Why bureaucracy is a Good Thing

Gus O’Donnell presented a thought-provoking programme on Radio 4 this morning, In Defence of Bureaucracy. He presented two arguments. Firstly, you can’t get much done without basic organisation. Secondly, bureaucracy, with its formal rules, offers protection from the arbitrary whims and prejudices of those in power.

His piece in the FT covers similar ground:

In this country you can renew your car tax if you can prove you own the vehicle, it is roadworthy and it is insured. In other parts of the world all it takes is knowing which palms to grease. Bureaucratic systems are colour-blind, gender-neutral and they don’t care what you sound like. That brings fairness in a way more discretionary systems can never match.

It has long been argued by economists and historians that one of the factors enabling the economies of Europe and the USA to develop so rapidly, compared to those elsewhere in the world, was the rule of law. It is the main theme of the widely acclaimed Why Nations Fail (reviewed in an earlier post).

The argument is that strong government with rules applying to all, including the rulers, makes for economic prosperity. Without it, there is much less incentive to innovate and create new enterprises.

The absence of order meant that anything you created might be stolen by warlords and robber barons. Centralised authority without law meant that your property and ideas might be taken by the ruler or his henchmen. Only where law applied both to the rulers and the ruled were those developing businesses protected. It was because European merchants had this protection that industry developed in Europe.

Bureaucracy is essential to the application of the rule of law at an administrative level. It is what ensures that things get done but also what ensures that they get done in as fair a way as possible.

However, something similar applies to the internal workings of an organisation.

Bureaucracy is the corporate equivalent of the rule of law. It protects people from arbitrary decisions inside the organisation. Rules and procedures give people clarity about their roles, their scope for decision making and their boundaries. Like the rule of law, they protect employees from random and vindictive treatment by their bosses. It has become very fashionable to deride bureaucracy but working in organisations with fewer rules and procedures can be just as unpleasant. Trying to second guess the whims of a maverick autocratic boss can be every bit as energy draining and innovation stifling as working in a bureaucracy.

Bad bosses run riot in the absence of rules. For example, without clear definitions of roles, the boss can set his staff against each other, handing out tasks randomly, the interesting ones to the people he likes, the doomed-to-fail ones to the people he doesn’t. Sometimes he can give the same task to two different people, just to see what happens. Then next week, he can change it all round, depending on who has pleased or displeased him. It’s the same with other procedures. Size of office, cars, relocation allowances and training opportunities can all be abused to create a system of arbitrary patronage that would make a medieval monarch proud. Great for preserving the manager’s power and level of comfort but a complete disaster for everyone else. Bureaucracy mitigates this sort of behaviour. Rules and procedures mean a tyrannical boss can only go so far.

But doesn’t bureaucracy stifle innovation? Perhaps it does, but so does arbitrary management. If you are constantly trying to win favour with an unpredictable management hierarchy, you are hardly likely to stick your neck out. Like the medieval peasant, the dangers associated with upsetting your lord outweigh the benefits of coming up with a good idea. Better to keep your head down.

In any case, although we currently have a startup-worshipping culture, brilliantly satirised in this piece, there is little evidence that smaller, less bureaucratic organisations are any better at innovating than larger established ones. As The Economist notes:

It is shrewd politics to champion the little guy. But the popular fetish for small business is at odds with economic reality.

Size allows specialisation, which fosters innovation. An engineer at Google or Toyota can focus all his energy on a specific problem; he will not be asked to fix the boss’s laptop as well. Manufacturers in Europe with 250 or more workers are 30-40% more productive than “micro” firms with fewer than ten employees. It is telling that micro enterprises are common in Greece, but rare in Germany.

So, although we love those nimble, non-bureacratic, small firms, they are not all that innovative. Without rules and specialisation, the would-be innovators spend too much time  fixing the boss’s laptop. Or worse.

And even when your whacky innovators come up with stuff, you still need the suits to make it happen, as the beautifully titled  People and Process, Suits and Innovators found:

[I]t is the individuals who fill the role of middle managers – the “suits” – rather than the creative innovators that best explain variation in firm performance.

The results also show that middle managers are necessary to facilitate firm performance in creative, innovative, and knowledge-intensive industries.

As Ha Joon Chang says, what makes rich countries rich is the ability to organise on a large scale:

What makes the poor countries poor is not the lack of raw individual entrepreneurial energy, which they in fact have in abundance. The point is that what really makes rich countries rich is the ability to channel the individual entrepreneurial energy into collective entrepreneurship.

Channelling that entrepreneurial energy would be impossible without bureaucracy.

As I’ve said before, the startups and charismatic leaders are fascinating and exciting but it’s the people doing boring stuff, like planning, creating systems, designing processes and managing performance that make things happen. Bureaucracy creates and sustains our modern prosperous world. We’d be stuffed without it.