organizations.
Public money is not free. They are paid into by taxes and inflation. It’s not only the “other guy” who is paying for this. It’s “all of us”, who ultimately pays for all of this “free stuff”.
Government bureaucrats can do almost anything, as long as public money is available. It will just be slower, more expensive and inferior in quality — and never free.
Bureaucrats will always do less with more.
The End
