Mar 8, 2010

Ludwing Von Mises's Bureaucracy : A review

“Progress is precisely that which the [bureaucratic] rules and regulations did not foresee.”

As it is with every centrally planned or socialist economy, bureaucracy has been one of the major impediments to progress in Nepal. Excessive corruption and shameless inefficiency characterizes Nepalese bureaucracy. Though in many cases the very inefficiency has saved us the troubles of bureaucratic whim and regulation, it is among the primary hindrances to economic progress. No wonder the picture of bureaucracy drawn by Ludwig Von Mises in his book “Bureaucracy” bears uncanny resemblance to our bureaucracy.

First published in 1944 Bureaucracy is a classic economic treatise. It contrasts the two forms of economic management - that of a free market economy and that of a bureaucracy. In the market economy entrepreneurs are driven to serve consumers by their desire to earn profits and to avoid losses. In a bureaucracy, the managers must comply with orders issued by the legislative body under which they operate; they may not spend without authorization and they may not deviate from the path prescribed by law.

Mises has tried to explain why the private ownership and management of public goods easily triumphs over the public administration which is full of rules, regulations, authorizations and official codes and yet devoid of any real incentives for the managers to act in the client’s benefit.

Free Market economy being dependent on the wish of its customers has strong incentives to work efficiently and effectively, use its resources properly so that profit is maximized whereas in the bureaucratic management the managers have less incentives to use the resources effectively because since the resource doesn’t belong to them and efficient use isn’t going to bring them any reward.

As Mises points out, the inability to measure the outcome of publicly administered management economically is another reason for the inefficient operations of bureaucratic management. Bureaucratic management due to its inability or unwillingness to act beyond the official codes and plans fails to recognize and even works to hamper progress and innovations which is why he says progress is precisely that which the [bureaucratic] rules and regulations did not foresee.” He goes on to explain due to the very nature of these approaches to management, bureaucratic management works only for some services such as police, justice administration but fails every place else. “Bureaucracy” comes as a blow to big government fans who tend to believe government to be the panacea for all problems.

Overall, Bureaucracy is a perceptive and concise (around 100 pages) book to understand the dangers of socialism and bureaucratic management. If you have never read Mises, you are in for a treat.