Bureaucracy is a boo-word nowadays. It is blamed for our frustration with big business and government, for rules and rulings that stifle innovation, and for dehumanizing our organizations.
The opposite of bureaucracy is an organization in which individuals are empowered to make decisions without asking for permission or consulting a rule book. They can use their skills and know-how to solve the customer’s problem or embark on a new project.
Empowerment sounds so much better than bureaucracy. And yet bureaucracy survives. In a competitive environment, particularly in business, we should stop and ask ourselves whether bureaucracy serves a useful function.
When an organization suffers from an error, it will often adopt a rule that is intended to prevent the recurrence of such an error. I like to say that such rules are the pearls that grow in response to the irritation caused by errors.
I think that bureaucracy survives because it prevents certain types of errors. Call these Type E errors, meaning the type of errors that might be made by empowered individuals. The errors that bureaucracy itself makes can be called Type B errors. The utility of bureaucracy depends on the relative cost of Type E errors and Type B errors.
If anyone working in a hospital were empowered to administer medication, then a patient might be killed by someone who is not qualified to administer medication. That would be a Type E error. On the other hand, perhaps a patient could die because a qualified doctor or nurse is not around to administer life-saving medication that a less-qualified hospital worker might have provided. That would be a Type B error. I imagine that Type E errors are more of a problem than type B errors, so that a hospital is better run with bureaucratic rules than as a free-for-all where anyone can administer medication.
Fifty years ago, in his book Supermoney, George J.W. Goodman had a chapter about a Swiss bank that failed because a trader took large speculative positions in cocoa futures that lost millions of dollars. That was a type E error. Financial institutions need rules and procedures that constrain individuals from taking unnecessary risks. The more recent case of Sam Bankman-Fried shows that his firm, FTX, would have been better off with a strong bureaucracy.
For every middle manager with a fantastic idea for a new product or a new process, there are dozens of middle managers whose ideas will cost the business a lot of time and effort to try and will fail to pan out. The bad ideas that a business tries are Type E errors. The bureaucracy helps to filter out the risks that are not worth taking, even though it misses out on some of the good ideas.
I would speculate that the Internet has lowered the cost of trying new ideas relative to the days when the economy was dominated by steel makers, automobile makers, and other large manufacturing firms. It does not take as much capital investment to create a new app as it does to build a new factory. This means that Type E errors are relatively less expensive. At the same time, if you don’t innovate, then one of your competitors will. So Type B errors are relatively more costly. So the Internet environment creates more of a bias against bureaucracy than did the mid-20th-century environment of heavy manufacturing.
Bureaucracy was not imposed on humanity just to perpetrate evil. It solves some problems, particularly in capital-intensive firms. In government and non-profits, it can be a tool to hold individuals accountable; otherwise, because there is no profit-and-loss system, there would be no accountability at all.
This is not to deny the problems with bureaucracy. It is not to suggest that it is the best solution for preventing major errors. But there is a Chesterton’s Fence argument for not simply abolishing bureaucracy. Getting rid of bureaucracy is not a shortcut to utopia.
"On the other hand, perhaps a patient could die because a qualified doctor or nurse is not around to administer life-saving medication that a less-qualified hospital worker might have provided. That would be a Type B error. I imagine that Type E errors are more of a problem than type B errors, so that a hospital is better run with bureaucratic rules than as a free-for-all where anyone can administer medication."
What's "more of a problem" depends on your perspective. From the perspective of the patient the type of error is irrelevant. They're dead either way.
The main benefit to the hospital avoiding type E errors while allowing type B errors is that it can generally avoid any liability for type B errors since it's almost impossible to prove that a patient died of inaction rather than action. This is generally the biggest problem in any bureaucracy. Harm caused by action results in concrete and actionable liability while any harm resulting from inaction is generally diffuse and inactionable, giving all bureaucracies a bias towards inaction and avoidance rather than problem-solving.
Great phrasing, Empowered vs Bureaucracy problems. With a trade off, of getting more of one whenever a system changes to get less of the other. Very analogous to Type I & Type II errors of false positives & false negatives.
Also important to note that bureaucracy is required for organizations, to coordinate actions. Not noted explicitly is that org bureaucracy is far more needed in order to build something big, than to merely protest or oppose (or write comments). But bureaucracies get slower over time, so their cost slowly increases.
In IT software dev, the waterfall method is quite bureaucratic, and slow, yet was built up to avoid errors that are costly to fix. The agile idea is to empower the small team of developers to more quickly crank out something that works, also seen in hackathons.
Society needs more work on identifying ways to make bureaucracies, not just organizations, work better. 8 year term limits on US govt bureaucrats, about 13% per year turnover, seems like a change for the better (Vivek).