The Benefits of Bureaucracy: How I Learned to Stop Worrying and Love Red Tape
Throughout much of human history, power was exercised through a system of patrimonialism, as the great sociologist Max Weber coined the term. Under patrimonialism, a leader exerts power without respect to formal rules and regulations, personal allegiances and kinship ties determine who has access to critical resources and the entire system is managed with one overarching goal — to benefit the ruler. Bureaucracy was originally introduced as the antidote.
Kings, Czars, Sultans and Imperial CEO’s: Patrimonial systems
Our good friends over at Wikipedia provide a wonderful summary: “Patrimonialism is a form of governance in which all power flows directly from the ruler. There is no distinction between the public and private domains. These regimes are autocratic and exclude the lower, middle and upper classes from power. The leaders of these countries typically enjoy absolute personal power.”
The ruler and the ruler’s family exert enormous dominance over politics, the economy and even social life. Rulers treat the countries they dominate as their own personal family business. They make decisions that benefit themselves and their allies.
In patrimonies, consistent sets of rules and established procedures are viewed with suspicion. The rule that might have been beneficial today may prove a bothersome hindrance in the future, so why set it up in the first place? Far better to make decisions on the fly and keep potential opponents guessing.
As Jonathan Rauch, writing in the Atlantic observes, “People with expertise, experience, and distinguished résumés are suspect because they bring independent standing and authority. So patrimonialism stocks the government with nonentities and hacks, or, when possible, it bypasses bureaucratic procedures altogether.” A result is that a huge weakness of patrimonial systems is that they suffer from basic incompetence. Talented people leave or never join, and those whose opinions differ from those in power quickly find themselves shut out.
Lest we think that patrimony is a relic of a bygone age, it is worthwhile to recall that they feature prominently in the modern world. As far back as 2007, observers were already noting that Russia’s Vladimir Putin was in the midst of orchestrating a patrimonial system, one that continues to this day. By 2024, this “modern day tsar” was sworn in for a fifth term.
Corruption and incompetence: The vulnerabilities of patrimonial systems
The Achilles heel of patrimonial systems is that they are by definition, corrupt and incompetent. The very reason such a system exists is to exploit the organization for personal, political and economic gain. Eventually, these factors can lead to their collapse.
On December 17, 2010, a young Tunisian, Mohamed Bouazizi set himself on fire to protest police corruption and harassment. He died on January 4, 2011, but not before his gesture went viral, sparking protests against the cost of living and the country’s authoritarian President Zine El Abidine Ben Ali. Ben Ali’s rule (which has lasted for 23 years) ended 10 days later when he fled to Saudi Arabia. The protests spread to other countries with similarly patrimonial systems in an uprising that came to be known as the “Arab Spring,” reshaping that region, unfortunately with mixed results.
Patrimonial management of corporations was also the dominant structure through the late 1800’s. The concept of ‘management’ as we think of it today, didn’t exist. Merchant capitalists who owned one or more ships managed their organizations themselves and made all the decisions, perhaps with the involvement of family members. Manufacturing as it existed at the time was dominated by artisans who were helped by apprentices, making small-scale products. Some sectors, such as textiles and shoes, used a so-called “putting out system” in which home-based workers would be contracted by an agent, draw supplies from a central source and deliver finished goods to a warehouse. Even big organizations of the time, such as iron foundries and shipyards, rarely employed more than 50 workers.
The ability to manage ever-more complex companies that were beginning to take advantage of innovations around mass production and cheap energy strained the limits of the patrimonial system. By the Gilded age (roughly 1870–1900) patrimonially run firms created the vast income inequality that came to represent that era. By 1890, America’s, 4,000 millionaires held 20% of the nation’s wealth. With that affluence also came “colossal” political corruption.
Protected from foreign competition by high tariffs, American industrialists created monopolies and trusts. Public anger at the power and influence wielded by corporations eventually led to the election of William McKinley, a supporter of anti-trust reforms. When he was assassinated, Theodore Roosevelt came into the presidency. Roosevelt believed that society should be more fair and equitable. The Progressive Movement that would bring an end to the Gilded Age began then.
The context was fertile for a new way of thinking about management.
Enter positive bureaucracy
Max Weber, the famed sociologist, proposed bureaucracy as a framework that would bring science and systems into the large organization (see also Frederick Winslow Taylor). It had many advantages. As Peter Brodie notes, writing in Forbes, “If precision, speed, unambiguity, knowledge, continuity, unity and reduction of friction and of material and personnel costs are important to your company, these are all optimized in a bureaucratic organization, and adopting this structure should be considered as the most viable, and perhaps the favored, option.”
Weber and his compatriots sought to modernize how organizations operated. In much of the west, we were starting to see the formalization of laws, the emergence of mass markets, regulations favoring the modern corporate form, the beginnings of modern financial systems and a strong interest in “rationalization.” Rather than depending on a powerful leader, the idea was to create systems that were based on rationality. Bureaucratic systems were organized to enhance and scale the benefits of the increased technological knowledge of the time.
Bureaucratic organization embedded the following features:
- Division of labor with clearly defined roles, in specialized functions
- Hierarchical management structure with clear lines of authority
- Documentation that specifies required decisions and actions
- Specialized training and meritocratic selection for each role
- Full-time managers appointed to operate the organization
- Static, depersonalized rules that exhaustively guide management
Bureaucracy was considered a great complement to modernization and forward progress. Bureaucratic organizations could develop deep technical competence, maintain continuity and offer stability. People working in bureaucracies can manage far more complicated organizations than those that depend on a single leader and his or her allies. Bureaucratic systems will in almost all cases outperform those based on personal power. From a strategic perspective, the most valuable attribute of bureaucracies is that they tend toward stability.
The next era of management
However, like patrimonial systems, bureaucratic systems also have their limitations. The need to obtain permissions and manage interdependencies with other units can be soul-destroying. Decision-making can be slow. And most importantly, bureaucratic systems don’t necessarily take advantage of the new capabilities that information technology gives us.
Bill Anderson, who became CEO of the challenged multinational corporation Bayer in 2023, blamed excessive bureaucracy and complicated rules for much of what ailed the troubled company. As he described it in an article in Fortune, the company’s internal rules for employees covered 1,362 pages! Twelve layers of interacting hierarchy put tremendous distance between the front lines of the company and those with resource ownership and strategic control.
As he puts it, “There was a time for hierarchical, command-and-control organizations–the 19th century, to be exact, when many workers were illiterate, information traveled at a snail’s pace, and strict adherence to rules offered the competitive advantage of reliability. Today, the opposite is true. Our workforce is highly skilled and educated. Communication happens at the speed of light. And today, the most reliable companies are the most dynamic. A company’s value stems from its ability to innovate.”
This is behind my argument that we are moving beyond bureaucratic organizational forms to permissionless ones. Watch this space for new developments!
