Cui bono?

Capitalism vs. socialism framework is not very useful because it obscures more than it explains. It focuses on salient but superficial differences while ignoring far reaching similarities. It is like the Anglican Church vs. Catholic Church clash. It is a quarrel who is the boss – the hereditary monarch of England vs. the guy elected by the College of Cardinals. Beyond that, it is hard to tell the difference between the two. Likewise, the capitalism vs. socialism debate focused on who the boss is – the government in London or Washington vs. the government in Moscow or Beijing while ignoring far reaching similarities of economic institutions.

The core economic institution shared by all modern countries is bureaucracy. Max Weber defined bureaucracy as a form of hierarchical organization in which formal rational rules set the organizations’ structure or lines of authority, the area of activity or goals, division of labor and the roles and qualification requirements of individuals engaged in organization’s activities. “Formal” means that the rules are written and fixed, rather than being made ad hoc by individuals. “Rational” means that the rules are optimized to achieve organization’s objectives in the most efficient way.

While early forms of bureaucracy appeared in ancient Egypt, Rome and China, bureaucracy became the dominant organizational form of government and economy only recently, with the advent of industrialization. Key factors responsible for the growth of bureaucracy were the advances in science and technology, which allowed more effective communication and transportation systems. As bureaucratic organization expanded to the economy, it allowed more efficient production and distribution of resources, which in turn unleashed industrial revolution that led to even greater advances in science and technology.

Indeed, the history of modernization and industrialization is the history of bureaucratization, the most effective, if not efficient, organizational from created by humankind. There is no viable alternative to bureaucracy – insufficient bureaucratization of the economy invariably means economic backwardness and under-development. What is popularly perceived as “communism” in countries like Russia or China was in fact a program of rapid bureaucratization of backward rural economies. In practical terms, governments of these countries were creating the same forms of economic organization as those found in the more developed countries of Western Europe and the United States – the bureaucratic corporation. Political rhetoric, by contrast, served similar purpose as the anti-papist rhetoric of the Church of England – to exaggerate differences and establish the legitimacy of the new bosses (the King of England, the government in Moscow or Beijing) and delegitimize the old bosses (the Pope and the government in London or Washington).

Although there has never been an alternative to bureaucracy, there are alternative versions of bureaucratic governance. While bureaucracies are inherently hierarchical and cannot be otherwise without ceasing to be bureaucracies, they differ in their goals and operational rules. Those goals can be broad, serving an entire population, or narrow, serving a very small group of people. The operational rules can concentrate decision-making authority at the top of the organizational hierarchy or distribute it throughout that hierarchy.

The bone of contention is not, and has never been, bureaucracy vs. supposedly alternative to bureaucracy forms of economic organization, as no such viable forms exist, anarchists and libertarians notwithstanding. The bone of contention is about the goals and leadership of bureaucracy, which boils down to the question cui bono? The few or the many?