Bureaucracy Is Not The Answer

Tom Friedman has a mushy love letter to bureaucracy in The New York Times. He praises the federal bureaucracy and the alphabet soup of agencies within it as being the guardians and protectors of American capitalism.

Friedman talks about how many Third World and underdeveloped countires have bureaucracies that are so entrenched and corrupt that it is nearly impossible to make any kind of business transaction. On this point. Friedman is exactly correct – it is an unfettered and unaccountable bureaucracy that has kept many nations from developing. Yet he immediately contradicts himself:

I don’t blame President Bush for any accounting fraud at WorldCom or Enron. I blame him for something more important. You see, what really distinguishes American capitalism from most other countries’ is not that we don’t have C.E.O. crooks, but others do, or that we never have bogus accounting, bribery, corruption or other greedy excesses, but others do. No, we have all the same excesses that other capitalist nations have, because fear and greed are built into capitalism.

What distinguishes America is our system’s ability to consistently expose, punish, regulate and ultimately reform those excesses — better than any other. How often do you hear about such problems being exposed in Mexico or Argentina, Russia or China? They may have all the hardware of capitalism, but they don’t have all the software — namely, an uncorrupted bureaucracy to manage the regulatory agencies, licensing offices, property laws and commercial courts.

There’s a gem of truth in that – without strong government support and recognition of property laws capitalism is impossible. Where he goes wrong is suggestion that it’s a lack of regulation that has led to the problems of the developing world. If anything, it is a constant and strangling stream of new regulations and laws that ensure that the spirit of free enterprise remains shackled. Argentina, Mexico, China, and Russia aren’t lacking in bureaucracy, they are drowning in it.

Bureaucracy is a false hope for people to put their faith in, because bureaucracies naturally tend to grow. They consistantly want more and more power, and more and more funding. Once the problem they were created to solve is solved, they inorexibly find or create new ones to keep the machine going. It’s why the Center for Disease Control wants to study gun deaths – because they want the funding and attention that goes with it, even if it makes no sense for them to be engaging in that line of research.

During the campaign, on Nov. 1, 2000, Mr. Bush, in one of his many trashings of the federal bureaucracy then and since, declared: "The I.R.S. just announced they’re going to hire an additional 2,079 bureaucrats. My opponent talks about fighting for the people against the powerful. But it works out a little differently under his plan. In his case, more audits for people, more power for the I.R.S. And that’s the heart of his agenda: a fundamental belief in the federal government, a lack of trust and faith in ordinary Americans. . . . I trust people; he trusts the government."

That is the real George Bush — a man who trusts his C.E.O. cronies more than the bureaucratic regulators who oversee them. And that’s why he brought in the Harvey Pitts of the world to weaken that oversight.

Well, count me among those na´ve fools with a fundamental belief in the federal government — not because I have no faith in ordinary Americans, but because I have no trust in ordinary Big Oil, ordinary Enron or ordinary Harken Energy to do the right thing without proper oversight.

Well, believing in the federal government is one thing, but giving it a free ride is entirely another. Our system of government was based on the concept that an unchecked bureaucracy is incompatible with human freedom. We fought our War of Independence over a bureaucracy that was far less onerous than the one we have now.

The market works because it is a self-regulating system. Enron, Global Crossing, and WorldCom are ruined corporations. The market is down precisely because it does not tolerate the kind of violations of basic rules of transparency and honesty in accounting that have been made by these unscruptulous CEOs. Yes, there should be jail time for them as well, but putting more government interference in the market solves nothing.

Civil service is an honorable aspiration, but if we rely on government regulations and bureaucrats to tell us right from wrong we make a dire and dangerous mistake.

3 thoughts on “Bureaucracy Is Not The Answer”

  1. The problem with Russia was bureaucracy? Odd…I had thought it was idealistic and naive neo-liberal economists who somehow thought that markets were a cure-all and kleptocratic “businessmen” who funnelled billions of dollars to offshore accounts by taking advantage of the insanely flawed implementation of a market in Russia.

    (Then again, that theory doesn’t explain how the people of Albania became the victim of a Ponzi scheme, either. )

    In any case, the fact that Enron, Global Crossing, et al are ruined doesn’t mean that the market can really deal with this sort of chicanery, because the CEOs and CFOs that did it would get off scott free and rich as Croesus. Yes, it’s more likely that corporations will be somewhat more careful in the future, but it also means that the only real concern of a crooked executive is hiding what really happened just long enough to pull the ripcord on their golden parachutes, and to let the suckers..erm, investors, get stuck holding the bag.

  2. Well, the Russian economy is screwed up in a lot of ways, the biggest of which is that the bureaucracy makes it impossible to do legitimate business in Russia. The taxes and regulation means that everyone *must* engage in accounting practices that would make Enron weep. However, as Putin has established a flat tax and starting to streamline some of the Russian bureaucracy that capital flight you descibed is beginning to reverse. (In fact, Russia may yet prove just how well free market systems can do. They’ve only been capitalist for ten years, but already they’ve made a non-trivial amount of progress.)

    (As for Albania, that is a case in which even the government invested in those Ponzi schemes. Albania is, for many reasons, probably tied with Somalia for the honor of being the most screwed-up country on each, for reasons that go beyond just economics.)

    The fact is, the CEOs aren’t getting off scot free. Ken Lay isn’t going to ever work again, neither will most of the heads of WorldCom or the other negligent corporations. Whatever they managed to stash away will probably end up being eaten up in litigation.

    The government has a role in regulating the market, that’s true for even the most die-hard Hayekian. Someone has to protect property rights and such. However, the kind of "solutions" proposed to the current problem aren’t going to solve anything – in fact they could easily make it all worse.

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