Posts Tagged ‘general prosperity’

Bureaucracy vs Complexity

Thursday, June 21st, 2012

Dear Friends,

It seems to me, the main difference between bureaucratic and complex systems, is that bureaucracies are inefficient and primarily benefit those in charge, while complex systems are extremely efficient and the benefits are more widely distributed. This is a well known truth yet is overlooked by most people. This fact can be applied to many areas of life but is most appropriate in the sphere of economics. Overlooking or disregarding this reality leads to all sorts of negative outcomes, like huge trade deficits, lowered economic outcomes, low or even negative GDP growth, and even outright tyranny.

Bureaucracies are hierarchical in structure. This type of system is characterized by a top down decision making structure. The commanders in such a system can be a single person or a group of people. All governmental structures are built this way. The decisions are made at the top, the middle men enforce them and the people dutifully carry them out. Unfortunately, the natural evolution of this type of system, is for those in charge to become more and more selfish. Feeding both their greed and egos until all the efficiency is wrung out of the system and only the people at the top get any benefits.

This is only one avenue of inefficiency in the bureaucratic system. Perhaps the primary source of inefficiency in a bureaucracy, is that so many decisions need to be made every second of every day in a modern economy, it becomes impossible for any group of people, no matter how smart or benevolent, to keep up. The task is simply too herculean. Just think about how many decisions need to be made when you build a house. The floor plan must be thought out, the type of heating system must be determined, the electrical feed must be decided, the exterior siding and trim must be considered, the color of the home is important to it’s blending into its surroundings, the interior color scheme and trim must also be considered, the roof system and treatment must be thought out, the list goes on and on. This doesn’t even take into account the millions of smaller decisions that need to be made, like figuring the rise and run of the cellar stairs, how long to cut each stud, the rafters must be measured and bird’s mouths cut… etc. Now, magnify this a hundred million times, and we have the decisions that are made in a simple economy in a single second.

Command and control economies, like socialist and communist, are forms of bureaucracies. If we look at the historical examples, of governments that have been socialistic or communistic, we see that this paradigm holds true. Those at the top get the goods while the people get the orders.

Complex systems are distributive in their structure. Decisions are made at the lowest level possible by the people who have the most information regarding them. This distributed decision making structure of the complex system, is the fundamental reason complex systems are so much more efficient… than bureaucratic ones. As the decisions themselves, are made by those most able to amass the necessary information to make them, in the most efficient way possible, the benefits are also distributed to the people… not the bureaucrat. Another reason complex systems are more efficient is that they build in competition. Competition forces efficiency, because those that are less efficient, are surpassed by those who are more efficient. This makes the limited money available more wisely spent and thus achieves the most bang for the buck.

Demand side economics is a form of bureaucratic decision making process, while supply side economics is a form of complex system. Demand side, as expressed by John Maynard Keynes, empowers the bureaucrat to take money from the earners and spend it to drive up demand. Supply side encourages those people who earn money to make their own decisions what to do with it. The one presupposes the individual will make the most of their own money while the other presupposes the government will make the most of someone else’s money.

The upshot is that demand side’s inefficiency’s create incentives to corruption, huge government deficits, general poverty and outright oppression, the other, supply side, leads to economic growth, personal freedom and general prosperity. But demand side has one thing going for it, it empowers those in charge, to misspend money earned by others, to massage their egos, enhance economic outcomes for the rulers and create a perpetual ruling class. As Thrasymachus said, most people just want to be left alone but those great men want power…

So I ask, is it more important that “great” men have power, or that there be general prosperity?


John Pepin