The Difference Between the Market and the Bureaucracy

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[This article is an adapted selection from “Bureaucracy and the Civil Service in the United States.”]

In a business firm on the market, the desires and goals of the managers are yoked to the profit-making goals of the owners. As Mises says, the manager of a branch must make sure that his branch contributes to the profit of the firm. But, shorn of the regiment of profit-and-loss, the desires and goals of the managers, limited only by the prescriptions and budget of the central legislature or planning board, necessarily take control. And that goal, guided only by the vague rubric of the “public interest,” amounts to increasing the income and prestige of the manager. In a rule-bound bureaucracy, that income and status inevitably depend on how many sub-bureaucrats report to that manager. Hence, each agency and department of government engage in fierce turf wars, each attempting to add to its functions and the number of its employees, and to grab functions from other agencies. So that while the natural tendency of firms or institutions on the free market is to be as efficient as possible in serving the demands of consumers, the natural tendency of government bureaucracy is to grow, and grow, and grow, at the expense of the fleeced and benighted tax-payers.

If the watchword of the market economy is profit, the watchword of bureaucracy is growth. How are these respective objectives to be achieved? The way to attain profit in a market economy is to beat the competitors in the dynamic, ever-changing process of satisfying consumer demands in the best possible way: to create a self-service supermarket instead of the older grocery store (even a chain store), or to create a Polaroid or a Xerox process. In other words, to produce concrete goods or services that consumers will be willing to pay for.

But to attain growth, the bureaucratic manager must convince the legislature or planning board that his service will, in some vague way, aid the “public interest” or the “general welfare.” Since the taxpayer is forced to pay, there is not only no incentive or reason for the bureaucrat to be efficient; there is no way that a bureaucrat, even with the most eager will in the world, can find out what the consumers want and how to meet their demands.

Users pay little or nothing for the service, and even if they do, investors are not allowed to experience profit or loss from investing in producing that service. Therefore, the consumers will simply have to allow the bureaucrats to bestow their services upon them, whether the consumers like it or not. In building and operating a dam, for example, the government is bound to be inefficient, to subsidize some citizens at the expense of others, to misallocate resources, and generally to be at sea without a rudder in supplying the service.

Moreover, for some citizens, the dam may not be a service at all; in the jargon of economists, for some people, the dam may be a “bad” not a “good”. Thus, for environmentalists who are philosophically opposed to dams, or to farmers and homeowners whose property may be confiscated and flooded by the Dam Authority, this “service” is clearly a negative one. What is to happen to their rights and properties? Thus, government action is not only bound to be inefficient, and coercive against taxpayers; it is also bound to be redistributive for some groups at the expense of others.

The major group the bureaucrats benefit is, of course, themselves. Their entire income is extracted at the expense of taxpayers. As John C. Calhoun pointed out in his brilliant “Disquisition on Government,” bureaucrats pay no taxes; their alleged tax payments are a mere accounting fiction. The existence of government bureaucracy, Calhoun pointed out, creates two great conflicting classes in society: the net taxpayers, and the net tax-consumers. The greater the scope of taxes and of government, then, the greater the inevitable class conflict created in society. For, as Calhoun states:

“The necessary result, then, of the unequal fiscal action of the government is to divide the community into two great classes: one consisting of those who, in reality, pay the taxes and, of course, bear exclusively the burden of supporting the government; and the other, of those who are the recipients of their proceeds through disbursements, and who are, in fact, supported by the government; or, in fewer words, to divide it into tax payers and tax-consumers.

“But the effect of this is to place them in antagonistic relations in reference to the fiscal action of the government and the entire course of policy therewith connected. For the greater the taxes and disbursements, the greater the gain of the one and the loss of the other, and vice versa; and consequently, the more the policy of the government is calculated to increase taxes and disbursements, the more it will be favored by the one and opposed by the other.

“The effect, then, of every increase is to enrich and strengthen the one [the net tax-consumers], and to impoverish and weaken the other [the net tax-payers].”[1]

How, then can the bureaucrats achieve their overriding goal of adding to the number of their employees and therefore of their income? Only by persuading the legislature or the planning board, or the mass of public opinion as a whole, that their particular government agency is worthy of an increase in its budget. But how can it do that, since it cannot sell services on the market, and since, moreover, its activities are necessarily redistributive and injure instead of benefit many of the consumers? What it must do is to “engineer consent,” that is, it must falsely persuade the public or the legislature that its activities are a shining benefit instead of a bane to the consumers and the taxpayers. To engineer consent, it must use or employ intellectuals, the opinion-molding class in society, to persuade the public or the legislature of its function as a source of universal blessing. And when those intellectuals, or propagandists, are employed by the agency itself, this adds insult to the injury inflicted upon the taxpayers: for the taxpayers are forced to pay for their own deliberate miseducation.

It is intriguing that left-liberals invariably castigate advertising on the market for being shrill, for being misleading, and for artificially “creating” consumer demand. And yet, advertising is the indispensable method by which vital information is conveyed to the consumer — about the nature and quality of the product, and about its price and where it is offered. Oddly enough, liberals never level their critiques on the one area where they do strongly apply: the propaganda, the public relations, the hokum, put out by government. The difference is that all market advertising is soon put to a direct test: does this radio or TV work? But with government, there is no such direct consumer test: there is no way in which the citizen or voter can figure out rapidly how a specific policy worked. Furthermore, in elections, the voter is not presented with a specific program to consider: he must choose between a package deal of a legislator or chief executive for X number of years, and he is stuck for that period of time. And since there is no direct policy test, we arrive at the commonly deplored failure of the modern democratic process to discuss issues or policy, but instead to concentrate on television demagogy.[2]

References:

[1] John C. Calhoun, A Disquisition on Government (New York: The Liberal Arts Press, 1953), pp. 17-18. Also see Murray N. Rothbard, “The Myth of Neutral Taxation,” Cato Journal, I (Fall 1981), pp. 555-58.

[2] See Murray N. Rothbard, Man, Economy and State: A Treatise on Economic Principles (Auburn, AL: Ludwig von Mises Institute, 1993), II, 774–76, 843–47.

From Mises.org

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