Farnam Street helps you make better decisions, innovate, and avoid stupidity.

With over 400,000 monthly readers and more than 93,000 subscribers to our popular weekly digest, we've become an online intellectual hub.

What Is A Bureaucracy? And Why They Are So Hard To Change

Bureaucracies, according to Manuel Castells in The Rise of the Network Society, are “organizations for which the reproduction of their system of means becomes their main organizational goal.” Put differently, bureaucracies strive to maintain themselves at all costs.

The actual purpose of the bureaucracy becomes secondary to preserving the bureaucracy.

“This means,” writes Dr. Mark Federman, “that a bureaucratic system cannot afford to be demonstrated to be wrong: If it was wrong, it would impede its ability to reproduce its system of means.”

This underlying mentality often translates into bewildering and often arcane public explanations that seem to ignore what to those outside of the system would be simple, common sense. It is the reason why so many bureaucratically minded leaders choose to “stay the course,” rather than admit that a decision was ill advised (because that would be tantamount to admitting that the system which vested in them decision-making power made a mistake).

Of course this leads to absurd outcomes. Take, as one example, the teacher in Edmonton, who was suspended for giving students a zero when they failed to turn in work. The School board spokesperson, Cheryl Oxford, says “as opposed to being assessed on what they don’t know, they’re being assessed on what they do know.” Huh? To anyone (outside of the school board, that is) this goes against common sense. The second order effects of this on the students and society itself are even worse.

* * * * * * * * * * * *

Perhaps Charlie Munger explained it best:

The great defect of scale, of course, which makes the game interesting—so that the big people don’t always win—is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature.

And the incentives are perverse. For example, if you worked for AT&T in my day, it was a great bureaucracy. Who in the hell was really thinking about the shareholder or anything else? And in a bureaucracy, you think the work is done when it goes out of your in-basket into somebody else’s in-basket. But, of course, it isn’t. It’s not done until AT&T delivers what it’s supposed to deliver. So you get big, fat, dumb, unmotivated bureaucracies.

They also tend to become somewhat corrupt. In other words, if I’ve got a department and you’ve got a department and we kind of share power running this thing, there’s sort of an unwritten rule: “If you won’t bother me, I won’t bother you and we’re both happy.” So you get layers of management and associated costs that nobody needs. Then, while people are justifying all these layers, it takes forever to get anything done. They’re too slow to make decisions and nimbler people run circles around them.

The constant curse of scale is that it leads to big, dumb bureaucracy—which, of course, reaches its highest and worst form in government where the incentives are really awful. That doesn’t mean we don’t need governments—because we do. But it’s a terrible problem to get big bureaucracies to behave.

So people go to stratagems. They create little decentralized units and fancy motivation and training programs. For example, for a big company, General Electric has fought bureaucracy with amazing skill. But that’s because they have a combination of a genius and a fanatic running it. And they put him in young enough so he gets a long run. Of course, that’s Jack Welch.

But bureaucracy is terrible…. And as things get very powerful and very big, you can get some really dysfunctional behavior. Look at Westinghouse. They blew billions of dollars on a bunch of dumb loans to real estate developers. They put some guy who’d come up by some career path—I don’t know exactly what it was, but it could have been refrigerators or something—and all of a sudden, he’s loaning money to real estate developers building hotels. It’s a very unequal contest. And in due time, they lost all those billions of dollars.