Academic journal article Quarterly Journal of Austrian Economics

The Economic Theory of Bureaucracy: Insights from the Niskanian Model and the Misesian Approach

Academic journal article Quarterly Journal of Austrian Economics

The Economic Theory of Bureaucracy: Insights from the Niskanian Model and the Misesian Approach

Article excerpt

ABSTRACT: Governmental interventions in the economy take numerous forms, and they require the existence of a public authority, a bureaucracy, to implement them. This article proposes an analysis of the origins and the dynamics of bureaucracy, and discusses means of escaping bureaucracy's disadvantages. I will proceed by means of a comparison between the theories of Niskanen and Mises, two impressive and very representative works from the Public Choice School and the Austrian School of economics. Although Mises and Niskanen share a common analysis of the defect of bureaucratic management, there are strong disagreements between the two authors about the reasons for the existence of bureaus and about their functioning and their deficiencies. Inevitably, the means proposed by Niskanen and Mises for escaping the disadvantages of bureaucracy are different and can not be reconciled.

The predominance of the state in our contemporary economies is an important characteristic of the twentieth century. State interventions in the economy take many different forms: taxation, subsidization, prohibition, obligation, restriction of production, monopoly, and inflation (Mises 1998a; Rothbard 1970). Each governmental intervention requires the existence of a public authority, a bureaucracy, in charge of implementing public policy. These organizations are called bureaucracies. They deserve thorough investigation, because of their central role in governmental interventions.

Since Weber's (1952) seminal works,1 a large literature coming from different fields of investigation has dealt with bureaucracy. The present paper focuses particularly on the reasons for the existence of bureaucracy, its dynamics, and the means of escaping its disadvantages. The analysis proceeds by means of a comparison between the Public Choice approach to the analysis of bureaucracy and the Austrian version, and it aims at understanding the main characteristics of these two alternative theories of bureaucracy.2 I have chosen to focus on the works of Niskanen and Mises because they are representative of the two schools of thought.3

The first part of this paper deals with the reasons for the existence of bureaucracy. According to Niskanen's approach, bureaucracy exists as a result of failures of the market. He proposes a behavioral theory of bureaucracy, arguing that bureaucracy functions by circumscribing the effects of incentives inside the organization. In the Misesian framework, bureaucracy is seen as the counterpart of interventionism and of the absence of the profit motive. This approach to bureaucracy rests upon a praxeological perspective and aims toward a praxeological theory of bureaucracy. The second part of this article will present an analysis of the dynamics of bureaucracy, which Niskanen explained in terms of its organization and which Mises understood as a self-sustained process and an institutional dilemma. The final part of the paper will present the means proposed by both authors of escaping the disadvantages of bureaucracy.

I. BUREAUCRACY: THE RESULT OF MARKET FAILURES OR OF GOVERNMENT HINDRANCES?

In Niskanen's view, the bureaus result from the inability of the market to supply certain goods or services. They provide a means of compensating for the deficiencies of the market. Niskanen's approach is essentially concerned with the allocation of resources inside the organization and with the provision of adapted incentives to make bureaucracy efficient. Thus, Niskanen develops a behavioral theory of bureaucracy. According to Mises, bureaucracy appears as the unavoidable outcome of government hindrances of the market process. The main consequence of bureaucracy is the impossibility of economic calculation. Bureaucracy means inefficiency in allocating resources and some hindrances of human plans. Mises emphasizes the praxeological considerations of bureaucratic conduct of affairs and defends a praxeological theory of bureaucracy. …

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