Theory of Bureaucracy

May 20, 2009 at 11:40 pm Dave Martin 3 comments

This is my introductory post to go back to first principles, to begin working on the philosophy that underlies this blog.

The blog is about individualism. The primary counter to individualism is organization, and its modern preeminent form – Bureaucracy. My life studies in human interaction led me to study the nature and form of human interaction. Government and “society” seemed to be ethereal concepts to me as a young man, so I worked to understand business in a conscious effort to limit my scope.

What I found is that my studies in business led me to understand human organization, and ultimately, the ideas of government and society. Many of my colleagues, having been interested in my business ideas, were disappointed that my blog hasn’t spent much time within that realm. It is my wish to begin a series of posts that work on melding these ideas together.

W. Edwards Deming was the catalyst for my awakening. Deming taught me about variation and uncertainty, about respect for the individual. From there, many ideas flourished.

Bureaucracy cripples individualism. In a bureaucracy, people fall into the ranks. A heirarchy is established which filters ideas to the top, vested in a few decision makers that choose the “right” or “wrong” ideas. Ultimately, the right or wrong ideas are only those ideas that are right or wrong in the opinion of the person supporting or quashing those ideas.

Organizations go through several phases. They begin with an idea, launched by an entrepreneur with a commitment that his idea will sell, which is to say that it will present value to enough people to provide him with a profit. If there is initial success, the entrepreneur and those he has collaborated with to bring the idea to market begin to flourish.

In this stage, the organization is dynamic. The ideas matter, and everyone works toward the goal. But something tragic occurs along the line: Organization creeps in.

There is a whole school of management theory that dominates most individuals, and for the most part, goes completely unchallenged: It is the school of control. When decision making gets more and more distributed among larger numbers of individuals, those who are in “control” lose their locus of control – they can’t be involved in every decision at every moment. And when mistakes are made that they didn’t have a direct decision over, they become quite uncomfortable.

This is where one of my core precepts – Management by Exception – comes in. Each undesirable outcome brings about a new “rule” to prevent it from happening again. Rather than dealing with the decision of an individual, and working with them to understand the consequences of their decision, and learning from it, we pass a “rule” to prevent it from happening again.

Any “rule” passed among a group to manage the possible negative outcomes of an individual action stifles the freedom and creativity of the rest of the group. Bureaucracy is built on rules.

Most entrepreneurs pass through this stage, and then it becomes all about the “people.” If only the people would “do their jobs” everything would work out fine. But as they lose their local control, most entrepreneurs believe that people can’t be trusted to do their jobs, they need external control to bring about the correct behavior. Thus the Carrot and Sticks school of management.

As an organization becomes more bureaucratic, the people at the top of the hierarchy become further and further detached from the dynamics of human interaction at the problem-solving level.

Here’s where I’ll work on putting it together into a cohesive theory: The myriad exceptions become intolerable to the people at the top. There is too much variation in the system, too much uncertainty. So they pass more and more rules to eliminate uncertainty, and they stifle all of the dynamics that allow them to better serve customers. In a true free market, this organization dies because its market share is picked away by younger, more flexible, and more dynamic organizations. But we do not function in a free market…

The need for control, built in to the DNA of a bureaucracy, make it wish to eliminate uncertainty. In a free market, uncertainty is the name of the game. In their effort to bring about certainty, unscrupulous business leaders look to use force on the market place.

Government is the monopoly on the use of force.

This is the essence of corporatism, the poisonous relationship between business and government. Government is the ultimate form of bureaucracy, the quintessential form of hierarchical, command-and-control management. What government makes a rule becomes “law”, and business leaders can use this “law” to quash their competition and force their business model on consumers, restricting their choice in the marketplace.

The Law, most eloquently stated by Frederic Bastiat, has only one purpose: To protect the life, liberty, and property of individuals. Any legislation written that restricts or denies the individual his life, liberty, or property is not law at all, it is a tool of plunder.

The individuals that make up this fiction called “government” live off the plunder of individuals. As Murray Rothbard said, they are nothing more than a band of thieves writ large.

Corporations are a creation of the state. It is a deal with the devil (government) exchanging a protection against liability for an oath of loyalty to the state. In trading their desire for certainty for external control by the rule of men in the state, entrepreneurs sell their soul to the state.

There are many ideas to expand upon based on this post, and I’ve barely scratched the surface. It is neither comprehensive nor well organized – it’s a start on some ideas. This is the purpose of this blog.

I need a lot of feedback from the readers of this blog to continue to work on these ideas. Most of you know me well for my ideas related to business. We can use this as a basis to expand the ideas out to the fictional ideas of government and society.

Business and Management, Corporatism none

#1 | Written by rcj on May 21, 2009. Reply

Wow, there is a lot there. I will come back and read it again with more considered thoughts, but here are some from the hip.

Granted doing business in the United States requires registration and the payment of taxes to the government(s). I however view it as a necessary evil vs. a deal exchanging liability protection for loyalty. From my perspective you can’t buy loyalty, it requires something more. The exchange is protection for a responsibility to pay taxes.

I have a slightly different understanding of early markets and mass adoption of a product or service. In general, by the time you have been able to navigate through early markets and I am talking about innovation here, not just someone starting an accounting business, the business has had to bring in many people to explore opportunities, knock down the Geoffrey Moore “Bowling Pins” and get to mass adoption. It is rare that one person can bring an innovation to the market, so talking about the growth of control in the terms of an individual desiring them seems weak to me.

As new ideas do reach a mass adoption stage, there is a huge need to be able to deliver and deliver consistently. Consequently there is a need for understanding and managing variation. Management is put in place to protect the idea the market has adopted and that desire for protection, coupled with poor management practices does lead to controls that will eventually kill an organization unless they can find an alternative method to explore new ideas.

Mass adoption does require a large organization / network of individuals, so even if the government did not offer some liability protection in exchange for tax liability, these businesses would grow organizations. In general, I think you are making more out of the link between corporations and government than is really there, for the majority of companies. However, most of the largest of companies do find ways to leverage the power of the government for their own good and this is not healthy. I agree that the government should not be involved in business.
#2 | Written by DM on May 21, 2009. Reply

Thanks for the feedback Bob (rcj), I knew I could count on you to get involved in this topic…

You’ve given me some ideas for direction in the forthcoming posts, but I’d like to address a few points here in the comment section specifically.

I should have stated more explicitly that in writing about corporatism, I am addressing the huge mega-corporations, the ones most closely tied to government. My company is a C-corp, but I am far from a corporatist. Like most entrepreneurs, I’m a pawn in the state’s corporate game – however, I’m still essentially forced to incorporate because the rules are stacked against me should I choose not to incorporate.

In coming posts, I’ll address how the mega corporations use government to erect barriers to competition, and how profoundly that affects the lifeblood of the economy, the small, innovative, entrepreneurial company.

So in presenting my model of bureaucracy, I’m pointing out how companies in general tend to become more “organized” and how the rigidity it brings about slows their ability to innovate. I suspect I’ll need to “zoom in and zoom out” in my analysis, from smaller to larger companies to better clarify.

When I speak of innovation, I’m not simply talking about bringing a completely new product to market. Entrepreneurial innovation takes many forms, but it’s all based on the individual’s idea that he can do something a little better than the others and add value to the marketplace – so, in fact, a startup accounting firm is not exempt from my analysis.

Your point that even without government protection businesses would grow their organizations is absolutely true – my contention is that as organizations get larger and larger, they become more and more difficult to manage under the dominant paradigm of bureaucracy, and that these giant dinosaurs find themselves losing market share to faster, leaner competition. I think I’ll need to address the life cycle of business to clarify.

I’m pleased that you opined that I’m going a little too far in the link between government and corporations. My challenge in this series of posts will be to convince you that this is not the case, that in fact a clear understanding of corporatism will reveal the root cause to most of our problems in the economy. Overall, I’m excited about the direction we’ll be taking with this topic – I think I have a lot of work to do here.
#3 | Written by mikehell on July 29, 2009. Reply

Nice post, “DM”. I’ve always felt that bureaucracy, a word that I can barely even spell, is the worst thing for creativity and productivity. People should learn to embrace uncertainty rather than try to insulate themselves from it with organizational barriers.

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