I was thinking about my job recently, and, though I do not work for the government right now, being in academia, my management is still largely bureaucratic rather than profit oriented. Then again, IT departments have a tendency to become bureaucratic in many organizations. Except in enterprises where they are profit-making, many companies simply assign a fixed fund and expect little in return. As a result, the IT field has become subject to that most bureaucratic phenomenon, institutional assignment of blame. We see it constantly in those "lessons learned" meetings, which are suppose dot be about "learning from our mistakes", but end up being constant inquisitions into "why did no one catch this"?

And that is why I bring up this whole topic. I mentioned before in my post "The Bureaucratic Mind" (and Ludwig von Mises wrote an entire book on the same topic) , that government enterprises are, of necessity bureaucratic. Even when government takes over for profit enterprises, the nature of government leads to a bureaucratic rather than a for-profit management style, and, as a result, government is always less efficient than profit-driven enterprises. (The exception being those fields, such as the military and policing, where for-profit management is not possible.)

So, what is the difference? Von Mises writes quite a bit about the differences between bureaucracies and enterprise management, but int he end, the most essential feature is in motivation. Profit-driven enterprises are pushed by profitability and risk-raking. Yes, there are some who just serve their time, but anyone wanting to get ahead will find quickly that advancement is based on cutting costs, increasing profits or otherwise improving the bottom line. On the other hand, bureaucracy is all about avoiding blame. Yes, sometimes there are ways to make a splash and get ahead, but they are rare, and far more often those who take risks end up failing and being left behind. In a profit-oriented enterprise, one can atone for failure through future successes. As there are so few chances to show one's abilities in a bureaucratic organization, one major failure tends to end a career. And so bureaucracy is all about serving time and avoiding blame, while profit oriented enterprises are mostly about taking risks and showing improvement*.

And this mindset carries over to profitable enterprises the government takes over.

It is not necessary, at least not logically. One could imagine a government run power company, for example, which operated exactly like a profit-driven enterprise, but in reality that never happens. Why not? Because politicians cannot help being politicians. So, when a utility wants to raise rates to cover costs, the politician hears complaints, and puts pressure on the government enterprise. Similarly, as government enterprises are almost always subject to some form of oversight, and oversight beyond simply checking the bottom line, managers must consider the political implication of every decision from hiring to promotion to rates charged, as any mistakes could lead to firing come next review. All of which means that a government owned enterprise will end up emphasizing staying out of trouble over all else. After all, the government does not care about profits, they are using other people's money after all. So showing an increase in profits is meaningless. However, creating a political stir or upsetting a powerful politician could end one's career. So, in the end, government run businesses end up working just like the bureaucracy**.

And this is what causes government to do so badly in fields which are not appropriate for government involvement. Oh, there are other problems, as I described before, for example in "The Limits of Technocracy", "The Limits of Econometrics" and "The Limits of "Scientific" Management", but the emphasis of blame over risk taking is one of the biggest problems. Most of the innovation we experience, as well as the cost cutting, price lowering developments come form those hoping to make a name by taking a risk. Some fail, some prove their ideas wrong, but the ones who do succeed drive innovation. With an emphasis on blame, that innovative pressure is not there. And so government enterprises tend to stagnate***.

Which is one of the many reasons I so strongly oppose handing any more of our economy to the state than we have already. If nothing else, it will bring about a tremendous slowing of our economy. Even if we don't worry about the loss of freedom, the economic harm is something to fear.

----------------------------------------------------------------

* There is an exception in the case of the military and police, as, opposed to the bureaucracy, there are some ways to make a name for oneself in these professions. On the other hand, I doubt many police or military veterans would deny that there is also a tendency among many to keep their heads down and serve their time. In both, a strain of heroism runs in parallel to a bureaucratic trend, so we see both innovation and blame-avoidance in the same organizations. On the other hand, the remaining government enterprises, for example the formal bureaucracy, is almost entire built on blame avoidance. Similarly, heavily unionized jobs tend to have a bureaucratic mindset among employees, mainly because promotion has been divorced from ability, making blame avoidance of paramount importance.

** With many universities getting more income from endowments than tuition, and with another large segment of income coming from government grants, not to mention the fact that "name' universities exist in something like a cartel atmosphere, a lot of universities end up seeming more bureaucratic than enterprise like. Nor are they alone. Certain types of companies, especially those insulated by government protections (eg. Major League Baseball, utilities, banks), and departments within corporations which are not seen as profitable (such as some corporate IT departments), end up adopting bureaucratic demeanors. Of course, any company can become more "blame oriented",m especially those which are losing money and expect to fail, but in general, profit driven companies tend to care less about blame, while those which are driven by political pressures tend to be more concerned with blame.

*** As I mentioned, companies can adopt the blame-oriented model, but the results are uniformly disastrous. Anecdotally, I worked for a company which was losing money during the bursting of the dot com bubble. To hang on to his position, our CTO would fire about 25% of staff every quarter, blaming them for losses. He also engineered a poorly negotiated purchase of a competitor, merging their management with ours, allowing him to later blame them for losses six months later. It was a miserable environment for an employee, but, as anyone could have predicted, firing employees who take chances, eliminating immediately anyone who make the slightest mistake, is a recipe for disaster, and less than a year after I quit the corporation closed most of its IT products division. (It was far too large a company to shut down due to these losses, but it downsized until only a handful proven products, supported by a bare minimum of staff, remained.)