November 5, 2019

Inside Leviathan

Lessons from Gordon Tullock’s Bureaucracy

Bureaucracy has a reputation of being a ‘necessary evil’ in modern western society. We are quick to blame bureaucracy for long waits at the DMV [Department of Motor Vehicles], lengthy approval processes for building permits, and for the piles of paperwork at work. Bureaucracy is the source of mandatory workplace trainings and the reason for complicated organizational charts and endless committee meetings. Bureaucracy is ever present. Governments, businesses, schools, religious organizations, and charities become bureaucratic as they grow.

While bureaucracy is at the core of many of our complaints, it is also the hierarchical administrative structure that makes sure large companies and governmental agencies can grow in scale and scope, efficiently pay all of their employees, and comply with proper accounting practices. Understanding the capabilities and limitations of bureaucracy is, therefore, key to understanding the opportunities and challenges that organizations face.

Gordon Tullock, a pioneer in the field of public choice (the use of economics to analyze political behavior), analyzed political governmental processes in an environment increasingly defined by collectivization in his seminal book, Bureaucracy.1 This volume includes two books, The Politics of Bureaucracy (1965) and the expanded and extended analysis of Economic Hierarchies, Organization and the Structure of Production (1993), which were joined together into one volume by Liberty Fund in 2004.

At the time Tullock wrote about bureaucracy, the prevailing theory in public administration suggested that civil servants were motivated by a sense of duty to society and the public good rather than being motivated by wages, promotion, popularity, or prestige. Tullock, however, started with the economic assumption that human action is driven by self-interest and incentives and then relied on the use of theoretical, analytical, and sometimes anecdotal tools to examine the phenomena characteristic of bureaucratic activity. Further, his administrative theory of bureaucracy also came from his own experience working in the Foreign Service at the State Department for nine years, which he compared to his experiences in the private sector and higher education.

In Bureaucracy, Tullock outlines the goals and structure of large state organizations. He demonstrates how a bureaucratic environment shapes information transmission, behavior, and outcomes and points out the implications for the capabilities and limitations of policy. Tullock argues that by recognizing the “inherent limitations that administrative and organizational constraints placed upon the choice of policies,” policymakers and policy analysts can avoid tasking agencies with more than they can accomplish (p. 13).

Tullock’s work complements that of Ludwig von Mises’s book of the same title, Bureaucracy, also available through Liberty Fund.2 Both books seek to explain the differences between systems of bureaucracy, and how they differ in market and political settings. These books are necessary reading, not only because they shed light on the workings of state activity but also because they provide context and preparation for anyone interested in studying or working within large bureaucracies. If bureaucrats and policy researchers can understand the nature of the bureaucracies they operate within or study, they will be able to navigate the policy space without rose-colored glasses.

How Bureaucrats Get Ahead

Tullock challenges the notion that bureaucrats selflessly pursue the state’s goals in order to advance the public good. Just like employees in other sectors, bureaucrats seek promotions and prestige because they hope to be valued at work, support their families, and advance their personal goals. While bureaucrats (or any other type of employee) may care about society and the public good, that is just one motivation out of many for why they go to work everyday. Tullock recognized that people are not made more moral by securing a job as a politician or bureaucrat at a federal agency. Individuals are individuals; they have their own wants and dreams and do their best to achieve them.

While private and government bureaucracies may have similar hierarchical structures and incentivize similar behavior, there is a key difference—private products and services, whether produced in a small or large business, have to pass the market test. The external market pressure of the profit and loss mechanism allows private organizations to tend toward efficiency, by signaling what products and services consumers desire and which processes are most effective. In this setting, employee performance can be assessed by the value each employee adds to the production process. As a result, employees are often incentivized to innovate in order to find new, better, and more cost-effective ways of providing goods and services to consumers.3

Without prices, profit, and loss, nonprofits and governmental organizations operate in a more amorphous atmosphere, where signals cannot clarify what processes, products, and services are of value to the public and are the most effective means for achieving their goals. In the absence of a clear way to measure performance inside a bureaucracy, supervisors rely on other metrics for advancement including flattery, seniority, and popularity. Tullock argued that employees are incentivized to carry out the wishes of their supervisors, resulting in conformity of opinions and processes. In a bureaucratic setting, maintaining the status quo is preferred over innovation in administrative processes or public services.

Individuals within a bureaucracy also face incentives to rent-seek, or attempt to get a special advantage over their peers (page 375). This can result in rivalry among coworkers, taking credit for another’s work, or refusing to help a colleague at the expense of organizational goals. Tullock theorizes that a key reason for committees and meetings is the reduction of rent-seeking behavior, because personal agendas are harder to enforce in a setting where consensus is the desired outcome. While we often complain about how endless meetings rarely result in decisions and clear next steps, they may be useful precisely because they slow down decision-making processes and act as a filter for possible actions.

Just as it is hard to measure whether an employee’s performance is mission-enhancing, it is often hard to prove that their efforts are poor enough to merit termination of their employment. As a result, Tullock concludes, “the efficiency of government is even further reduced by the fact that, in practice, it’s very, very difficult to fire anyone. It’s also difficult to demote them; even denying them routine promotion is hard” (page 383). This means that employees who provide little value and possibly even thwart organizational goals can remain in their positions well after their supervisors realize they are not a good fit for the organization. Not only does this hinder overall performance, it can also negatively impact high-performing employees since they see that anyone can get ahead. F.A. Hayek, in The Road to Serfdom, studied how incentives within the political system allow the ‘worst to get on top.’4 Hayek argued that not only can poor performers advance in a bureaucracy, but that employees who actively seek power over others are likely to do well in political bureaucracies.

Communication and Monitoring Limitations

Communication can be messy within a bureaucracy. Tullock describes a type of phenomenon he calls ‘whispering down the lane,’ where “the amount of error (“noise” in communications-theory terminology) would increase exponentially with the increase in the number of persons in the transmission chain and with the complexity of the message transmitted” (page 148). In essence, intra-agency communication is like a game of telephone where the orders at the top become muddled by the time they reach lower-level bureaucrats and the updates from the bottom can morph as they reach higher-level officials. Such constraints on communication impede the diffusion of the knowledge necessary for fast and adaptable coordination.

Monitoring is another limitation of bureaucracies. Tullock covers a few ways to deal with the problem of supervision within strict hierarchies: (a) supervisors can confine the hierarchy to areas where supervision is easy; (b) they can assign routine tasks that are easier to monitor; (c) they can randomly review the work of inferiors without warning, or (d) they can accept that employees will have a certain amount of autonomy. He suggests that option c would disincentivize politicking and minimize monitoring costs.5

Taken together, the communication and monitoring issues that plague agencies help explain some of the patterns of behavior we see so often in political bureaucracies. It is difficult for officials, politicians, and the public to know exactly how money was spent and the precise actions bureaucrats make toward their goals. Furthermore, because governmental organizations are not guided by the prices, profits, and losses of the market, they have no clear guide for choosing the most cost-effective means to achieve their goals. It should therefore not be surprising that agencies tend to maximize budget expenditures (rather than risk getting a lower budget next year) and, when they fail to meet their goals, blame it on a lack of resources (funding, manpower, etc.). In response, many agencies get continued funding despite years of poor performance.

Working Within and Studying Bureaucracy

Changing the rhetoric from that of civil service to civil employment can cut through the illusion of the benevolent bureaucrat working within an efficient government agency. Most large organizations implement bureaucratic structures in order to organize a large amount of people and tasks. As one of the authors of this piece experienced while working in the policy shop of a large multinational company, navigating the bureaucratic structure can feel oppressive. For example, an attempt to approve the use of new collaborative editing software took several months to resolve, and was eventually rebuffed. By contrast, a similar request in a past job at a small think tank required ten minutes and one email to get approved.

“Bureaucracies can still result in good things for society and employ publicly-minded individuals.”

Tullock’s explanations shed light on the frustrating elements we recognize in bureaucracies. Yet, bureaucracies can still result in good things for society and employ publicly-minded individuals. Tullock’s analysis pertains to a representative individual, and is by no means a blanket explanation for the actions of every bureaucrat. In fact, awareness of the incentives and limitations of hierarchical structures can empower individuals within a bureaucracy to avoid common problems. Students of public choice who take jobs in a federal department do not go blindly into a bureaucracy; instead, they recognize its nature, warts and all. Thus, they understand the limitations on communication and monitoring of the structure they are within, as well as the incentives they and their coworkers face.

As the other author of this piece learned firsthand when entering the workforce in a federal agency as a recent graduate with public choice training, Tullock’s Bureaucracy quickly transforms from theory to a manual on how things work in federal government. You experience ‘whispering down the lane’ firsthand, see how the work fills the time, and witness calls for more resources when projects are not going as planned. You also meet many well-intentioned bureaucrats who recognize and complain about the slow and complicated processes. And, perhaps surprisingly given your training, you marvel at what can get accomplished and the good that occurs despite the layers of red tape and muddled incentives present in bureaucracies.

We share our professional experiences and teach Tullock’s Bureaucracy to our graduate students seeking careers in policy so that they go into working within bureaucracies or seeking to reform them with a clear understanding of the structure, incentives, and limitations of political action.

Cutting our Suit to Fit our Cloth

Tullock argues that “we should not try to establish organizations that require [perfect coordination] to succeed” (page 367). When designing new agencies or policies to be carried out by agencies, it is important to ask whether a bureaucracy can in fact reach the desired ends given its limitations. Indeed, some policies are administratively impossible. Tullock warns that, “the degree of internal coordination which is necessary to accomplish a given task effectively may be greater than can be achieved by a hierarchic structure that is large enough to perform the task” (page 136).

In order to avoid an increase in bureaucratic inefficiency as the scale and scope of government expands, Tullock calls for “a wider use of local government” (page 235) because it reduces the burden of voters to monitor the dealings of the elected official and allows voters to have a more direct say in the processes that most affect them. Federalism, or what Elinor and Vincent Ostrom call polycentricity, consists of governmental organization structures that shift government activity to local and state levels, where bureaucrats are closer to the citizens they seek to help (i.e., local bureaucrats have better access to the knowledge necessary to pursue their goals).

For more on these topics, see Public Choice, by William F. Shughart II, in the Concise Encyclopedia of Economics.

Another way to make sure the limitations of bureaucracies are avoided is to make room for market processes. “The choice is between two types of instruments: one is intermittently inefficient and the other is almost always mediocre,” Tullock argues, “We should choose the market where it is efficient, and where it is less efficient than the mediocre government, we should choose the government” (page 350). Reducing the size of the task we ask government to accomplish may, in some cases, be the best course to achieving our societal goals.

The Future of Bureaucracy

As more of the burden of organizing social and economic activity falls on political processes, Tullock’s insights become more relevant. Ultimately, Tullock’s work on a theory of bureaucratic organization (grounded in theory and practice) assists policy researchers and bureaucrats in understanding the environment with which they interact. He acknowledges that his analysis is a theory in progress, and he invites future scholars to elaborate on his theory of hierarchical structures. As he acknowledges in the volume, his questions outnumber his proposed solutions, lending space to other scholars to continue his direction of inquiry. Those students who pursue this avenue of inquiry will be standing on the shoulders of a giant.

Footnotes

[1] Bureaucracy, by Gordon Tullock, edited and with an introduction by Charles K. Rowley. Liberty Fund Inc., 2004. Available through the Liberty Fund book catalog.

[2] Bureaucracy, by Ludwig von Mises, edited and with a foreword by Bettina Bien Greaves. Liberty Fund, Inc., 2007. Available through the Liberty Fund book catalog.

[3] It should be noted that the larger a firm becomes, the more it may suffer from many of the challenges of bureaucratic organizations. However, even large firms are eventually impacted by profits and losses in ways public organizations are not.

[4] The Road to Serfdom, by F. A. Hayek, edited with a foreword and introduction by Bruce Caldwell. Chicago Press, 2007.

[5] There is now a substantial literature within industrial organization, which examines the issues of monitoring as well as the various schemes organizations have devised over the years to combat these issues.

Summary

Bureaucracy has a reputation of being a ‘necessary evil’ in modern western society. We are quick to blame bureaucracy for long waits at the DMV [Department of Motor Vehicles], lengthy approval processes for building permits, and for the piles of paperwork at work. Bureaucracy is the source of mandatory workplace trainings and the reason for complicated organizational charts and endless committee meetings. Bureaucracy is ever present. Governments, businesses, schools, religious organizations, and charities become bureaucratic as they grow.

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