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France’s Bureaucratic Challenge

France's Bureaucratic Challenge •

By Emmanuel Martin

The Covid-19 crisis has shed light on the dysfunctions of government bureaucracy. In France, while the central government was swift to enact economic measures, the country’s administration demonstrated an embarrassing lack of readiness. Notable examples include the mismanagement of mask supplies and tests, and the flood of ever-changing regulations that discouraged mask production.

France is the poster child for bureaucratic democracy. Roughly one-fourth of the country’s workforce is employed in the public sector, including central and local governments, hospitals, state-owned companies and government-funded organizations. Some 56 percent of French gross domestic product (GDP) goes to public spending. Often, different levels of government have the same mission. A myriad of agencies produce and enforce some 400,000 standards and legal requirements. The French think tank IFRAP recently estimated the French bureaucracy’s overhead costs at 84 billion euros.

Unrestrained expansion

Since the Great Depression and the two world wars, government responsibility has grown to include public goods (like education and healthcare), market regulation, welfare and pensions, as well as macroeconomic policy. A system was needed to oversee these new missions. The result was a bureaucratic expansion that is now almost impossible to roll back.

The analyses of sociologists like Max Weber and Michel Crozier foresaw what many people feel today – that on the whole, government bureaucracies are no longer characterized by expertise and industriousness. They have become inefficient mazes of red tape that waste taxpayers’ money, thwart accountability and act against the public interest. The complexity of this system ensures that no one is held responsible when there is a problem. Ever-increasing, ever-changing regulations create legal uncertainty that discourages productive effort. The costs for society grow, while bureaucracy’s use to society shrinks.

As agencies and administrators gain more control over property, prices and choices, entrepreneurship becomes riskier, more costly and more dependent on subsidies and collusion with bureaucrats. Consumers and citizens are faced with a jungle of regulations, leading to the gradual erosion of self-regulation. Ultimately, voters begin demanding government paternalism. This not only breeds a social bias in favor of bureaucracy but also a “bureaucratization of the mind” – a term coined by Austrian economist Ludwig von Mises (see box below). In France, for example, many young people do not want to become entrepreneurs or innovators – they want a job in civil service. This growing cohort of functionaries will then vote in favor of expanding bureaucracy rather than curtailing it.

Twisted incentives

Bureaucracy tends to be stable thanks to its hierarchical structure, but that very structure produces “castes” that fight for privileges. Crozier offered the example of the French national tobacco company. The local directors all came from the Ecole Polytechnique and fought to keep outsiders away. Workers were not allowed to repair their machines even for simple breakdowns they knew how to fix. That job was reserved for an employee dedicated to the task.

Unionization and lifetime employment can make these castes even more rigid. Attempts to reform the system can create resentment, breeding even more inefficiency. In this excessively complicated system, government officials and the public become dependent on the goodwill and expertise of seemingly indispensable civil servants to navigate the complex network of rules.

Bureaucrats and their sponsors (governments and legislatures) are incentivized to create even more bureaucracy. Just like politicians, public servants are sometimes – or even mainly – inclined to follow their own personal interest. Doing so is made easier by the fact that the notion of public interest is fuzzy. There is no genuine test for the value of bureaucratic services.

Bureaucracies and governments both enjoy a monopolistic position, but when agencies bargain with politicians over budgets, bureaucrats benefit from greater access to information – they are better acquainted with their work and how much it costs. As economists have shown, they therefore attempt to maximize their discretionary budgets to gain more power and prestige, bigger offices, more staff, and so on. However, an agency must meet a minimal standard of efficacy: it must carry out its mission if it wants to survive and be granted a generous budget.

As a result, bureaucrats can become advocates for their agency and its clients (regulated industries that want protections or subsidies, or markets created from regulatory complication). Both justify the existence and growth of the bureaucracy.

Democracy adrift

The same type of asymmetric access to information exists between voters and politicians, preventing citizens from choosing officials who will keep bureaucratic growth and inefficiency in check. Politicians can indirectly increase bureaucracy by creating more laws. Worse, a coalition between civil servants and politicians can emerge to expand bureaucratic power and benefit both groups at the taxpayers’ expense. Bureaucrats are not only a significant constituency for many politicians, they are often politicians themselves. In France, because functionaries do not have to resign before running for election, they tend to switch frequently between bureaucratic and political office. That revolving door is bad for accountability.

Meanwhile, governments use strategies (like public debt or indirect taxes) to hide fiscal realities that would reveal the bureaucracy’s full cost to taxpayers. Even those in charge of auditing bureaucrats’ work may have an interest in falsifying the numbers to justify their own past or future agencies. Institutions designed to prepare students for high levels of public service, such as the National School of Administration (Ecole nationale d’administration, or ENA) can actually create collusion and cronyism through a perverted esprit de corps that works against the public interest.

Awkward decentralization

Historically, France has, over the centuries, opted for centralism to build a nation-state over a fragmented base of heterogeneous regions. The republican ideal relied on a class of virtuous, irreproachable bureaucrats. However, this centralist model spreads mistrust across civil society, killing initiative, autonomy and self-regulation. The situation engenders more top-down regulation and justifies more bureaucracy.

France has implemented decentralization processes meant to strengthen democracy at the local level and reduce central bureaucracy. Paradoxically, however, in increasing the size of local bureaucracies, these measures also enlarged the central bureaucracy and came with a corresponding rise in public spending. There is no clear delineation between levels of government, meaning responsibilities like managing subsidies and implementing employment policies are duplicated.

As shown in a previous GIS report, France’s half-hearted decentralization process, financed with central funding, gave local public decision makers an incentive to spend as much money as possible. The actual costs are hidden, and accountability suffers. Local private interests collude with local bureaucracies for various markets – in training, catering, building and so on – justified by new bureaucratic missions. The bureaucracy can safely grow.

Even France’s recent reform meant to streamline regional administration brought a similar result. Staff numbers refuse to fall, despite department mergers and task automation. Bureaucracy always seems to win.

Now, the Covid-19 crisis has shaken the country’s administration, offering a prospect for change and revealing four potential scenarios.

Scenarios

President Emmanuel Macron is known for his centralization policies. He has served in the highest levels of the civil service. In 2017, he initiated a subtle “recentralization” process, reducing the fiscal power of local officials. In parallel the recent barring of local officials from serving as members of the Senate or the National Assembly paved the way to a “rubber stamp” parliament of MPs without local roots. Unsurprisingly, people took to the streets in opposition, a movement that became known as the yellow vests. The president also miserably failed in his bid to reduce the number of civil servants by 120,000.

One scenario would see more of these top-down attempts at streamlining continue. But taking all of the above into account, it seems likely that the process will remain on hold, especially with the 2022 elections fast approaching.

In the second scenario, the government would take up a strategy of genuine decentralization. In June, President Macron seemed to have learned the lessons of the crisis, apparently making a shift in policy. He announced a new era of “more freedom and responsibility for those acting locally, such as mayors or hospitals.” He added: “Everything cannot be decided so often in Paris.”

One way to do this would be to implement the “decision maker-payer” principle, in which local constituencies must fund their own local bureaucracies. This would come with competition and emulation among jurisdictions. Taxpayers could compare cost-efficiency indicators, and fiscal accountability could help tame bureaucratic growth. Various levels of government would have their missions more clearly delineated.

Accomplishing this goal would require a complex institutional design and would be at odds with Mr. Macron’s republican ideal. It would also hurt many vested interests. Resistance would be significant.

A third scenario, not incompatible with the first two, relies on more rules for transparency and accountability. The detailed funding, costs and output of various bureaucracies would be made available to the public. At all levels of governance, oversight bodies would have both the means and power to audit various government agencies. (Currently, power and means are divided between commissions and audit offices respectively, which is of course an inefficient state of affairs.) Audits would be made public, reducing the risk of collusion.

Civil servants would no longer enjoy lifetime employment but would instead have ordinary job contracts. They would need to resign before running for office, breaking the incestuous link between politics and administration. Unions would no longer receive financing from taxpayers, forcing them to take positions more in line with the public interest. Given the current level of tension, this scenario is very unlikely.

A fourth scenario is business as usual: an awkwardly decentralized system with duplicated responsibilities, now enabled by “other people’s money” from the European Union and European Central Bank (via cheap borrowing thanks to more unconventional monetary policy). This would further weaken accountability and democracy in France and accelerate its economic decline.

Two elements have just reinforced this scenario as the most likely. New Prime Minister Jean Castex (who took office on July 3) is a classic product of the Central Administration –he will certainly not compromise its interests. The Senate just published a series of propositions for more “local freedoms” which is, in fact, an attempt for local governments to retrieve some of the powers lost with the earlier recentralization – but without full fiscal responsibility.

Emmanuel Martin is the general manager of the French MOOC project “École de la liberté.” He holds a PhD in economics from the University of Aix-en-Provence in France.

Source: GIS Reports

The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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