Friday, 1 March 2013

Bureaucracy

BBC Radio 4 is running a programme next week 'in the defence of bureaucracy' with Gus O'Donnell. I'll listen in, but do not expect to be converted. So, what's the argument against bureaucracy, and how can we frame it in an economic, game theoretic context?
     Let's start with some examples. Without wanting to be too specific, I asked for something from the University last week. OK, but you need to fill in form X. We filled in form X. Yes, but you also need to fill in form Y. Needless to say, by the time this had all played out, I didn't get what I needed in time. Another example. A colleague was visiting recently from abroad and looking for somewhere to stay for 5 months. The estate agents were 'unable to help' because their contracts are for 6 months.
    What binds together both of these examples? In both cases there are rules, fill in form X, or contracts are for only 6 months. In both cases, the rule is pointless. In both cases, the rule is dreamt up by the very department or people that enforce it. This leads to a circularity that is sometimes amusing but all too often infuriating - a person comes up with rule X, and then says 'sorry I cannot do that because of rule X'. It is this circularity that is the birth of bureaucracy.
   Rules are useful. They save on decision costs and create consistency. The problem is when we have rules that make little sense, and when people inflexibly hide behind those rules. Contrast, for example, two experiences with the UK Border Agency. Once we went to Croydon to sort out a visa issue and were turned away because we didn't have a particular piece of paper. Four hours drive, and the best part of a day wasted, for nothing. That's inefficient. On another occasion we found ourselves at Dunkirk ferry terminal without one of our passports. The border agent told us off and then put us on the ferry. She presumably broke many rules in doing that but the outcome was efficient.
   So, rules need to make sense, and there needs to be flexibility. When these two basic principles get lost we have an inefficient bureaucracy. And this is far more likely to happen when an organisation starts to employ people who's sole job remit is come up with and enforce rules. Unfortunately, universities are full of such people, and so are most large organisations. At this point, bureaucracy can start to go well beyond any common sense. Essentially, the organisation can forget what it is for, creating a divorce between the true objectives of the organisation and the objectives many of its employees pursue. A university, for example, should produce quality research and educated students. Any rule should pass the: 'does it help academics do research or students learn' test. To an outsider, however, universities would look more like a form filling factory.
   The basic outcome of this is to lower efficiency. Indeed, one can easily end up with employees who have negative marginal productivity. All they do is slow down employees who are actively pursuing the goals of the organisation. It would be more efficient for society to create a dummy university with no students or academics, but full of administrators (see the Yes Minister episode Compassionate Society). But surely, no organisation can survive employing people with negative marginal productivity? The estate agent, for example, that offered my colleague a contract despite the fact he was only staying 5 months made more profit than those that didn't. Similarly, a university that cuts form filling is at an advantage. There's no doubt that bureaucracy is less in a market based economy like the UK than say Russia. Competition, however, cannot control bureaucracy. Clearly, it cannot in public sector organisations like a university. Even in the private sector the shut down rule - only shut down if price is below average variable cost - means an inefficient firm can survive for a long, long while. Bureaucracy, therefore, needs to be tackled head on in order to increase efficiency. Economic models of the firm also need to recognise the problem of bureaucracy.

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