Friday, 29 November 2013

The Cost of Bureaucracy

There was an interesting comment by DBC Reed about bureaucracy and competition in an earlier post, that has triggered a memory of post that I intended to write:-

I know I have rehearsed King Gillette's argument that competition increases bureaucracy before and you have acknowledged the validity of some of it,but there are newer contributors on here who appear to be enemies of the Post War British state founded on a mixed economy so some continued resistance is in order.

I'm not disagreeing with DBC Reed here, but I've long wondered how much the cost of bureaucracy affected things like competition.

Let's imagine you're working as a GP in the 1930s. You've got a patient with an ingrowing toenail. How efficient would it be to have competing hospitals providing ingrowing toenail surgery? That GP would have to send each hospital a letter, written by hand, posted, wait for a response of a few days. Someone at that hospital would have to check the appointment book, see when they could fit someone in for an ingrowing toenail operation, write back and once the GP got all the quotes a few days later, he would then write to the particular hospital and book them in. The GP then has to send a letter to the patient.

That's not only slow, it also has lots of cost in people's time writing things to and fro.

Here's how you can do it today: A GP taps a request into a comparison system. It sends a message across the internet to the servers of each hospital, that check an online appointment book, find available slots, and report back a price and availability time in about 5 seconds. The GP then selects it, at which point the system books the slot at the hospital and sends an email to the patient.

The model for today costs a lot to set up, but once set up, the transaction costs are minuscule.

What I'm wondering is whether in the past, we suited more of a state-run model, with large, centralised organisations, because while competition would have lowered prices, the cost of the bureaucracy to run it would have been so huge as to wipe out the gains, but having dramatically lowered the cost of bureaucracy, we now suit more of a fragmented model.


Kj said...

Yes, there are less costs, both in time and effort, to transact between different entities, but there are also more transactions you actually have to do, more reporting requirements, more stakeholders.. So there are less work for clerks, archive workers and postal workers, more work for higher-paid employees, and no savings overall. Methinks

Lola said...

Good observations, and yes, many commentators have made the point that there was an age of large bureaucracies. You only have to been working in FS for as long as I have to see them in insurance companies to know what you say is true - of the past. And your next point is true too. Since the late 80's there has been a massive, relentless and ongoing disintermediation in FS (as a proxy for your health service thingy). Whole rafts of clerks and others have gone, and it is all down to technology.

OTH my mum trained as a nurdse at Barts in London in about 1942/43. Barts was then one of the richest teaching hospitals in the world. It was run by a bursar and three clerks.

Also your description of the bureaucratic model of ingrowing toenail fixes didn't really work like that. Every GP knew a reasonable budget for toenail fixing and also knew who was a good toenail fxer. A couple of calls or a short letter would sort that. And he could write a letter in the moring and get a reply in the afternoon. (As my grandad did whilst working in Portsmouth for the scientific civil service. He could write a letter in the morning. Get a reply by lunchtime. Send his reply after lunch and get a reply from the Ministry by 6pm.

Whenever I watch 'The Apartment' I marvel at the rows of clerks and comptometers on C C Baxter's floor of the offices of the insurance company he works for. And he was in the 'premium accounting division'. That's all now been replaced by IT.

Mind you. I also marvel at the young Shirley Mclaine...