PROFILE  AZHAR ABBAS HASHMI
 COLUMN  FOR THE RECORD
 POLITICS & POLICY 1. RESTRUCTURING THE NAB
2. MANAGING COST OF BUREAUCRACY
 SOCIETY  1. HUMAN DEVELOPMENT
2.  MANAGEMENT BY WANDERING AROUND
3. THE CRM LANDSCAPE

 

MANAGING COST OF BUREAUCRACY

 
THIS ARTICLE HAS BEEN DIVIDED INTO THREE PARTS:

By Prof. Dr. Khawaja Amjad Saeed
Email: icmalhr@brain.net.pk
emba@pgcnet.com
Aug 05 - 11, 2002

 

General - It deals with Scope of the Paper, Defining Managing Concept, Explaining the Necessity of Bureaucracy, Various Theories governing Bureaucracy and Moore's Laws of Bureaucracy.

Cost of Bureaucracy - This deals with Questioning the Cost of Bureaucracy, Scope of the Cost of Bureaucracy (Five Areas have been identified relating to Cost of Bureaucracy alongwith the potential role of Management Accountants).

Innovation & Bureaucracy

GENERAL

Scope of Paper: Bureaucracy has a wide scope. At home, there is a bureaucracy. Corporate Bureaucracy serves the Corporate sector. Multinationals are being operated through bureaucracy. NGOs and CBOs have their bureaucracies.

THIS ARTICLE FOCUSES OVER GOVERNMENT BUREAUCRACY.

"Managing" Concept: Management in one exclusive aspect would be an emphasis on rational decision making. Two aspects of management would include planning - a long term function and controlling a short term function. However, based on Henri Fayol's concept, management has functional dominance and includes planning, organizing, leading, coordinating and controlling. The concept of "Managing" in this article has been construed to contain the Cost of Managing Bureaucracy to reasonable limits to ensure maximum efficiency through friendly users approach and a less burden on the public purse to ensure diversion of consequently saved funds to development projects.

Bureaucracy - A Necessity: No Government can be run without bureaucracy. Usually the term "bureaucracy" is employed to denounce or criticize officialdom in modern society and more especially, the Government Service or Civil Service in modern Government. Max Weber designated the group of people as bureaucrats who perform rationalized functions in large-scale organizations, especially government ones. Thus an organization is said to be bureaucratized when its procedures for action and decision have become formalized and impersonalised through elaborate rules that are "public".

However, there is a need to have a better understanding of the general characteristics of bureaucracy. A rationally and well behaved bureaucracy has three elements, namely:

  • A) DIFFERENTIATION OF FUNCTIONS

  • B) CENTRALIZATION OF CONTROL AND SUPERVISION

  • C) QUALIFICATIONS FOR OFFICE

ANOTHER THREE ELEMENTS INCLUDE:

  • A) OBJECTIVITY

  • B) PRECISION AND CONSISTENCY

  • C) DISCRETION

Fortunately, both Swiss and British have shown that an effective and responsible bureaucracy is quite compatible with sound constitutionalism, notwithstanding popular antithesis between bureaucracy and democracy. The decisive problem is to ensure "responsible bureaucracy". Without a functioning constitutional system, there can be no responsible bureaucracy. Therefore, bureaucracy is needed to operate a Government. The big question is: What is a reasonable cost to manage the bureaucracy.

BUREAUCRACY THEORIES

a) AMERICA:

Melville Dalton, a noted American sociologist, served in six business firms. He offered a revealing picture of organizational structure in terms of conflicting cliques. It showed the pervasiveness of the ensuing struggles and their impact on every aspect of organizational life. It showed how this intense political activity can be scrupulously and skilfully camouflaged so that the resulting policies appear to be in harmony with the official ideology. His famous book entitled "Men Who Manage" (1959) is worth reading.

b) FRANCE:

Michel Crozier, French Sociologist, studied two French Government agencies (The Bureaucratic Phenomenon, 1963). He studied power and conflict. In his analysis, the social structure consists of highly cohesive occupational groups. Each group presents a unified and a rather hostile front towards the other. Each group strategy consists in manipulating the rules in order to enhance its own prerogatives and secure its independence from every direct and arbitrary interference by those higher-ups. Consequently "areas of uncertainty" always emerge that constitute the focal point around which collective conflicts become acute and instances of direct dominance and subordination develop.

c) GERMANY:

The characteristics of bureaucracy were first formulated in a systematic manner by the German Sociologist Max Weber (1864 - 1920), whose definition and theories set the foundation for all subsequent work on the subject. Focus is on:

  • i) the division of labour in the organization.

  • ii) its authority structure.

  • iii) the position and role have function effects (predictability, precision) and dysfunctional effects (rigidity).

However, based on conflict theories, a group of theorists have rejected the functional approach and contended that organizations must be seen as configurations of antagonistic groups that aim, through various strategies.

Although these theorists do view the organization "as a whole" they see that parts of the whole are not institutional norms but instead are groups that, according to their power position, can influence policies.

Moore's Laws of Bureaucracy

Moore's Laws of Bureaucracy have been derived from a social cybernetic viewpoint and are summarized below:

a) Large bureaucracies cannot possibly achieve their goals.

b) Large bureaucracies will thrash wildly about causing much cost, pain and

Destruction.

  • c) Large bureaucracies are evil.

  • d) Large bureaucracies have no heart.

  • e) Large bureaucracies are perverse.

  • f) Large bureaucracies are immortal.

  • g) Large bureaucracies will grow without bound.

No Government can be run without bureaucracy. Usually the term "bureaucracy" is employed to denounce or criticize officialdom in modern society and more especially, the Government Service or Civil Service in modern Government. Max Weber designated the group of people who perform rationalized functions in large-scale organizations, especially government ones. Thus an organization is said to be bureaucratized when its procedures for action and decision have become formalized and impersonalised through elaborate rules that are "public".

COST OF BUREAUCRACY

Questioning the Cost of Bureaucracy

First Minister, Rt. Hon. Davif Trimble MP, MLA, on November 03, 2000, told a gathering of senior local government officials that too many layers of administration in Northern Ireland was making the job of delivering services to the public more difficult. While speaking at the arrival dinner of Local Authority Chief Executives in Ballymena, he explained reasons for the review of local government.

SCOPE OF THE COST OF BUREAUCRACY

The scope of cost of bureaucracy includes:

  • Salaries and perquisites

  • Corruption cost

  • Amounts extracted due to fraud and related aspects

  • Opportunity cost of benefits foregone due to inefficiency, slow and time consuming process of bureaucracy

  • Consequential financial effects of higher cost of bureaucracy

The above are briefly reviewed below:

SALARIES & PERQUISITES

As against the concept of transparency, perquisites include considerable hidden cost which needs to be calculated and contained within manageable limits. A revolutionary idea recommended is that the known and the hidden cost should be included in the gross salary and all perks should be eliminated. This transparent monitized cost of Bureaucracy will help accomplish the theme of paper namely, "Managing Cost of Bureaucracy" through the identification of total cost of bureaucracy.

CORRUPTION COST

The corrupt should be brought on books and be awarded punishment of a deterrent nature so that the cost of bureaucracy can be substantially cut down. In this respect, as Management Accountants can considerably benefit from Transparency International, Paris and Commonwealth Secretariat, London, apart from excellent work contributed by many International agencies. In this context, Pakistan's experience of categorization of corruption is as under:

CORRUPTION - TYPES:

The Government of Pakistan, based on current research has categorized bureaucrats into five types. These types are based on the intensity and degree of corruption committed by bureaucrats at Federal and Provincial levels.

Categories of Corruption

Category

Features

Implication on Cost of Bureaucracy

1. Snowhite

Honest living; largely dependent on salaries; fewer misused any official facility.

 

Role Models, no implication.

2. White

Very carefully committed crimes (e.g. bribes) but did not cross the limit.

Moderate implication.

3. Light Grey

Misused all the official facilities and even to some extent damaged the exchequer by their ill deeds.

Moderate to high.

4. Dark Grey

Cleverly managed to learn the system and even became its parts e.g. Kick-backs, bribery, favoritism.

High implication.

5. Black

Indulged in syndicated crimes.

Highest implication.

Source: Extracted from Crackdown against Corrupt Officials next week likely, Dawn, Lahore, January 16, 2000.

FRAUDS AND RELATED ASPECTS

Management Accountants can help install and operationalize strong Administrative and Financial Controls to reduce the magnitude and size of frauds. Moreover, risk minimization guidelines can also be prepared by Management Accountants to reduce the incidence of frauds. In this respect, awareness in the world has started and U.K. experience is shared below:

PROTECTING THE PUBLIC PURSE:

Cost of bureaucracy has another dimension, namely, fraud. Frauds need to be uprooted. UK experience in local Government can be helpful. Based on developing tools to assess risk to help auditors to make the best use of audit resources and many other initiatives the number of fraud cases fell by 30% over the last years, value of detected fraud fell by 4% ( 101 m) and more high-value, long-running frauds are being detected in Councils in other regions of England outside London and in Wales.

OPPORTUNITY COST OF BENEFITS FOREGONE:

The users of Bureaucracy services are badly affected due to inefficiency, slow and time consuming process of bureaucracy. The opportunity cost of benefits foregone by the users need to be qualitatively and quantitatively assessed and quantified. Management Accountants can play a productive role in this respect. An American Experience in this regard is shared below:

LESS BUREAUCRACY & LOWER COST:

Based on Daily Policy Digest of February 22, 2002 released by National Center for Policy Analysis of USA, Physicians designed their program "Simple Care" and results were impressive and are summed up below:

One minute of patient care resulted in seven minutes of administrative tasks under insurance and managed care contracts.

Using simplified cash payments seven minutes of patient care require only one minute of paperwork.

Profit per patient visit rose to $ 10 - from a loss of $ 7 per visit.

CONSEQUENTIAL FINANCIAL EFFECTS OF HIGHER COST OF BUREAUCRACY:

All over the globe awareness is growing for computing the consequential financial effects of higher cost of Bureaucracy. In this respect, Chinese experience is shared below:

China: Shake-up of Bureaucracy to push Economic Reforms:

China's bureaucracy is a legacy of 4,000 years of feudal history and decades of Stalinist autocrat rule. It is generally believed that the current government machinery is over-manned, inefficient and driven by internal rivalries that distort and slow down decision-making.

Major shake up of bureaucracy in China is being done due to the following factors:

Contradictions between government institutions created under a centrally planned economy and market development have grown bigger and bigger.

More than a half of the state industries are in red and China's state-owned commercial banks are crippled by bad debts amounting to at least 20 per cent of their assets.

The goal is the emergence of a smaller but more powerful government, compatible with the new market economy.

With several years of liberalizing economy, China has reached the most unwieldy aspect of the reform process reviving the antiquated state sector alongwith the technically insolvent sector.

There is a strong call for a deep, massive cut in the number of government officials, ministries and departments in what is the most drastic shake-up of China's mammoth bureaucracy since the Communist Party came to power in 1949.

Under the small-government credo, nine other ministries will be merged into three "super-ministries" responsible for informatics, welfare and agriculture. Simultaneously a couple of new ministries will be added to boost the government's ability to improve the economy and to fend off the impact of Asian Financial Crisis.

However, Government Officials try every means at their disposal to maintain their vested interests when their department faces the bad luck of being restructured. The following table show concerted directions for major shake up in bureaucracy:

China: Major Shake-up of Bureaucracy

Time Frame

Ministries (Number)

1. Cultural Revolution in 1960s

30

2. 1980s

100

3. 1992

59

4. Ultimate aim in future

30

Source: Excerpted from World News, Interpress Service. The theme was China: Shake-up of Bureaucracy to Push Economic Reforms.

INNOVATION AND BUREAUCRACY

Yingyi Qian, Department of Economics, Stanford University and Chenggang Xu, Department of Economics, London School of Economics first released their paper entitled "Innovation and Bureaucracy under Soft and Hard Budget Constraints" in May 1991 and released the final version in February, 1997. Abstract of the above research study is quoted below:

"Because of the inherent uncertainty promotion of innovation critically depends on the screening mechanisms to select projects. This paper studies the relationship between "bureaucracy" and "financial constraints" as two such mechanisms. The lack of commitment to hard financial constraints interferes with its ex-post screening capability; ex-ante bureaucratic screening is optimally chosen as a substitute. However, "bureaucracy" makes mistakes by rejecting promising projects and delays innovation, and the efficiency loss due to soft financial constraints increases as prior knowledge becomes worse and as research stage investment requirements become lower. In a centralized economy, bureaucracy may reduce the number of parallel projects, particularly for projects with higher uncertainties and less research stage requirements. This theory fits much evidence and in particular it explains why the computer industry, but not nuclear or aerospace industry, has fared so poorly in centralized economies."

CONCLUDING COMMENTS

All Governments are urged to reengineer the process of Bureaucracy, introduce bureaucracy busters concept, wherever applicable, operationalize electronic bureaucracy to substantially reduce the cost of bureaucracy, implement lean organizations with few tiers in the organizational pyramid. The Management Accountants should accept these challenges and the Governments in power should associate them in reducing the cost of bureaucracy to manageable limits for ushering in an era of wider prosperity, elimination of poverty, enhancement of standard of living across the board and help accelerate socio-economic development in the world.