How Bureaucracy Removes Efficiency

After the discussion of bureaucracy in class, I came across an article that proves lack of efficiency among state officials. Through the historic analysis of bureaucracies, such as the Australian tax office, the article shows how the mass computer and technology automation has not increased their real efficiencies.

As we noticed in class, bureaucrats have no incentive to please the customer, as their personal utility function does not depend on the satisfaction of the customers. Managers and people who have high bureaucratic positions are not interested in their subordinates’ efficiency, but, on the contrary, are happy with more people working and bigger payroll. This supports the assumptions made by the author of the article:

Any increase in the efficiency of individual workers has simply been consumed by increased bureaucratic complexity. As the primary net effect of software is to facilitate bureaucratic complexity it is therefore essential that software projects fail if society is to function effectively. In this way the heavy burden of guilt can be lifted from the shoulders of the numerous project managers that have subconsciously devoted their careers to ensuring that projects rarely, if ever, succeed.

Australian tax office described in this article is a good example of bureaucracy whose function has remained unchanged regardless the technological breakthroughs. While back in the 1955 almost all the processing had to be performed completely manually, technology has developed dramatically since that time: tax returns are entered electronically over the internet, analyzed and processed by different complex computer systems, and refunds or payments are processed via direct bank deposits. A big number of returns is never touched by a human hand! The internal management systems are also automated, from the allocation and tracking of audits to processing their payroll and benefits systems. However, it turns out that modern bureaucracy can function effectively within the same budget without the use of the automatic equipment. In 2007 the tax office's internal budget was AU$11.4 billion, or 1.23% of GDP while in 1955 it performed essentially the same task without automation for A£66.7 million which was 1.33% of the 1955 GDP. The difference is not significant. These quite surprising results prove that technological breakthroughs have no significant effect on the size or efficiency of a bureaucracy. The increase in the efficiency has simply been “consumed by increased bureaucratic complexity”.