Knowledge And Decisions

It has been claimed that bureaucratization in general cannot proceed to lengths that are counterproductive, either in terms of organizational efficiency or their limitations on individual freedom, in a democratic country. Otherwise, a “bureaucracy-wrecking” party could be elected,³¹ with the support of “every citizen who believed he was paying more to support wasteful bureaus than he was receiving from those minorities-serving bureaus that benefitted him directly.”³² This would be true if knowledge were costless. But one cannot destroy “bureaucracy” in general, but only specific and highly disparate bureaucracies. If government is not a zero sum game, there may be substantial benefits to avoiding anarchy, and these benefits shield specific inefficiency from a broad axe attack on government bureaus. More narrowly, each bureau’s activities may produce some benefit, even if some bureaus as a whole produce no net benefits. For a citizen attack on wasteful bureaus to succeed requires knowledge of the point at which benefit turns to waste or counterproductive activity. Even the most bitter critic of the Food and Drug Administration’s policies retarding the introduction of lifesaving drugs may hesitate to destroy the whole agency and allow all kinds of poisons to find their way into our food and water supply. As long as bureaucratic waste or restriction stays within broad limits, and shields itself from specific detection, it may persist indefinitely despite its incremental costs exceeding its incremental benefits — as the voters would judge these, if they knew. The contrary view is a special case of the democratic fallacy, which equates market decision making under explicit cost constraints expressed in price tags with vote casting on the basis of plausibility and with high knowledge costs per voter.

INSTITUTIONAL CHANGES

The difference between incremental and categorical decision making has implications not only for the location of given kinds of decisions inside or outside government; it has implications for how and where government decisions can most effectively be located. Periodic campaigns to “reform” or “streamline” the government bureaucracy under some “rational” plan to “end duplication” look very different within this framework. Duplication, for example, means that similar processes or results in a given field are obtainable through different organizations, usually located within larger and more diversified organizations with ostensibly differing purposes. The Veteran’s Administration and the Public Health Service both operate hospitals, for example. Often this means that a given citizen has the choice of where to go with the same problem, whether that problem be consumer fraud, antitrust violations, or cases of racial discrimination. When duplication means individual choice, a set of unpaid “unmonitored monitors” has been created, able to effectively constrain the behavior of each agency with the implicit threat of going to some other agency if the same service is not provided as well. The economies of scale that might (or might not) result from consolidating the activity must be weighed against the higher costs or lower quality that are apt to result when monitors become a captive audience for a government monopoly instead. Moreover, the location of similar activities within a variety of conglomerate government organizations means that the phasing out of the activity becomes more feasible within a decision making unit that has other activities which can absorb the people and the appropriations. A more rationalistic plan of gathering all like activities into an agency devoted solely to that activity means in fact creating incentives to keep that activity alive as long as possible and to pursue it as far as possible, with little or no regard for social costs and benefits. The costs of duplication at a given time must be weighed against these longer run costs of consolidation.