Bureaucracy (book)
Encyclopedia
Bureaucracy is a political book written by Austrian School
economist and libertarian
thinker Ludwig von Mises
. The author's stated motivation in writing the book is his concern with the spread of socialist ideals and the increasing bureaucratization of economic life. While he does not deny the necessity of certain bureaucratic structures for the smooth operation of any civilized state, he disagrees with the extent to which it has come to dominate the public life of European countries and the United States. The author's purpose is to demonstrate that the negative aspects of bureaucracy
are not a result of bad policies or corruption as the public tends to think but are necessarily built into bureaucratic structures due to the very tasks these structures have to deal with. The main body of the book is therefore devoted to a comparison between private enterprise on the one hand and bureaucratic agencies/public enterprise on the other.
criterion. A company's sole purpose is to increase revenue
while minimizing cost, as reflected in the profit and loss
accounts and other accounting tools. Companies or company branches that operate on a loss must either reform or shut down. Due to these simple facts it is relatively easy to devolve responsibilities from company headquarters to the various branches, no matter how large the company might be. Headquarters gives the branch manager a free hand to operate his concern as he sees fit so long as he returns a profit. In this way initiative and innovation are not only permitted but even encouraged and rewarded.
It is quite a different matter when it comes to public services and other bureaucratic structures. A structure like the FBI or an embassy in a foreign country has no criterion of efficiency
that is anywhere nearly as easily evaluated as the profit criterion. 'Success' here is a more vague concept, and one that is more open to subjective interpretation. Precisely because the product of public services has no price
on the market, the traditional tools of management
that have proven successful in private enterprise (scientific management
, time studies etc.) cannot be applied in the public sphere. To 'increase output' and 'minimize production time' are concepts that cannot be applied to something like a police department. But an even more important consequence of the absence of the profit criterion is the necessity of centralizing administration and restricting the freedom of the branch or department manager: since his performance cannot be easily assessed in monetary terms, the safest way to prevent excesses and the abuse of power is to ensure everyone adheres to the government's directives. Thus the most important quality of the successful bureaucrat is obeying orders.
or municipality owned enterprises are not always or even usually managed on the basis of the profit motive. A deficit in this latter case does not spell the end of the enterprise or even the beginning of reforms, because it is generally assumed that the reason the enterprise exists is to 'render useful services to the public' (i.e. employ a large part of the local population as its workforce or charge an artificially low price for its products or services), not become a slave of the profit motive. For this reason enterprises that are in the red are allowed to operate for years or decades, with the result being that the its losses are eventually passed on to every citizen.
But as von Mises asserts, to disregard the profit motive is not, as is widely believed, to serve the public better. On the contrary, to operate under the restraints of the profit criterion is the best way to serve the public interest:
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
economist and libertarian
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...
thinker Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
. The author's stated motivation in writing the book is his concern with the spread of socialist ideals and the increasing bureaucratization of economic life. While he does not deny the necessity of certain bureaucratic structures for the smooth operation of any civilized state, he disagrees with the extent to which it has come to dominate the public life of European countries and the United States. The author's purpose is to demonstrate that the negative aspects of bureaucracy
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...
are not a result of bad policies or corruption as the public tends to think but are necessarily built into bureaucratic structures due to the very tasks these structures have to deal with. The main body of the book is therefore devoted to a comparison between private enterprise on the one hand and bureaucratic agencies/public enterprise on the other.
Private enterprise vs bureaucratic agencies
Private enterprises are managed on the sole basis of the profitProfit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
criterion. A company's sole purpose is to increase revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
while minimizing cost, as reflected in the profit and loss
Profit and Loss
Profit and Loss may refer to:* Profit & Loss, monthly business magazine founded in July 1999 especializing in Foreign exchange market and derivative markets...
accounts and other accounting tools. Companies or company branches that operate on a loss must either reform or shut down. Due to these simple facts it is relatively easy to devolve responsibilities from company headquarters to the various branches, no matter how large the company might be. Headquarters gives the branch manager a free hand to operate his concern as he sees fit so long as he returns a profit. In this way initiative and innovation are not only permitted but even encouraged and rewarded.
It is quite a different matter when it comes to public services and other bureaucratic structures. A structure like the FBI or an embassy in a foreign country has no criterion of efficiency
Efficiency (economics)
In economics, the term economic efficiency refers to the use of resources so as to maximize the production of goods and services. An economic system is said to be more efficient than another if it can provide more goods and services for society without using more resources...
that is anywhere nearly as easily evaluated as the profit criterion. 'Success' here is a more vague concept, and one that is more open to subjective interpretation. Precisely because the product of public services has no price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
on the market, the traditional tools of management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
that have proven successful in private enterprise (scientific management
Scientific management
Scientific management, also called Taylorism, was a theory of management that analyzed and synthesized workflows. Its main objective was improving economic efficiency, especially labor productivity. It was one of the earliest attempts to apply science to the engineering of processes and to management...
, time studies etc.) cannot be applied in the public sphere. To 'increase output' and 'minimize production time' are concepts that cannot be applied to something like a police department. But an even more important consequence of the absence of the profit criterion is the necessity of centralizing administration and restricting the freedom of the branch or department manager: since his performance cannot be easily assessed in monetary terms, the safest way to prevent excesses and the abuse of power is to ensure everyone adheres to the government's directives. Thus the most important quality of the successful bureaucrat is obeying orders.
Private enterprise vs. publicly owned enterprises
In contrast to private enterprises, government-owned corporationGovernment
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
or municipality owned enterprises are not always or even usually managed on the basis of the profit motive. A deficit in this latter case does not spell the end of the enterprise or even the beginning of reforms, because it is generally assumed that the reason the enterprise exists is to 'render useful services to the public' (i.e. employ a large part of the local population as its workforce or charge an artificially low price for its products or services), not become a slave of the profit motive. For this reason enterprises that are in the red are allowed to operate for years or decades, with the result being that the its losses are eventually passed on to every citizen.
But as von Mises asserts, to disregard the profit motive is not, as is widely believed, to serve the public better. On the contrary, to operate under the restraints of the profit criterion is the best way to serve the public interest:
'With private profit-seeking enterprise this problem is solved by the attitudes of the public. The proof of the usefulness of the services rendered is that a sufficient number of citizens is ready to pay the price asked for them. Under [a given] price the production of [a commodity] tends to expand until saturation is reached, that is, until a further expansion would withdraw factors of productionFactors of productionIn economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
from branches of industry for whose products the demand of the consumers is more intense. In taking the profit-motive as a guide, free enterprise adjusts its activities to the desires of the public. The profit motive pushes every entreprenuer to accomplish those services that the consumers deem the most urgent.
But if a public enterprise is to be operated without regard to profits, the behaviour of the public no longer provides a criterion of its usefulness [...]
A private enterprise is doomed if its operation brings losses only and no way can be found to remedy this situation. Its unprofitability is the proof of the fact that the customers disallow it. There is, with private enterprise, no means of defying this verdict of the public and of keeping on. The manager of a plant involving a loss may explain and excuse the failure. But such apologies are of no avail; they cannot prevent the final abandonment of the unsuccessful project. It is different with a public enterprise. Here the appearance of the deficit is not considered a proof of failure. The manager is not responsible for it. It is the aim of his boss, the government, to sell at such a low price that a loss becomes unavoidable'. (pp.76-7)
Publication history
- Yale University Press, 1945.
- Libertarian Press, 1962. (2nd edition)
- Liberty FundLiberty FundLiberty Fund, Inc. is a private, educational foundation established and headquartered in Indianapolis, Indiana, USA. It is dedicated to the study of the ideal of a society of free and responsible individuals...
, 2007, ISBN 0-86597-663-5 (cloth), ISBN 0-86597-664-3 (paper)
Full text
- Bureaucracy, 1944 edition: