Economic Policy-Making

'Public choice models of bureaucracy are theoretically flawed and empirically inaccurate, yet public choice "solutions" seem to work. ' Discuss in the light of recent changes in the British public sector. "Not only does a bureaucracy… tend to under-government, in point of quality; it tends to over-government in point of quantity… A bureaucracy is sure to think that its duty is to augment official power, official business, or official members, rather than to leave free the energies of mankind… " (Walter Bagehot, The English Constitution (1867) page 197).

"In the past, Governments have progressively increased the number of tasks that the Civil Service is asked to do without paying sufficient attention to the need for economy and efficiency… The present Government are committed both to a reduction in tasks and to better management. " (Margaret Thatcher (statement in the House of Commons 13 May 1980), quoted in Dunsire and Hood, Cutback Management in Public Bureaucracies (1989) page 18). Walter Bagehot, writing as he did at a time when the public sector was considerably smaller than it is today, clearly shows in the above quote that lack of trust in the workings of bureaucracy is not a new phenomenon.

Although the best-known work in the field of public choice theory is to be found in the writers of the 1960s and 70s, Niskanen and Downs were certainly very much influenced by the writings of Bagehot and de Tocqueville from the 19th century. It is though only with the election of a Conservative government, under Margaret Thatcher in 1979, that these theories of bureaucratic inefficiency and over-production were to come to the fore and be espoused in government policy.

A series of reforms of the British public sector, that began immediately after the Conservatives came into office, was to attempt to radically reshape the system, and leant heavily on those solutions suggested by the public choice theorists. So how accurate is public choice theory in describing bureaucratic behaviour, and how effective has it been in providing solutions to what it sees as inadequacies within public administration? Perhaps the best way to tackle this question is to look at the public choice models themselves and the solutions that they suggest, before turning to the ways that their recommendations have been implemented and the effectiveness that such policies have had in reshaping the British public sector.

"A bureaucracy is a particular form of organisation comprised of a set of bureaus or agencies, such that the overall bureaucracy is a system of consciously coordinated activities which has been explicitly created to achieve specific ends. " (Jackson, 1982, 121). For the purposes of this essay, we are obviously largely restricting this definition to discussion of public sector bureaucracies, or those which are funded by, and supposedly carry out the policies of, governments.

Within bureaucracies, "Bureaucrats are officials working permanently for large… organisations in circumstances where their own contribution to organizational effectiveness cannot be directly evaluated. " (Dunleavy, 1991, 148). It is the behaviour of public sector bureaucrats which is at the heart of public choice theory. While they are supposed to work in the public interest, putting into practice the policies of government as efficiently and effectively as possible, public choice theorists see bureaucrats as self- interested utility-maximisers, motivated by such factors as: "salary, prerequisites of the office, public reputation, power, patronage… and the ease of managing the bureau. " (Niskanen, 1973, 22).

At the heart of all public choice theories then is the notion that an official at any level, be they in the public or private sector, "acts at least partly in his own self- interest, and some officials are motivated solely by their own self-interest. " (Downs, 1967, 83). For Downs, broader motivations such as pride in performance, loyalty to a programme, department or government, and a wish to best serve their fellow citizens may also affect a bureaucrat's behaviour, and the level to which self-interest plays a role in decisions is different for each of five bureaucratic personality types that he identifies.

For Niskanen, self- interest is the sole motivator. This is not a problem in the private sector, where profits are the main goal. The success of the private firm is measured by its profits, and as high company profits offer greater job security and the increased possibility of performance-related perks, the interest of the worker (at management as well as lower levels) is the same as that of the company. The private sector bureaucrat maximises their utility by maximising company profits. In most parts of the public sector however, the profit motivation is absent.

The bureaucrat will still aim to maximise their utility. While Downs claims that this is put into practice through distorting of information, discriminatory response to orders and analysing policy options in terms of self-interest, Niskanen argues that a bureaucrat's utility is best-maximised simply by maximising their budget. This brings about increases in salary, power etc. and increases promotion prospects. It is also essential as it is expected by the government that budget increases will be demanded.

The reason that it is possible for bureaucrats to successfully request budget increases is, according to Niskanen, due to an informational advantage on the part of the bureaucrat. Due to the nature of the public sector, the costs and benefits of its work are very hard to evaluate. The 'value' of a teacher or doctor is hard to quantify, especially given the difficulty of measuring consumer demand for their services, and whether the cost of the defence force represents value for money is also impossible to determine.

But "not only is the information required to evaluate the costs and benefits of collective goods inherently defective, what does exist is much more readily available to the bureaucrats producing the collective good than to politicians… [who] have limited information on what quantity and quality of services citizens want, what they are actually getting, and what the cost of producing such services really is. " (Levacic, 1987, 169). For this reason, bureaucrats have a considerable advantage in arguing the need for budget increases. In addition, the government committees that oversee each department tend to be made up of members most affected by the workings of that department.

For instance, an agriculture committee will include several representatives of rural constituencies with an interest in budget increases for the Ministry of Agriculture. The result of this is that "the interaction between budget- maximising bureaucrats with monopoly power and fragmented sponsors characteristically produces a radical oversupply of agency outputs. " (Dunleavy, 1991, 159). Bureaucrats will supply to a level that maximises their own, rather than society's, utility. This does not necessarily mean that the bureau is being inefficient in its production, though that may be the case, but that it is producing output beyond the social optimum. In conclusion, "… all bureaucrats everywhere seek to maximise their budgets by radically oversupplying outputs.

" (Dunleavy, 1991, 161). However, both Downs and Niskanen have been heavily criticised in both the construction of their theories and their conclusions. The inclusion of publicly-minded traits in Downs's bureaucratic motivation prevents it from being a true public-choice theory. His assertion of five personality types seems highly subjective and incompatible with an economic theory of bureaucracy. Indeed Downs accepts that his five types are simply based on his judgement, but then claims that any types developed will fit in with his theory.

This is certainly questionnable, as two of his laws on bureaucratic behaviour are dependent on this set of five types (see Dunleavy, 1991, 168). Perhaps the most important criticism of Niskanen's model can be seen in what Dunleavy terms a "collective action problem. " (Dunleavy, 1991, 174-181). Bureaus are obviously made up of huge numbers of staff, each of which will have their own unique utility functions. Consequently, the best way for a bureaucrat to get their own desires fulfilled, by an increased budget, is by pursuing an individual strategy. This is also the least likely to be effective, especially among lower- ranked workers.