Mon Jul 29, 2002

Bureaucracy and its Benefits

Via Brad DeLong’s weblog comes a good column by Tom Friedman, out of today’s New York Times. Friedman makes the excellent point that, although Americans (and especially Republicans) love to disparage the Federal bureaucracy, the way it works is one of the best things about the country:

…what foreigners envy us most for is precisely the city Mr. Bush loves to bash: Washington. That is, they envy us for our alphabet soup of regulatory agencies: the S.E.C., the Federal Reserve, the F.A.A., the F.D.A., the F.B.I., the E.P.A., the I.R.S., the I.N.S. Do you know what a luxury it is to be able to start a business or get a license without having to pay off some official?

Friedman goes on to say that an honest bureaucracy is “the unique American software” that regulates the standard hardware of a capitalist economy. Friedman’s wrong about the software being uniquely American, and the software/hardware metaphor, though neat, is a bit misleading. (The state is mainly “hardware” too, if you want to use those terms at all.) But the basic point about bureaucracy is right. As Max Weber pointed out a century ago, bureaucracies were central to the emergence and growth of modern capitalism. As Paul DiMaggio puts it in his Introduction to his anthology The Twenty-First Century Firm, Weber saw that

methods of social control based on the kinds of informal social networks in which every society abounds were poorly suited to an age of unprecedented military and economic competition … The key, according to Weber, was to render irrelevant people’s ordinary social ties, to structure organizations so that employees would leave their family connections and personal identities at the factory gate.

Note that last phrase: the factory gate, not just the government. Principles of bureaucratic organization are at the heart of private sector firms as well as the government, modern trends in flexible corporate organization notwithstanding. Even if firms are becoming more “network like” or engaging in “relational contracting” or whatever, they still use fundamentally bureaucratic methods to monitor their employees, organize systems of authority and keep people’s hands out of the till. Many of the recent corporate scandals were caused precisely by failures of internal bureaucratic oversight.

Interestingly, the same principle behind bureaucratic organization—- call it “disembedding”—- also lies behind free markets. Contracts and market transactions are also a way to get something done without having to rely on personal ties to do it, or have irrelevant concerns interfere with the exchange. Weber saw this, too, arguing that one of the prerequisites of modern capitalism was “the absence of irrational limitations on trading in the market … as for example if the townsman were not allowed to own an estate or the knight or peasant to carry on an industry” as well as the elimination of irrational restrictions on consumption goods, such as being prohibited from owning a luxury good because of your caste or religion.

Of course, Weber’s ideal-typical picture of rationalized capitalism is an exaggeration. We know (at least, sociologists know) that both formal organizations and the market economy more generally are embedded in social institutions and informal networks of many kinds, and indeed neither could function without them. But the basic insight is sound: there is a fundamental difference between pre-modern forms of social organization—- such as the patrimonial state, for instance, or non-market economies —- and their modern counterparts. One way to characterize the difference is to look at the degree to which bribery, simony, nepotism or cronyism are present and acceptable in the system. Indeed, a central feature of rationalized states and markets is that they classify these kinds of things as corruption, and at least in principle try to minimize them.

Free markets and clean bureaucracies are the two distinctively modern institutions, and the virtue they share is the ability to abstract away from informal social networks. In the former case, this allows for free trade and hence growth; in the latter, for impersonal organization towards some particular purpose—- potentially, the common good.