Abstract
This chapter introduces readers to the modern theory of bureaucracy, which emphasizes that in all hierarchical organizations, bureaucrats are at the same time both the superiors of someone and the subordinates of someone else. Unlike traditional models of bureaucracy, the modern theory assumes that the relationships between superiors and subordinates in bureaus are governed by the neoclassical economics principles of exchange and trade instead of by the issuing of orders and directives. In the modern model, subordinates offer “informal services” to superiors, who make “informal payments” to subordinates. Both trust and networks are accumulated over time by rational individuals who wish to trade with one another, leading to the kinds of efficiencies that made the Nazi apparatus of murder so effective.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsNotes
- 1.
The relationship between superiors and subordinates, which depends on whether the superiors are politicians, entrepreneurs, owners, managers, or employers and the subordinates are deputy ministers, directors, managers, or ordinary employees, is the central focus of the Breton and Wintrobe (1982: 1–2) theory of bureaucratic conduct.
- 2.
This proposition breaks down at only the very top or the very bottom of a hierarchical organization (Breton and Wintrobe 1982: 2).
- 3.
As Breton and Wintrobe (1982: 2) point out, this is a view characterized by the mantra “obey, carry out, and follow.” This particular view stands in stark contrast to an alternative view positing that subordinates do whatever they want, pursuing their own goals and objectives. Superiors hold no (or little) sway in this view, which is consistent with the mantra “disobey, do not carry out, and disregard” (Breton and Wintrobe 1982: 2).
- 4.
The complexity, extent, and influence of such informal structures are all under control of bureaucrats (Breton and Wintrobe 1982: 5).
- 5.
See McManus (1975) for the circumstance that arises when the value and/or quality of the goods or services traded are difficult to measure.
- 6.
As Breton and Wintrobe (1986: 910) put it in their more recent study, “[b]ecause of the nature of the services provided and because of the properties of the resources used in these superior-subordinate exchanges, the largest fraction of them will not be spot transactions, but sometimes the payment and at other times the services rendered will come first, with varying lags between the two.”
- 7.
The two circumstances are developed from Breton and Wintrobe (1982: 63).
- 8.
Breton and Wintrobe (1982: 64) explain, alternatively, that “in these exchanges the quid pro quos cannot be defined in advance, not because of ill will but because those who demand informal services do not know, at the time the services are required, what they will be able to give in exchange and/or when they will be able to pay their suppliers … [t]hus, bureaucracies are characterized by numerous outstanding loans.”
- 9.
- 10.
See Breton and Wintrobe (1982) for more on this particular approach.
- 11.
As pointed out by Breton and Wintrobe (1982: 109), the tradition of the Austrian School that is used to model the competition between bureaus emanates from the work of Carl Menger, Friedrich von Hayek, Ludwig von Mises, and Joseph Schumpeter, to name a few, with the most specific and detailed elements owing to Schumpeter (1955, 1975).
- 12.
As Breton and Wintrobe (1982: 112) explain, “Austrians other than Schumpeter define entrepreneurship as alertness to opportunities. In their view, the entrepreneur sees or grasps opportunities; he does not create them.”
- 13.
Examples of Schumpeterian competition in the public sector include the New Deal of the 1930s, social security, nationalized healthcare, and others, the ideas for which, in some cases, originated with citizens’ groups, academics, social critics, the media, and private business rather than with the bureaucracy or with politicians (Breton and Wintrobe 1982: 111–112).
- 14.
- 15.
Recall that in the Breton and Wintrobe (1982) model of bureaucracy, over any given policy, subordinates freely choose whether to exhibit efficient or inefficient behavior, a construct referred to therein as selective behavior. It is worth noting here that the principal-agent theory, which focuses on separation of ownership and control (Tirole 1988), also represents a source of friction and inefficiency in this context.
- 16.
This means that growth in productivity, ΔQ, will be positively related to changes in vertical trust, ΔTV, and negatively related to changes in horizontal trust, ΔTH (Breton and Wintrobe 1982: 133–134).
- 17.
See Hashimoto (1979) for an explanation of this conclusion in the traditional business context (i.e., employers and employees).
- 18.
See Breton and Wintrobe (1982: 135–136) for an in-depth analysis of the costs to the organization, of promotions.
- 19.
The modern public choice view of rent-seeking, which can be defined as the use of resources in the pursuit of government favoritism or privilege (Tullock 1967, 1989; Krueger 1974; Posner 1975), described by Mixon et al. (1994), Mixon (1995), Laband and McClintock (2001), Sobel and Garrett (2002), Holcombe (2016), also includes various in-kind forms of rent-seeking, such as fancy restaurant meals, chauffeur (limousine) services, escort services, massage services, sports arena suites, business patronage, and discounted real estate.
- 20.
Whether productivity rises or falls following an increase in turnover (i.e., X) depends on whether selective behavior, as determined by promotions and perquisites, is primarily efficient or inefficient (Breton and Wintrobe 1982: 138).
- 21.
This relationship mirrors that for turnover among subordinates in a bureaucracy (Breton and Wintrobe 1982: 139).
- 22.
On the other hand, if behavior is mainly inefficient, then ∂Q/∂XA > 0, which means that productivity rises with turnover among the superiors in a bureaucracy (Breton and Wintrobe 1982: 139).
- 23.
In fact, Crisp and Mixon (2011) indicate that a reversal of only 32,733 popular votes would, if correctly placed, have given McClellan a 117 to 116 Electoral College victory in 1864.
- 24.
Mixon and Treviño (2002) detail a similar, though unsuccessful, attempt by British Prime Minister Winston Churchill to win the national election in 1945 by preventing, rather than facilitating, the soldier vote (in the field).
- 25.
This figure is adapted from Crisp and Mixon (2011).
- 26.
Despite the lack of assurances on either margin, it can be inferred that a substantial degree of trust and loyalty existed, at that time, between Lincoln and those subordinates who provided the informal services that facilitated his 1864 election victory.
- 27.
References
Alchian, A.A., and H. Demsetz. 1972. Production, Information Costs, and Economic Organization. American Economic Review 62: 777–795.
Anderson, G.M., and R.D. Tollison. 1991. Political Influence on Civil War Mortality Rates: The Electoral College as a Battlefield. Defence Economics 2: 219–233.
Bracher, K.D. 1970. German Dictatorship: The Origins, Structure, and Effects of National Socialism. New York: Praeger.
Breton, A., and R. Wintrobe. 1975. The Equilibrium Size of a Budget-Maximizing Bureau: A Note on Niskanan’s Theory of Bureaucracy. Journal of Political Economy 83: 195–207.
———. 1982. The Logic of Bureaucratic Conduct. New York: Cambridge University Press.
———. 1986. The Bureaucracy of Murder Revisited. Journal of Political Economy 94: 905–926.
Broszat, M. 1981. The Hitler State: The Foundation and Development of the Internal Structure of the Third Reich. London: Longmans.
Burlingame, M., and J.R.T. Ettinger. 1997. Inside Lincoln’s White House: The Complete Civil War Diary of John Hay. Carbondale: Southern Illinois University Press.
Chant, J.F., and K. Acheson. 1973. Bureaucratic Theory and the Choice of Central Bank Goals: The Case of the Bank of Canada. Journal of Money, Credit, and Banking 5: 637–655.
Crisp, A.M., and F.G. Mixon Jr. 2011. Lincoln’s Wartime Incumbency Network: Vertical Trust, Informal Payments, and the U.S. Presidential Election of 1864. Journal of Public Finance and Public Choice 29: 123–139.
Deskins, D.R., H. Walton, and S.C. Puckett. 2010. Presidential Elections, 1789–2008: County, State, and National Mapping of Election Data. Ann Arbor: University of Michigan Press.
Donald, D.H. 1996. Lincoln. New York: Simon & Schuster.
Hashimoto, M. 1979. Bonus Payments, On-the-Job Training, and Lifetime Employment in Japan. Journal of Political Economy 87: 1086–1104.
Holcombe, R.G. 2016. Advanced Introduction to Public Choice. Northampton: Edward Elgar.
Klein, B., and K.B. Leffler. 1981. The Role of Market Forces in Assuring Contractual Performance. Journal of Political Economy 89: 615–641.
Kogon, E. 1980. The Theory and Practice of Hell: The German Concentration Camps and the System Behind Them. New York: Berkley.
Krueger, A.O. 1974. The Political Economy of the Rent-Seeking Society. American Economic Review 64: 291–303.
Laband, D.N., and G.C. McClintock. 2001. The Transfer Society. Washington, DC: Cato Institute.
McManus, J.C. 1975. The Costs of Alternative Economic Organizations. Canadian Journal of Economics 8: 334–350.
Migué, J., and G. Bélanger. 1974. Towards a General Theory of Managerial Discretion. Public Choice 17: 27–43.
Mixon, F.G., Jr. 1995. To the Capitol, Driver: Limousine Services as a Rent Seeking Device in State Capital Cities. International Review of Economics 42: 663–670.
Mixon, F.G., Jr., and L.J. Treviño. 2002. Politicians as Utility-Maximizing Agents: Public Choice and the British National Election of 1945. International Journal of Social Economics 29: 956–962.
Mixon, F.G., Jr., D.N. Laband, and R.B. Ekelund Jr. 1994. Rent Seeking and Hidden in-Kind Resource Distortion: Some Empirical Evidence. Public Choice 78: 171–185.
Niskanen, W.A., Jr. 1968. The Peculiar Economics of Bureaucracy. American Economic Review 58: 293–305.
———. 1971. Bureaucracy and Representative Government. New York: Aldine-Atherton.
———. 1975. Bureaucrats and Politicians. Journal of Law and Economics 18: 673–643.
Posner, R.A. 1975. The Social Costs of Monopoly and Regulation. Journal of Political Economy 83: 807–828.
Schumpeter, J.A. 1955. The Theory of Economic Development. Cambridge, MA: Harvard University Press.
———. 1975. Capitalism, Socialism and Democracy. New York: Harper & Row.
Shapiro, C. 1983. Premiums for High Quality Products as Returns to Reputation. Quarterly Journal of Economics 98: 659–679.
Sobel, R.S., and T.A. Garrett. 2002. On the Measurement of Rent Seeking and its Social Opportunity Cost. Public Choice 112: 115–136.
Telser, L.G. 1980. A Theory of Self-Enforcing Agreements. Journal of Business 53: 27–44.
Thomas, B.P., and H.M. Hyman. 1962. Stanton: The Life and Times of Lincoln’s Secretary of War. New York: Alfred A. Knopf.
Tirole, J. 1988. The Theory of Industrial Organization. Cambridge: The MIT Press.
Townsend, T. 2011. Lincoln, Grant, and the 1864 Election. http://www.nps.gov
Tullock, G. 1967. The Welfare Costs of Tariffs, Monopolies, and Theft. Western Economic Journal 5: 224–232.
———. 1989. The Economics of Special Privilege and Rent Seeking. Boston: Kluwer.
White, R.C., Jr. 2009. A. Lincoln: A Biography. New York: Random House.
Wintrobe, R. 1976. The Economics of Bureaucratic Organization. Doctoral Dissertation, University of Toronto.
Zornow, W.F. 1954. Lincoln and the Party Divided. Norman: University of Oklahoma Press.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2019 The Author(s)
About this chapter
Cite this chapter
Mixon, F.G. (2019). The Modern Theory of Bureaucracy. In: A Terrible Efficiency. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-25767-5_2
Download citation
DOI: https://doi.org/10.1007/978-3-030-25767-5_2
Published:
Publisher Name: Palgrave Pivot, Cham
Print ISBN: 978-3-030-25766-8
Online ISBN: 978-3-030-25767-5
eBook Packages: Economics and FinanceEconomics and Finance (R0)