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A Plea for "Good" Bureaucracy - IUF comment 24/2006

Dr. Susanne Maria Schmidt, Executive Director, German Instiute for Economic Research (DIW Berlin)

The call for debureaucratization is seen as an endeavor towards a new balance between the private and public sectors. According to the Gabler Dictionary of Economics, bureaucracy is a legal rational form of organization that is indicative of modern state administrations, corporations, firms, associations, political parties, churches, military organizations, etc. Because bureaucracy is recognized as a regulated system, debureaucratization cannot be a desirable goal.  


The majority of those who are in favor of debureaucratization are merely searching for a new balance between necessary and important bureaucracy and individual freedom of action. The same economic dictionary defines "red tape" as an excessive increase of bureaucracy and this definition gives us a clearer understanding of "bureaucracy."  


As a general rule, as clear-cut regulated hierarchies show, a legal rational form of organization is desirable. However, it is only sought after if it is flexible and produces comprehensible decisions. Both this type of "good" bureaucracy and red tape are products of human actions and human decisions. A legal rational form of organization is not divine law; rather, it has been created by individuals from different organizational units in both corporations and ministries. If the development of these organizational units were independent from individuals, then the decisions would merely be the constant use of algorithms that could be administered throughout Germany by some IT-professionals using a server in Dreilinden (major center for hi-tech start-ups near Berlin). Thus, if red tape is a result produced by individuals, then individuals can also produce "good" bureaucracy.  



Five conditions for the development of "good" bureaucracy are fundamental:  



1.Rules of Freedom  


Basically, governmental norms are widely relational agreements. There are no perfect rules that can uncover all likely possibilities, which makes the freedom to make decisions in every regulatory hierarchy inevitable. The quest for the establishment of such "autonomous" regulations ends in the jungle of decrees that even bureaucrats do not regularly look through or understand. Therefore, bureaucrats should and must use their discretion when making decisions.  


This then becomes problematic if there are unclear boundaries between discretionary decisions and arbitrariness. When are we dealing with the warranted and weighted utilization of autonomous decisions and when are we dealing with arbitrariness is not always clear. This problem is not easily solved in any system and cannot be prevented by more detailed rules.  


Therefore, the objective should be to give a clear framework in advance through rules that require bureaucrats to make discretionary decisions that are systematically justified and documented so that the decisions would be understandable by a third party (e.g. before a court of law). Abuse can be limited by severely punishing misbehavior. But the most effective way to limit abuse is by installing informal rules (i.e. a "Code of Conduct"). However, nothing on earth can prevent abuse.  



2. Common Sense and Trust  


Discretionary latitude is only advantageous if the bureaucrat understands that he is encouraged to use it. If a bureaucrat trusts the entrepreneur that trust should be based on "allegiance and faith" and, after he has exhausted all possibilities to verify the content, the bureaucrat must be allowed to use his common sense without later being punished. This requires entrepreneurs and courts, which take the use of "common sense" into account, to accept this principle.  


If bureaucrats take all known and realistic precautions, they should feel comfortable when they implement their decisions. Control systems that seek to replace "common sense" or point the bureaucrat in the wrong direction have to fail in the medium-term. The acceptance of the entire regulatory hierarchy by individuals definitely depends on intuitive judgment. Counterintuitive bureaucracy will end in red tape and prevent what should be achieved; namely, a legal rational system.  



3. Transparent and Executable Instruments  


Even among bureaucrats there are innovative, open-minded, risk adverse people. This type of bureaucrat is also in demand, because he uses new methods to find solutions. However, it makes little sense to appoint such individuals to executive positions in governmental organizations without providing them with the necessary instruments. An efficient bureaucracy can only exist where transparency governs. This assumes a systematic accounting system exists, whereby the measurement of performance has the same weight as the registration of costs.  


German bureaucrats do not control either, because the kameral financial system does not give clarity over the financial situation and the measurement of performance assumes that a target-based management analysis is being used. The question, "What should be achieved by the rules and what adverse effects might arise" is only posed when lobbyists want to avoid the issue. The bureaucrat can only recognize, assess and judge these points in advance, if the relevant instruments are available. Before the rules can be adopted, a "business case" must be prepared that will anticipate the effects and provide a clarification for the basis of decision-making.  



4. The Attitude of "Good" Bureaucrats  


Formal rules and target-oriented instruments only make life easier for all parties, if the bureaucrats develop and/or use it with a "pure heart" and the applicable qualifications. Furthermore, executive positions in administrative authorities and ministries are filled based on criteria that neither favors the institution nor the executive or even the individual employee, i.e. a target-oriented employee. Based on this system, every competing entrepreneur would file for bankruptcy within a few months.  


Together, the Federal Ministry of Education, the Federal Ministry of Finance and the Federal Ministry of Economics regulate approximately 500 appointed executive positions using criteria based upon antiquated public services law or Parteienarithmetik (dependent on the strength of political parties within the Parliament) and not based on modern human resource practices. Traditional career promotion schemes are being followed which prevent the enlistment of recruiting consultants. However, at least the Federal Auditing Office is critically observing this practice. The consequence of following such hiring practices is that that unqualified people are being placed in important positions.  


The situation becomes complicated when top performers and risk-takers expect to be rewarded with attractive carrier opportunities and remuneration systems in return for their commitment. As long as this is not the case in the public sector, it will be difficult for ministries and administrative authorities to find exceptional top performers. This area is a crucial to enable the process of change from red tape to "good" bureaucracy.  



5. Courageous Citizens  


If this all sounds reasonable, one has to ask: why hasn't anyone implemented it yet? The cultural change that ministries and administrative authorities must go through before formal regulations can be adopted is fundamental and would arise from a cultural revolution that would take at least a decade. Uncertainty, conflicts and turmoil would not only haunt the bureaucrats, but would also throw the entrepreneur and citizens into confusion. The internal balance would have to be utterly confused to reach a new balance between the public and private sectors. Under these circumstances, the consequences of increased transparency is that abuse of the system to gain a material advantage would be renounced and the accustomed consistency, under which some administrative authorities operate, would be severely disturbed.  


Most people do not want turmoil and would prefer that change occur outside their own sphere of influence. Generally, most people enjoy making across-the-board complains about bureaucracy. However, if they were to take the initiative and petition the government to loosen the regulations, they fear their request will be denied.  




  • Dr. Susanne Maria Schmidt, Executive Director, German Instiute for Economic Research (DIW Berlin)




Yes, I want current messages of the Institute for Free Enterprise:


Thomas Jefferson (1743-1826)

"I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it."

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