BUREAUCRACY & INEQUALITY BPV_APEC PUBLIC ECONOMICS Miloš Fišar BPV_APEC Public Economics: Public Choice October 27, 2015 Lecture outline •Bureaucracy in Weber (normative) • • •Bureaucracy in Niskanen (descriptive) • • •(In)equality in the world BPV_APEC Public Economics: Public Choice October 27, 2015 Where does a bureaucracy come from? •Vincent de Gourmay (1765) •Bureaucracy suggest routinized and constrained behavior, and inefficiency. •French bureau + Greek κράτος (kratos) •Webster’s dictionary: •„large group of people who are involved in running a government but who are not elected“ •„system of government or business that has many complicated rules and ways of doing things“ •Political science: •Governance through public offices, that consists of appointed, but not elected officials, hierarchically structured and dependent on legitimate authority BPV_APEC Public Economics: Public Choice October 27, 2015 October 27, 2015 BPV_APEC Public Economics: Public Choice What is a bureaucracy? •way of organization and management of public service • •continuous task fulfilling according to objective rules (no matter what political party governs) • •hierarchic structure • •subordination & superiority • •public offices behave like “non profit organizations” • •financed by a stable structure of subsidies • • BPV_APEC Public Economics: Public Choice October 27, 2015 •The empty hospital - Yes Minister - BBC •http://youtu.be/Eyf97LAjjcY • October 27, 2015 BPV_APEC Public Economics: Public Choice Max Weber (1864-1920) •German sociologist, philosopher and political economist •Well know for the influence on social theory and theory of state • •Gave baseline to modern theory of bureaucracy • BPV_APEC Public Economics: Public Choice October 27, 2015 Weber – social actions •Affectionate action •based on emotions •used by charismatic authority • •Traditional action •based on habits •traditional authority • •Rational action •clear perception of targets •rational-legal authority and structure = bureaucracy • BPV_APEC Public Economics: Public Choice October 27, 2015 Weber‘s bureaucracy • •Bureaucracy is described as: •hierarchic organization • •with almost military discipline • •follows precise and detailed inter rules, which also guarantee accurate and regular function • • BPV_APEC Public Economics: Public Choice October 27, 2015 Weber‘s bureaucracy •Decision making based on: • 1.Rigid definition of functions and responsibility 2. 2.Stable rules and procedures 3. 3.Formal accuracy in details 4. 4.Top-down delegation of power BPV_APEC Public Economics: Public Choice October 27, 2015 Weber‘s bureaucracy •Optimal bureaucrat behavior •Follow contemporary rules and orders •Rules and orders are crucial for efficiency and success of the bureaucracy BPV_APEC Public Economics: Public Choice October 27, 2015 Weber‘s bureaucracy – sum up •Bureaucracy is hierarchic organization rationally coordinating work of many individuals among large scale of administrative tasks. • •Bureaucracy, according to Weber, is ideal rational management. • •Is based on precise objective rules, which cannot be influenced by a political power. BPV_APEC Public Economics: Public Choice October 27, 2015 Check on „ideal rational management“ •„At any one time some agencies are expanding and others stagnating. New agencies will set up in competition with established bureaus. And complex hierarchical battles between agencies are constantly in progress.“ • • •Get some patients - Yes, Minister - BBC • •http://youtu.be/x-5zEb1oS9A • October 27, 2015 BPV_APEC Public Economics: Public Choice William A. Niskanen (1933-2011) •American economist • •One of the creators of Reaganomics • •1971: Bureaucracy and Representative Government • BPV_APEC Public Economics: Public Choice October 27, 2015 Niskanen’s bureaucracy •Bureaucrat is a rational individual, like everyone else. •Maximizing his utility •f(U) = {income, reputation, number of subordinates, social status, budget size, benefits and delights} •For bureaucracy is typical effort for continues growth of influence and size of the bureau BPV_APEC Public Economics: Public Choice October 27, 2015 Bureau characteristics - Niskanen •Officials cannot use the difference between income a spending for themselves – no motivation for cost minimization. •Income of the bureau is not based on demand and supply. •The outcome of the bureau is difficult to measure and compare. BPV_APEC Public Economics: Public Choice October 27, 2015 • BPV_APEC Public Economics: Public Choice http://images.dailytech.com/nimage/Central_Bureaucracy_3010_Wide.jpg October 27, 2015 Government failures 1.Limited information •Consequences of many actions are difficult to foresee •Often the government doesn’t have information it needs 2.Limited control over private responses to its actions 3.Limited control over the bureaucracy •The government issues decisions but it’s up to government agencies (bureaucrats) to implement them •Have you heard of any examples of sabotage? 4.Limitations imposed by political processes •Influence of interest groups BPV_APEC Public Economics: Public Choice October 27, 2015 •If the right people don't have power - Yes, Prime Minister - BBC •http://youtu.be/gmOvEwtDycs October 27, 2015 BPV_APEC Public Economics: Public Choice Capital in the 21st Century • •Written by Thomas Piketty • • •700 pages long book filled with statistics • • •An unlikely bestseller October 27, 2015 BPV_APEC Public Economics: Public Choice R or G? •r = return on wealth •g = economic growth BPV_APEC Public Economics: Public Choice October 27, 2015 What is higher? R, or g? •In the period 1914 – 1970, g was substantially higher. • • •But in the long term, the period around two world wars seems like an exception. • • •Piketty argues for r > g BPV_APEC Public Economics: Public Choice October 27, 2015 If r is higher than g, what are the implications? •Rich get richer. •Inequality on the level of the 19th century • • • BPV_APEC Public Economics: Public Choice C:\Users\216776\Downloads\chart (1).png October 27, 2015 BPV_APEC Public Economics: Public Choice October 27, 2015 Gini coefficient / index •Represents income distribution of households • •Measures wealth inequity in society • •The lower number the better • •http://data.worldbank.org/indicator/SI.POV.GINI •http://www.compareyourcountry.org/inequality?cr=oecd&lg=en&page=0 • BPV_APEC Public Economics: Public Choice October 27, 2015 Lorenz Curve •Graphical illustration of cumulative distribution of household revenues. • •Cumulative distribution of wealth and income • •Cumulative share of people from lowest income to highest BPV_APEC Public Economics: Public Choice October 27, 2015 THANK YOU FOR YOUR ATTENTION. October 27, 2015 BPV_APEC Public Economics: Public Choice