Public service also tends to an ide- alized dimension that make them difficult to achieve and confus- ing and complicated to approach. Agency goals may be ambiguous because the conflicts that existed when programs were originally developed were submerged. A typical mechanism of leg- islative conflict resolution is to pass on intractable conflicts for res- olution or continued irresolution at the administrative level.
Lipsky , pp. It implies, first, that the difference between costs and rev- enues is not appropriated by any member of the organization and, sec- ond, that the revenues of this organization do not derive only from the sales of goods or services. For Niskanen, the appropriate criteria for dis- tinguishing bureaucracy from other forms of organization, and especially from the private firm, are rooted in the fact that bureaucracy does not aim to make a profit.
However, Niskanen clearly asserts throughout his book that these characteristics do not prevent economic calculation and the marketing of the product. For centuries bureaus have provided both bread and circuses in various forms, although these products are quite efficiently supplied by profit- seeking organizations—though, possibly, not in adequate amounts.
Ibid, p. The value of output can be assessed and the prices can be deter- mined. Economic calculation is not impossible. These latter assertions could be strongly criticized from an Austrian perspective. Indeed, Niska- nen assumes the availability of such information and the objective exis- tence of what could be the optimal state of public production, whereas it is entirely impossible to determine what people would like because no means are available to determine this state of the economy in the absence of a market process.
In fact, the essential problem inside the Niskanian framework concerns economic efficiency. It consists in defin- ing suitable incentives price mechanisms for steering the bureaucrat toward an appropriate productive behavior to reach efficiency without an allocation of resources through the market ibid. This approach consists in finding the right stimulus to yield adjustment and an appro- priate economic answer.
This is a contradiction in terms. In fact, the com- mercialization of the product by a bureaucratic organization means the price is set by a planning authority and does not result from the free market process. Economic cal- culation has to be understood as a public allocation process with parameters for the value of the goods produced and the costs of the production factors used that are determined by public bodies.
However, his analysis focuses on the orga- nizational dimension and especially on the choices made by the bureau- crat and the interpersonal relationships inside the bureaucratic organiza- tion. Niskanen proposes an inside view of bureaucracy and limits his analysis to the productive dimension of bureaucracy. Thus, Niskanen defends a behavioral theory of bureaucracy and bureaucratic conduct.
Bureaucratization is a process of transforming social relation- ships from contractual bonds to hegemonic ones Mises , p. It does not focus on the incentive problem but gives much more importance to the appropriate and necessary tool to guide human action, using means-ends and causality concepts. As Mises cor- rectly asserted: 7Iwish to thank Nicolai Gertchev for pointing this out.
See also Rothbard , p. Such a rule has to be distinguished from hegemonic rules. The contractual make exchanges possible and do not constitute a means of substituting the decisions of bureaucrats for those of private individuals. Mises [] , p. The analysis of bureau- cracy proposed by Mises is built upon a systematic and fine distinction between its working and the working of the market process.
So what are the characteristics of bureaus? Bureaucracy is a specific management structure for the allocation of resources, a system that does not perform with the profit motive. The mainstream view and the Austrian view of bureaucracy agree on this point, but differ on other matters. Unlike under a profit management system, the allocation of resources by bureaucracy is made through obedience to rules Mises , p.
There is no need to satisfy customers and to produce at the least cost. The system of profit and loss plays no role in the bureaucratic machinery. Indeed, bureaucratic administration of resources gives pre- dominance to rule-following behavior.
It neglects the importance of entrepreneurship and the role of prices and costs. The rules and regula- tions determine the product to be supplied, its characteristics, its price, and the method of production. In fact, an essential trait of bureaucratic management is the absence of a check by economic calculation ibid. For Niskanen, the existence of nonprofit organizations results from the char- acteristics of the goods provided, but does not impede economic calcula- tion.
However Mises maintains that the impossibility of controlling the profitability of economic activities is an inevitable consequence of oper- ating without the profit motive. This is because it is not possible to put a value on production by bureaus ibid. For Mises, economic calculation rests upon the profit-and-loss mechanism and the working of an unhampered market process. The market process provides the information to guide entrepreneurial decisions.
Because bureaucracy is the antithesis of the market process, it can be logically deduced that economic calculation is impossible for bureaucratic production. For Niska- nen, economic calculation is possible inside bureaucratic organizations by using external information relative prices provided by the market before the public production, administrative prices to determine an optimal allocation of resources.
The Niskanian approach maintains that price information9 is enough to determine the optimal allocation of resources and to deter- mine an incentive mechanism to attain economic efficiency by generat- ing a suitable behavior on the part of the bureaucrat. For Mises, prices result from the market process. Entrepreneurial activity and the deci- sions of market participants determine the value to be put on the goods exchanged and the services provided.
Consequently, the level of prices results from numerous individual decisions about allocating resources. Prices cannot be distinguished from the allocation process. In Misesian terms, bureaucracy is the outcome of interventionism. The consequence of governmental hindrance of the market process is the absence, indeed the impossibility, of economic calculation. For Mises, bureaucracy is an instrument, the tool for executing orders and regulations.
Bureaucracy is an indispensable element of the operation of the government. State hindrances cannot be carried out without bureau- cratic intervention; bureaucracy is a consubstantial element of the exis- tence of government. Nevertheless, bureaucracy can be necessary because of the impossibil- ity of checking some production plans by the tool of economic calcula- tion. Indeed, Mises asserts that society needs a minimum of bureaucracy for government intervention.
This necessary bureaucracy has to be strictly limited to the protection of property rights, physical property, and the people. This minimal state has to insure social cooperation among the members of society Mises a, p. There is a field, namely, the handling of the apparatus of govern- ment, in which bureaucratic methods are required by necessity. Mises , p. There is a positive interventionism that makes cooperation possible 9However, it raised the question of the quality of the information provided.
Does the price clearly reflect the market situation? What about the situation in which there is no market for the publicly provided good or service? The divi- sion of labor allows for economic development and the mutual gains that come from numerous exchanges in society Rothbard , p. How- ever, this wealth can be created only if there exist a system of market prices and the profit-and-loss mechanism. This economic calculation tool guides human actions. Consequently, the bureaucratic process, which is characterized by the importance large-scale use of rules10 in the allocation of resources, interferes with the market process and the realization of individual plans.
It undermines human actions needlessly. Another crucial implication of the economic calculation debate is the importance of private ownership of capital goods Mises ; ; Pierson et al. Although Mises does not devote much time to the theory of property rights; they play a great role in the theory of bureaucracy.
As the basis of private property is undermined, economic calculation progressively decays. The only way of making decisions becomes, then, the command and the control of allocating resources. To sum up, bureaucracy consists in a mode of allocation of resources; the administration of resources, rests essentially upon rules and a command-control system, and resources are not privately owned13 by the administrator. It represents a process of replacing this freedom with a 10Obviously Mises does not assert that rules do not exist or do not play any function in private enterprise, but the priority is given to the price system and to the profit motive.
For a presentation of the firm as a necessary structure for the calcula- tion of profit, see Lewin See Carnis for a particular application to road management. For Niskanen, the dynamics of bureaucracy are explained partly by the particular structure of bureaucratic production. Informational asymme- try gives a strong advantage to the bureaucrat over the sponsor in bar- gaining for a higher budget than is required to provide the output.
Self- serving behavior of the bureaucrat and competition among the bureaus for obtaining and keeping budgets and grants are the main components of this dynamic.
Mises argues for an institutional version of the dynamics of bureaucracy, whereas Niska- nen focuses on the organizational dimension.
According to Mises, the impossibility of economic calculation under an interventionist regime results in disappointment and inefficiency, which feed further interven- tionism and a higher degree of bureaucratization.
This self-sustained process is reinforced by agents grasping new opportunities brought about by the governmental hindrances themselves. The dynamics of bureaucracy as an organizational effect According to Niskanen, the dynamics of bureaucracy can be under- stood by investigating the organization of the production structure.
The incentives the bureau and the sponsor have to face conjointly reinforce the tendency for the budget to increase. This is the private-interest-seeking behavior argu- ment. The Niskanian analysis conceives the bureaucratic relationship as a bilateral monopolistic situation between a sponsor which provides the budget and a bureau which provides the production.
There is a bar- gain between these agents concerning the output and the budget Niskanen , p. However, the bureau holds an advantageous bar- gaining position because it has a better understanding of its own work- ings and its costs of production ibid. This situation is reinforced by some difficulties that the sponsor has to face: he has no alternative for the provision of these goods and services and is unwilling to forgo the production ibid.
There is also informational asymmetry in the relationship between the politician and the citizen. As Niskanen points out, the conditions of bureaucratic production are quite specific. On the market, the customers directly reveal their preferences, their needs, and the amount of money they are ready to forgo in exchange for a specific good. The exchange stipulates the quantity and the characteristics of goods or services.
In the bureaucratic process, however, the demonstration of needs and pref- erences is indirect. The citizens transmit their preferences to the politi- cians and the sponsors, who negotiate and bargain with particular bureaus for the provision of goods and services. There is also the possibility that informal coalitions may be formed between the spon- sor and the bureau to serve their own interest to the detriment of that of the population Fiorina and Noll , pp. The informational asymmetry is only a part of the reason why the budgets of bureaucracies expand.
An additional hypothesis concerning the behavior of bureaucrats has to be introduced in order to provide a full understanding of the process.
In the Niskanian framework, the bureau- crat is not considered as a passive and unselfish person. Like other peo- ple, he seeks to maximize his own utility Niskanen , p. Because he is unable to correctly understand the meaning of the public interest and because he has neither the omniscience nor the sovereignty to be able to accurately define such a concept, he can only give his personal interpre- tation of what the public interest is.
Thus, there is a true conflict between serving the public interest and the satisfying his personal objec- tives. Moreover, serving the public interest appears as an impossible goal because there are as many definitions of the public interest as there are bureaucrats ibid.
This opens the door to all kinds of interpreta- tions and facilitates actions to satisfy personal interests. A bigger bureau gives more prestige to its manager-director, and more power for managers over many subordinates. In this manner, Niskanen explains the overexpansion of the bureau and the increase of its budget by the rational efforts of the bureaucrats to maximize their personal utility and to obtain a discretionary budget.
Another argument is advanced to explain the expansion of bureaucracy: the survival argument Niskanen , p. Thus, subordinates have some influence on effective functioning of the bureau and their careers depend in part on suitable decisions made by the manager. The man- ager, for his part, needs the cooperation of his subordinates to protect the budget of his organization and to enable him to win promotion.
In fact, the bureau is a collective organization whose good performance depends on the execution of orders and directives by the subordinates, and on cooperation between the different bureaucrats manager and subordinates. Thus, the bureau needs a minimum of efficiency to jus- tify and to ask for a higher budget from the supervising agency, and the supplementary budget that allows the manager to reach a part of his objectives.
Consequently, there is a strong convergence between the interests of bureaucrats on the objective of promoting an increase of the budget. The political process also explains the tendency of bureaus to expand. Review officers have their own objectives and their particular interests to satisfy. They need the bureaus to supply projects and make proposals for public spending ibid.
In brief, there are few incentives inside bureaucratic organizations to promote efficient productive meth- ods and to control the size of government, because of the tendency to increase the budget in order to satisfy personal interests and the incli- nation of the sponsor to increase the funding of projects.
Other authors go further by calling into question the hypothesis that bureaucrats act to increase the size of the bureau Tullock , p. Hierarchy is a type of system that shows arrangements or departments from above and below. These can also be at the same level, giving or receiving instructions. Hierarchy allows for employees to understand and follow the chain of command from top to bottom.
Serves as an important decision, making point with reference to who has more legitimate authority. Managers and administrators need hierarchy in order to effectively carry out there duties through Max Weber six principles of bureaucracy.
Another important reason companies need hierarchy is that it helps managers to hold employees accountable. Job specialization defined as a process and knowledge employees gain through education, training and experience to enable them become professionals at on particular job.
Job specialization is important in an organization because it provides skilled workers who are able to fulfil there daily activities. Division of labor is important and essential for economic progress. Promotes efficiency and effectiveness in an organization and reduces total cost of products due to its element of specialization on Max Weber six principles of bureaucracy. Each employee has a specific task and target hence enhancing productivity, promotes efficiency by dividing separate tasks and responsibilities.
Procedures are important to any organization and its processes. Procedures can be in form of policies and together provide direction for daily operations. Procedures enhance good conduct in an organization, regulate employee performance, provide for terms of service and improve decision making, while boosting internal processes.
Organizational and work place procedures outline key specific required action plans among employees. Workplace procedures and policies are very important for informing employees process on how to handle certain issues and compliance measures. The recruitment on merit process been consistently applied in an organization increases professionalism. It is important to note that, according to Weber, charismatic authority is revolutionary and often displaces traditional authority.
This happens through the following three-step process:. Weber states that rational-legal authority comes from established rules. Rational-legal authority requires a belief in enacted rules and that the leader who is issuing commands is doing so within their assigned scope of formal responsibility. More specifically, submission to rational-legal authority happens when:. Rational-legal authority applies to continuous rule-bound business conduct within a particular sphere or jurisdiction.
Each sphere or jurisdiction requires:. In fact, as management concepts, these had a positive perspective and were relatively new, codifying how to optimally structure organizations bureaucracy and the main types of authority political leadership. When you dive deep into the details of the Ideal Types of Political Leadership, you find another example where Weber was ahead of his time. This is exactly how businesses with ever-changing conditions operate today, including countless tech companies.
Likewise, the Ideal Types of Political Leadership relatively accurately describe the main structures of authority and the characteristics of organizations that follow.
While Max Weber is best known for his work in the field of Sociology, he clearly has also made noteworthy contributions to Management as a discipline. In summary of his contributions, we covered:. Although his theories are now somewhat dated, they were among the first of their kind. As such, they provided early descriptions of how organizations can create structure and produce efficiently and effectively, as well as how different styles of authority influence organizations.
Thus, Max Weber is, without doubt, one of the earliest and most important contributors to Management theory. Pavilion is a private community and career accelerator for rising Directors and Executives.
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