Why Oh Why Are We Ruled by These Idiots? (Fiscal Irresponsibility Watch)
Economist's View: Cato Calls for Leadership from Fiscal Authorities

The Efficiency of Large Organizations Once Again

Apropos of my view http://delong.typepad.com/sdj/2005/09/on_large_organi.html#comment-9512021 on the consequences of the fact that there are large organizations that are nevertheless highly, highly efficient:

Shouldn't the fact that WalMart finds it more efficient to be a bureaucracy of 1.5 million people--rather than to split itself up into 15,000 companies of a hundred employees each--make Arnold Kling a little hesitant in his declarations that FEMA was bound to foul up this badly no matter what? Serious thoughts about when wants to use market and when one wants to use command-and-large-organizations--and how one then controls command-and-bureaucracy--would be very welcome here.

Sebastian Holsclaw comments:

Large company bureaucracy can sometimes minimize the inherent problems of bureaucracy because they are constantly disciplined by losing money when they don't act properly. Government bureaucracy almost never has that kind of month-to-month accountability. Small government bureaucracy can be disciplined by other means--usually social connections with the community. These types of things don't scale up into a large bureaucracy. The military sometimes avoids this trap by repeatedly focusing the minds of their soldiers on the fact that their own personal survival depends on working efficiently--and even then the military often has the kinds of problems that are endemic in a large government bureaucracy. An organization like FEMA, with tests to its efficiency often coming years apart, is highly likely to be deeply inefficient....

Sebastian Holsclaw is an extremely insightful writer and thinker from whom I have learned an enormous amount: that is why it is worth noting the times he goes awry, and I think he goes awry here. He says that it is because of market competition that large company bureaucracies "can" minimize inefficiency. That seems to be wrong. Market competition gives large-company managers powerful reasons to minimize inefficiency. But just because there are reasons to do things doesn't automatically mean that they happen--people still have to do them.

There is no magic "market dust" that the market sprinkles on organizations to make them efficient. Managers make organizations efficient. Managers of organizations embedded in markets have strong incentives--the fear of losing your job and the desire for more commodious living--to work hard at making their organizations more efficient. But there are other possible motivators as well: the pleasant feeling of a job well done, the pleasant feeling of having helped someone, the shame of public humiliation when you have messed up, loyalty to the person who put you in the job, and so forth.

I think we would all agree that these alternative motivating factors were not sufficient to induce appropriate performance and effort on the part of George W. Bush, Michael Chertoff, and Michael Brown. But this is at least as much a statement about who they are as a statement about whether FEMA could have been expected to do a reasonable job in New Orleans.