The Power of Bureaucracy

 

The 2010 trial of billionaire oligarch Mikhail Khodorovsky in Russia for theft and money laundering showcased the dangers of ignoring the bureaucracy in developing and transitional countries. In his closing statement, Khodorovsky leveled a foundational criticism of the Russian state:

A country that tolerates a situation in which the siloviki bureaucracy holds tens and even hundreds of thousands of talented entrepreneurs, managers and ordinary people in jail in its own interests, instead of and together with criminals, this is a sick country. A state that destroys its best companies; a country that holds its own citizens in contempt, trusting only the bureaucracy and the special services, is a sick state. … And you, my opponents? What do you believe in? That the bosses are always right? Do you believe in money? In the impunity of “the system”?[1]

That Khodorovsky singles out the bureaucracy for its politicization is significant because few state institutions have such a broad, deep, and intimate reach to its citizens. In a state where the bureaucracy serves whoever holds political power, rather than following institutional processes, state-building fails. Social trust weakens. The rule of law and market processes function less efficiently. A flawed bureaucracy perpetuates a sick country. It shouldn’t come as a surprise that, since the fall of communism, 55 percent of the Russian economy has returned to state control.[2]

Good governance in the bureaucracy is crucial, as long-term development toward a capitalistic liberal democracy depends upon it. What makes bureaucratic analysis difficult is that no ideal form of bureaucracy exists. Instead, different forms may work better in different countries.

Theoretical Issues for Bureaucracy

Measuring the quality of bureaucracy is limited; researchers haven’t spent much time comparing bureaucracy in theory to bureaucracy in action.[3]

Bureaucracy can undermine a country in its dysfunction, more common to developing countries, and in its ineptitude, more common to developed countries. Dysfunctional bureaucracies serve political leaders instead of citizens. Inept bureaucracies hamper citizen action through red tape, unnecessary rules, and Kafkaesque inflexibility. A dysfunctional bureaucracy hampers efficient markets and a rule of law. An inept bureaucracy weighs down an already functioning market and rule of law. The tension doesn’t only come from the bureaucracy acting in a political manner, however. As Fukuyama noted, an orderly bureaucracy can be inept by hamstringing individual initiative and creativity in a bureaucracy, thus preventing innovation and a better-functioning government.[4]

Key to understanding the costs and benefits of a bureaucracy is treating it as a concept with many living forms. Whereas Russia or Bulgaria faced bureaucratic problems from an overly centralized and controlling government, the bureaucratic problems in India or Nigeria may suffer more from individual bureaucrats unable to act in response to citizen demands. A post-communist bureaucracy may know too much about its citizens, whereas a post-colonialist bureaucracy may know too little. Both results are undesirable, but solutions will not be identical.

Given the distinct forms and problems of bureaucracies across countries, experts could benefit by avoiding a desire to prescribe uniform, top-down solutions to bureaucratic problems. Simply, robust measures and data don’t exist to justify grandiose claims on how to fix those problems in developing countries. Empirical evidence has been contradictory based on where it’s been attempted.[5] Solutions driven by local context with local people aware of the local problems they face may be more effective. The complications of reality, of course, make those solutions difficult to identify and achieve.

Grandiose solutions and internationalist agencies

A significant issue surrounding the effectiveness of development has been the foreign interventionism of the UN and NGOs. Even if they avoid a top-down, centralizing approach, bureaucratic incompetence undercuts their efforts and harm trust previously extended by locals:

Actually, the biggest problems I saw were innumerable broken promises by UN agencies and NGOs. If you want to give unemployed young men a grievance, try promising them something worth their annual income and then fail to deliver for 12 months. Are UN procurement problems and bureaucracy the greatest enemy of peace in fragile states? I might say so.[6]

Academics involved in field experiments aren’t the only ones with those complaints. Anthony Banbury, a former assistant secretary general for field support with 30 years’ experience with the UN, noted: “If you locked a team of evil geniuses in a laboratory, they could not design a bureaucracy so maddeningly complex, requiring so much effort but in the end incapable of delivering the intended result. The system is a black hole into which disappear countless tax dollars and human aspirations, never to be seen again.”[7]

That the UN garners such fealty from liberal internationalist types prevents a reassessment of actions by it and other multinational organizations. The repeated declarations of its goals to improve the world has somehow inculcated criticism of its real-world effects. In the context of bureaucratic problems, incompetent UN officials only entrench and aid bad bureaucracies.

In judging the overall quality of governance and bureaucracy, Fukuyama uses capacity and autonomy:

The government is an organization which can do its functions better or worse; governance is thus about execution, or what has traditionally fallen within the domain of public administration, as opposed to politics … It would seem to be the case that the quality of government is the result of an interaction between capacity and autonomy. That is, more or less autonomy can be a good or bad thing depending on how much underlying capacity a bureaucracy has.”[8]

Autonomy being the freedom to take action and improve on bureaucratic practices, and capacity being the state’s ability to carry out the actions it declares, shows possible costs and benefits. If bureaucrats in a country are highly susceptible to bribery and are less effective with less oversight, less autonomy may be necessary. A bureaucrat with an unrestrained hand is a menace to a town. However, if another state has low capacity but high autonomy leads to improved governance there, the risk of increased bribery may be worth the benefits of creative and reliable bureaucrats who can determine what their bureau should do. An impartial Weberian bureaucrat does little to benefit a developing country in that context.The capacity/autonomy metric shows that bureaucracy functions differently in high-capacity and low-capacity countries. Institutional structures and self-selection in the bureaucracy can dictate policy on how to improve those bureaucracies. Hence, the inconsistent effects of offering higher-wages to hire better bureaucrats.[9] In a market, higher wages draw in higher-quality workers. In a bureaucracy, however, the effect isn’t so consistent.

Bureaucracy of business

Bureaucracy isn’t a structure limited to governments. Businesses can face similar problems of inefficiency, multi-tasking (contradictory goals that split the time and effort of bureaucrats), and over-regulation. How they deal with those issues may be translatable toward government settings. Monitoring technology, for instance, may improve compliance ranging from tracking attendance to worker productivity to tracking goods, services, and files, thereby avoiding misplaced permits and records.[10] However, implementing a process differs from ordering a process be used. Enforcement issues and bureaucrats learning how to circumvent the process could be problematic. Robotic process automation, whereby records get self-updated and menial, time-consuming labor is transferred to sorting software, also offers better record-keeping as well as cost savings that reduces bureaucratic ineptitude. It may also help developing countries avoid bloat and sprawling bureaucracies, thus pushing more workers into the private sector.[11]

For long-term development, resisting bureaucratic bloat, dysfunction, and ineptitude is crucial to establish a vibrant private sector. For one, as the Russian example shows, “backsliding” remains a threat after transition or privatization experiences. Furthermore, the entrepreneurial drive of a population is threatened by bureaucratic organization, be they public or private:“Working in more bureaucratic organizations makes people less likely to launch their own business ventures. Net of a wide range of observable individual characteristics, people who work for large and old firms are substantially less likely to become entrepreneurs.”[12]Just as state capacity can affect the costs and benefits of a more-autonomous bureaucracy, it can restrict entrepreneurial autonomy. Depending on the context, it may be preferable for a country to have low state capacity if its bureaucracy is inept; otherwise, entrepreneurial activity could be restrained and restrict long-term development.

Conclusion

In developed countries, most discussions of bureaucracy are proxy discussions for governance concerns. The horror stories of Americans waiting hours in line at the DMV, the unintuitive and arbitrary demands of Italian requirements for a residency visa all hint at governance failures, individually and systematically. The threat of bureaucracy in developed and developing countries, too, differ. In developed countries, the specter of the “deep state,” a technocratic and impersonal machine that subverts republican and democratic values of government, has been the bogeyman of late. State capacity is terrifyingly high, and autonomy seems reserved only for the high-ranking and well-connected bureaucrats. The bureaucratic threat in developing countries, however, isn’t future totalitarianism so much as the protection of short-term authoritarians that cripple long-term potential. Individual rights and the rule of law don’t face unprecedented violation because they’re closer to the norm. To treat the function of bureaucracy in both types of countries as similar, and to expect similar results, is folly. Nuanced analysis and broad implications to follow require more observation and more experimentation.

To suggest the approach is difficult because it offers bureaucrats and internationalists little. In such an environment, they’re more akin to spectators and messengers to connect local leaders and local entrepreneurs. However, the evolution from theory to evidence in the study of bureaucracy has been slower than in other fields. Bureaucratic theory from Weber, Mises, Merton, or Niskanen may have intriguing models to use, but may also be of little use for developing countries in empowering or restraining bureaucracy. In the private and public sphere, the best bureaucratic practices may be discovered through experimentation and spontaneous occurrences.


Notes:

[1] Mikhail Khodorovsky, Final Statement, The New York Times, http://www.nytimes.com/2010/11/03/opinion/03iht-edkhodorkovsky.html?pagewanted=all.

[2] Simeon Djankov, “Russia’s Economy under Putin: From Crony Capitalism to State Capitalism,” Peterson Institute for International Economics, 2015.https://piie.com/publications/pb/pb15-18.pdf.

[3] Francis Fukuyama. 2013. “What Is Governance?” CGD Working Paper 314. Washington, DC: Center for Global Development.http://www.cgdev.org/content/publications/detail/1426906.

[4] Fukuyama’s concept of measuring governance by capacity and by autonomy shows that, depending on the country, trade-offs exist between a neutral bureaucracy and a creative one.

[5]FredericoFinan, Benjamin A. Olken, and Rohini Pande, “The Personnel Economics of the State,” Handbook of Field Experirments, 2015. http://economics.mit.edu/files/11220. Field experiments to reduce shirking among public employees, for instance, have had opposite results in India and Kenya.

[6] Chris Blattmann, “Miscellaneous Field Notes,” December 7, 2010.http://chrisblattman.com/2010/12/07/miscellaneous-field-notes/.

[7] Anthony Banbury, “I Love the U.N., but It Is Failing,” The New York Times, March 18, 2016. https://www.nytimes.com/2016/03/20/opinion/sunday/i-love-the-un-but-it-is-failing.html?_r=1&mtrref=undefined&assetType=opinion.

[8] Fukuyama, p.8.

[9] FredericoFinan, Benjamin A. Olken, and Rohini Pande, “The Personnel Economics of the State,” p. 6,Handbook of Field Experiments, 2015. http://economics.mit.edu/files/11220

[10] Ibid, p.27.

[11]Eduardo Alvarez, Georges Chehade, Olaf Schirmer, Manish Mahajan, “The Bureaucracy Measurement Index: A systematic way for companies to assess the burden of red tape,” strategy&, June 29, 2016. https://www.strategyand.pwc.com/reports/bureaucracy-measurement-index. Political reality, however, could undermine this strategy. Developing countries may have issues resisting a patronage system and padding the bureaucracy to gain political power.

[12] Jesper B. Sorensen, “Bureaucracy and Entrepreneurship: Workplace Effects on Entrepreneurial Entry,” /Administrative Science Quarterly, 52 (2007): 387–412, p. 407.

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