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Why Businessmen Fail at Government

Ludwig von Mises

The plain citizen compares the operation of the bureaus with the working of the profit system, which is more familiar to him. Then he discovers that bureaucratic management is wasteful, inefficient, slow, and rolled up in red tape. He simply cannot understand how reasonable people allow such a mischievous system to endure. Why not adopt the well-tried methods of private business?

However, such criticisms are not sensible. They misconstrue the features peculiar to public administration. They are not aware of the fundamental difference between government and profit-seeking private enterprise. What they call deficiencies and faults of the management of administrative agencies are necessary properties.

It is vain to advocate a bureaucratic reform through the appointment of businessmen as heads of various departments.A bureau is not a profit-seeking enterprise; it cannot make use of any economic calculation; it has to solve problems which are unknown to business management. It is out of the question to improve its management by reshaping it according to the pattern of private business. It is a mistake to judge the efficiency of a government department by comparing it with the working of an enterprise subject to the interplay of market factors.

There are, of course, in every country’s public administration manifest shortcomings which strike the eye of every observer. People are sometimes shocked by the degree of maladministration. But if one tries to go to their roots, one often learns that they are not simply the result of culpable negligence or lack of competence. They sometimes turn out to be the result of special political and institutional conditions or of an attempt to come to an arrangement with a problem for which a more satisfactory solution could not be found. A detailed scrutiny of all the difficulties involved may convince an honest investigator that, given the general state of political forces, he himself would not have known how to deal with the matter in a less objectionable way.

It is vain to advocate a bureaucratic reform through the appointment of businessmen as heads of various departments. The quality of being an entrepreneur is not inherent in the personality of the entrepreneur; it is inherent in the position which he occupies in the framework of market society. A former entrepreneur who is given charge of a government bureau is in this capacity no longer a businessman but a bureaucrat. His objective can no longer be profit, but compliance with the rules and regulations. As head of a bureau he may have the power to alter some minor rules and some matters of internal procedure. But the setting of the bureau’s activities is determined by rules and regulations which are beyond his reach.

Profits vs. Rules

It is a widespread illusion that the efficiency of government bureaus could be improved by management engineers and their methods of scientific management. However, such plans stem from a radical misconstruction of the objectives of civil government.

Like any kind of engineering, management engineering too is conditioned by the availability of a method of calculation. Such a method exists in profit-seeking business. Here the profit-and-loss statement is supreme. The problem of bureaucratic management is precisely the absence of such a method of calculation.

In the field of profit-seeking enterprise the objective of the management engineer’s activities is clearly determined by the primacy of the profit motive. His task is to reduce costs without impairing the market value of the result or to reduce costs more than the ensuing reduction of the market value of the result or to raise the market value of the result more than the required rise in costs. But in the field of government the result has no price on a market. It can neither be bought nor sold.

Let us consider three examples.

A police department has the job of protecting a defense plant against sabotage. It assigns thirty patrolmen to this duty. The responsible commissioner does not need the advice of an efficiency expert in order to discover that he could save money by reducing the guard to only twenty men. But the question is: Does this economy outweigh the increase in risk?

There are serious things at stake: national defense, the morale of the armed forces and of civilians, repercussions in the field of foreign affairs, the lives of many upright workers. All these valuable things cannot be assessed in terms of money. The responsibility rests entirely with Congress allocating the appropriations required and with the executive branch of the Government. They cannot evade it by leaving the decision to an irresponsible adviser.

Intellectual work cannot be measured and valued by mechanical devices.One of the tasks of the Bureau of Internal Revenue is the final determination of taxes due. Its duty is the interpretation and application of the law. This is not merely a clerical job; it is a kind of judicial function. Any taxpayer objecting to the Commissioner’s interpretation of the law is free to bring suit in a Federal court to recover the amount paid. Of what use can the efficiency engineer with his time and motion studies be for the conduct of these affairs? His stop watch would be in the wrong place in the office rooms of the bureau.

It is obvious that—other things being equal—a clerk who works more quickly is a more desirable employee than another who is slower. But the main problem is the quality of the performance. Only the experienced senior clerks are in a position to appreciate duly the achievements of their aides. Intellectual work cannot be measured and valued by mechanical devices.

Let us finally consider an instance in which neither problems of “higher” politics nor those of the correct application of the law are involved. A bureau is in charge of buying all the supplies needed for the technical conduct of office work. This is a comparatively simple job. But it is by no means a mechanical job. The best clerk is not he who fills out the greatest number of orders in an hour. The most satisfactory performance is to buy the most appropriate materials at the cheapest price.

It is therefore, as far as the management of government is concerned, not correct to assert that time study, motion study, and other tools of scientific management “show with reasonable accuracy how much time and effort are required for each of the available methods” and that they therefore “can show which of the possible methods and procedures require the least time and effort.”

The government in issuing a license does not contribute anything to the production, the marketing, and the shipping of this commodity. All such things are quite useless because they cannot be coördinated to the quality of the work done. Speed alone is not a measure of intellectual work. You cannot “measure” a doctor according to the time he employs in examining one case. And you cannot “measure” a judge according to the time he needs to adjudicate one case.

If a businessman manufactures some article destined for export into foreign countries, he is eager to reduce the man-hours spent for the production of the various parts of the commodity in question. But the license required for shipping this commodity abroad is not a part of the commodity. The government in issuing a license does not contribute anything to the production, the marketing, and the shipping of this commodity. Its bureau is not a workshop turning out one of the parts needed for the finishing of the product.

What the government aims at in making exports depend on the grant of a license is restraint of export trade. It wants to reduce the total volume of exports or the volume exported by undesirable exporters or sold to undesirable buyers. The issuance of licenses is not the objective but a technical device for its attainment. From the point of view of the government the licenses refused or not even applied for are more important than those granted. It would therefore not be to the purpose to take “the total man-hours spent per license” as the standard of the bureau’s performance. It would be unsuitable to perform “the operation of processing the licenses ... on an assembly line basis.”

Two Kinds of Efficiency

Government efficiency and industrial efficiency are entirely different things.There are other differences. If in the course of a manufacturing process a piece gets spoiled or lost, the result is a precisely limited increase in production costs. But if a license application is lost in the bureau, serious damage may be inflicted upon a citizen. The law may prevent the individual harmed from suing the bureau for indemnification. But the political and moral liability of the government to deal with these applications in a very careful way remains nonetheless.

The conduct of government affairs is as different from the industrial processes as is prosecuting, convicting, and sentencing a murderer from the growing of corn or the manufacturing of shoes. Government efficiency and industrial efficiency are entirely different things. A factory’s management cannot be improved by taking a police department for its model, and a tax collector’s office cannot become more efficient by adopting the methods of a motor-car plant. Lenin was mistaken in holding up the government’s bureaus as a pattern for industry. But those who want to make the management of the bureaus equal to that of the factories are no less mistaken.

There are many things about government administration which need to be reformed. Of course, all human institutions must again and again be adjusted anew to the change of conditions. But no reform could transform a public office into a sort of private enterprise. A government is not a profit-seeking enterprise. The conduct of its affairs cannot be checked by profit-and-loss statements. Its achievement cannot be valued in terms of money. This is fundamental for any treatment of the problems of bureaucracy.

Excerpt from Bureaucracy 1944.

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