Bureaucracy Is The Battle 1

It's a sublime pleasure to run across a book which makes a number of contradictory ideas fall into place and make sense.

For years now, commentators all across the fruited plain have felled forests to deplore the increasing polarization of American politics.  We can't get consensus on any measure regarding health care, education, welfare, road building, or any other matter of importance.

It's never been clear exactly why we find ourselves in this impasse where nobody can agree on anything, but we just encountered the economics classic Bureaucracy by Ludwig von Mises which explains it convincingly.

We hear words like "socialism," "capitalism," "fascism," "communism," and other labels for different methods of organizing society.  Von Mises shows that all of these political systems amount to one simple dispute: two different views of the value of bureaucracy as an organizational principle versus letting the market organize society.  These views are totally incompatible.

Bureaucracy was written in 1944 near the end of World War II.  Von Mises had seen how the governments of Germany, Italy, and Russia managed economic policy.  This experience illuminated his discussion of the nature of bureaucracy and its effect on the lives of ordinary citizens.

His Definition

Von Mises defines "bureaucracy" as a way of managing activities for which it is impossible to compute economic value.  The success or failure of the crime-prevention efforts of the police department can't easily be defined in terms of money, nor their arrest of this criminal versus that one.  A police department which brings in enough revenue to cover its expenses - through issuing many tickets, say, or collecting bribes - tends to be held in contempt and becomes deeply ineffective at stopping actual crimes.

The success of a pizza parlor, in contrast, is easily defined by money.  If the parlor sells enough pizza to cover its costs and to provide enough profit to justify setting up the shop and to pay for the owner's time, it's a success.  If it doesn't bring in enough money, it's a failure and eventually goes out of business.

"Progressives" argue that the government must ensure that the business doesn't exploit customers; they forget that abused customers can choose to go elsewhere.  Market forces provide ample protection, but only if it's easy for new businesses to arise and compete.  Government bureaucracies usually end up protecting incumbents from competition instead of protecting citizens.

Bureaucracy itself is neither good nor bad.  The Chinese started using bureaucracy some 5,000 years ago because it is an indispensable tool for managing activities involving masses of people.  The Egyptians couldn't have built the pyramids nor the Chinese the Great Wall without the organizing methods of bureaucracy.

The Bureaucratic Morass

Without the discipline of the profit motive or the threat of bankruptcy, however, there is no way to run a bureaucratic organization other than by setting an overall budget and writing a great many rules.  The police department has a budget enacted by the City Council, and whomever makes purchasing decisions for the department has to stay within that budget because that's all the money that's available - but that's the amount of money which must be spent by the end of the year regardless of whether the police department does a good job or a bad one.

Nobody trusts the department to get good value for money because there are so many opportunities for self-dealing and there no particular incentives for any individual bureaucrat to do an efficient job of spending.  Thus, the purchasing system has rules about competitive bidding, transparent procurement, minority-owned businesses, and many other process matters which have nothing to do with police work.  All of these rules increase the cost of operating the department, despite being intended to protect the public purse from being fleeced.

When extraordinary events such as the Ferguson riots or the BLM protests in New York City cause unexpected overtime, the budget has difficulty finding the extra money.  It's also difficult for the City Council to set priorities between the police department, the fire department, the library, and other civic functions which cannot be measured economically - which would we rather have, fewer arrests or more fires?

This is especially true of public transport.  The New York, London, and Boston subway systems were originally started as profit-making businesses, and succeeded as such for many decades. When they eventually went bankrupt for a variety of reasons, the authorities decided that transportation was a public good that was worthy of public support.  Once market discipline was lost, however, costs exploded, service deteriorated, maintenance was put off, expansion all but ceased, and the finance of public transportation remains contentious unto this day.

Private Property and Totalitarian Government

Having seen how government control of the economy in Germany, Italy, and Russia came along with totalitarian government, von Mises pointed out that history showed clearly that an economic system based on private property and individual initiative as enshrined in the American Constitution led to the greatest material good for everyone.

Despite all the evidence, though, "progressive" forces claim that capitalism is inherently unfair and that it should be replaced by an economic system controlled by government employees.  To name but one example, von Mises quoted Lenin as saying that all of society should be organized like the post office - which sounds to us fairly close to a description of hell on earth, and sure enough, that's just what the USSR turned out to be - it was so bad that the Communists had to spend vast sums on walls and mine fields near their borders to keep people in.

As von Mises saw it, bureaucracy versus capitalism was the same battle of freedom versus tyranny that led to the American revolution:

Whoever in this antagonism sides with capitalism must do it frankly and directly.  He must give positive support to private property and free enterprise.  It is vain to content oneself with attacks on some measures designed to pave the way for socialism.  It is useless to fight mere attendant phenomena and not the tendency toward totalitarianism as such.  It is idle to dwell on a criticism of bureaucratism only.  p 9

As a business grows larger, some use of bureaucratic managerial techniques may be needed to promote efficient operation, but this doesn't have to mean that the overall business becomes bureaucratic or subject to a multitude of rules.  Progressives claim that large businesses are always bureaucratic; they declare that the choice is between being controlled by business bureaucracies or by government agencies.

They further assert that it is better to be controlled by altruistic government bureaucrats than by greedy profit-seeking business bureaucrats.  They argue that the economy should be "controlled by experts answerable to the public" instead of by business owners, but they don't want to talk about how well our public schools, public transportation, and other government-managed entites work in practice.  Von Mises asserted that abusive bureaucracy comes from government control of businesses, not from business necessity:

This book will try to demonstrate that no profit-seeking enterprise, no matter how large, is liable to become bureaucratic provided the hands of its management are not tied by government interference.  The trend toward bureaucratic rigidity is not inherent in the evolution of business.  It is an outcome of government meddling with business. It is a result of the policies designed to eliminate the profit motive from its role in the framework of society's economic organization. p 10

We see the effects of bureaucratization vividly in higher education regardless of whether the college is private or public.  As the federal government has assumed control of colleges through their student loan program, colleges have hired more administrators than teachers.  Tuition has gone up much faster than inflation, but a great deal of the money goes to pay high-priced compliance bureaucrats whose job is to make sure that the college conforms properly to federal regulations under threat of losing the privilege of accepting money from student loans.

The few colleges which do not allow students to borrow money from the government have lower tuition and higher graduation rates, but the progressive forces do not allow colleges' achievements on government rankings which report college performance for fear of embarrassment.

Bureaucratization is also forced on businesses large and small.  A great deal of bureaucracy is required when the business is bound by government regulations.  Our pizza parlor has to make sure that the store complies with OSHA regulations and with laws protecting disabled people.  The ovens must observe fire codes and cashiers must collect and report sales tax.  Wage-hour laws must be followed, and all other regulations must be met.

The abuse of disability law has become so pronounced that California has tried to pass laws to limit frivolous lawsuits.  This hasn't stopped lawyers from targeting small businesses, but it has made the legal situation more complex.

The costs of following all these regulations is so high that a small pizza seller is at a great disadvantage.  A large chain can hire lawyers and engineers whose cost is spread over the entire enterprise, whereas the owner of a single store must provide all these uneconomic "services" himself.

Another result of government-forced bureaucratization is that businesses lose focus on serving customers.  General Motors was so insulated from market competition by government regulations and bail-outs that its culture blithely ignored an ignition switch whose failures led to many customer deaths.  United Airlines is so bound by habits of bureaucratic regulations in an industry which has such immense regulatory barriers to entry that it was able to establish procedures from which common sense and customer service are excluded.

These atrocities are not caused by evil people working for GM or United Airlines; nearly all their employees are simply ordinary people trying to do the best they can and provide for their families.  They don't have any particular desire to hurt anyone, much less kill them.

But these evil outcomes are the natural, inevitable result of the bureaucratic method of organizing which insulates everyone from market signals.  A capitalist economy should put such dysfunctional organizations out of business by encouraging more innovative competitors, but government regulations provide so much shelter that they can continue regardless of how customers feel about them.

Von Mises' message was that such missteps are not the fault of capitalism, they are caused by government-forced bureaucracy.  Progressives enact regulations, then blame the inevitable foul-ups on capitalism and use problems caused by regulations to justify yet more regulations.

Death of the American Dream

Von Mises explained how the American Dream should work:

In the field of business, creative leadership manifests itself in the adjustment of production and distribution to the changing conditions of demand and supply and in the adaptation of technical improvements to practical uses.  The great businessman is he who produces more, better, and cheaper goods, who, as a pioneer of progress, presents his fellow men with commodities and services hitherto unknown to them or beyond their means. ...

It is his indefatigable inventiveness and fondness for innovations that prevent all business units from degenerating into idle bureaucratic routine.  He embodies in his person the restless dynamism and progressivism inherent in capitalism and free enterprise. p 10

The traditional "American dream" promised that anyone who worked hard and had a measure of good fortune could better himself economically.

For most of American history, most workers were employed by small enterprises, many started by themselves.  As following the dictates of the bureaucratic state has grown ever more costly, however, the regulatory advantages of big businesses have overcome the disadvantages of size.  The Wall Street Journal reports that more Americans now work for large enterprises than for small companies; this has never before happened in American economic history.

Von Mises explains how this happens:

A genius is always a teacher, never a pupil; he is always self-made.  He does not owe anything to the favor of those in power.  But, on the other hand, the government can bring about conditions that would paralyze the efforts of a creative spirit and prevent him from rendering useful services to the community.

In the past and ingenious new newcomer started a new project. ... When initial success came he did not increase his consumption, but reinvested the much greater part of his profits.  Thus his business grew quickly. ... His threatening competition forced the old rich firms and the big corporations to adjust their management to the conditions brought about by his intervention.

But today the income tax absorbs 80 or more percent [income tax has been reduced, but regulatory costs have more than made up for this - ed] of such a newcomer's initial profit [that] he cannot accumulate capital, he cannot expand his business, his enterprise will never become big business. ... The already existing enterprises are sheltered against the dangers from ingenious newcomers. ... They enjoy a virtual privilege as far as they content themselves with keeping their business in the traditional lines and in their traditional size.  Their further development, of course, is curtailed.

In all countries all taxes are today written as if the main purpose of taxes were to hinder the accumulation of new capital and the improvements which it could achieve.  The same tendency manifest itself in many other branches of public policy.  The "progressives" are badly off the mark when they complain about the lack of creative business leadership.  Not the men are lacking but the institutions which would permit them to utilize their gifts.  Modern policies result in tying the hands of innovators no less than did the guild system of the Middle Ages. p 11

Wealthy tycoons support increased government spending and regulation because government activity keeps newcomers from competing with them.  Having made great fortunes, these liberal billionaires know how easy it would be for newcomers to dethrone them.  It's far simpler to have the government kneecap competitors so they don't have to fight so hard to keep their fortunes.

So, von Mises' foundational observations are that 20th and 21st century politics including World War II revolved around the question of how the economy should be governed.  Although a market-based economy produces far more goods and services than a controlled economy can possibly deliver, the market is relentless.  Absent government regulations, no business, no matter how large, is safe from von Mises' "businessman who produces more, better, and cheaper goods."  Greedy people who run large, successful businesses conspire with greedy, power-hungry government officials to rob the public by making it harder for upstart businesses to compete with them.

The Peter Pan Theory of History

This has all happened before and it will all happen again.

We have no doubt that "progressive" leaders such as Bernie Sanders and Barack Obama know full well that their economic programs lead inevitably to economic collapse, just as progressive programs wrecked the Venezuelan economy so badly that they can no longer even manage to produce toilet paper.  Their motivation for leading protests against businesses who refuse to pay their "fair share" of taxes is the accumulation of personal power; they know that their efforts at "community organizing" will have no beneficial effect on the economy of the neighborhoods they organize.

This is what Aleksandr Solzhenitsyn, author of The Gulag Archipelago, meant when he warned Harvard graduates of:

"an atmosphere of moral mediocrity, paralyzing man's noblest impulses" and a "tilt of freedom in the direction of evil ... evidently born primarily out of a humanistic and benevolent concept according to which there is no evil inherent in human nature."

He also said, "In order for men to commit great evil, they must first be convinced that they are doing good."  Rank and file liberals are so convinced that their programs are good that they can't see the evil that they do, but the leaders know full well what they're doing.

As "Aleksandr Solzhenitsyn: Spitting in the Face of Evil" points out, he was correct about evil, having experienced evil up close and personal.  Those who do not ponder the consequences of the programs they favor have brought much evil into our nation.

The next article in this series discusses von Mises' explanation of how the forces favoring government control of the economy have dumbed down our education system, lied, and shouted down their opponents to promote their programs even though their ideas are known to lead to poverty throughout society, history, and everywhere in the world where they've been tried.