Capturing an enemy bureaucracy

May 19, 2010

Master & CommanderLast Friday’s WSJ features an op-ed entitled Incentives vs. Government Waste in which John Steele Gordon argues that incentives could be better structured and used by bureaucracies.

While we have mixed feelings about the idea – we’re certainly believers in incentives, but it’s hard to believe any incentive plan could withstand the gamesmanship of a skilled bureaucrat (see: Fannie Mae) – we enjoyed the historical analogy the author employs:

But it is possible to incentivize public (and nonprofit) employees to find ways to save money rather than waste it, to find new and better ways of doing business. There is no better example of how to go about that than the British Royal Navy in the age of Admiral Lord Nelson (1758-1805).

The navy’s job in the endless wars of the 18th century was to capture enemy warships and to sweep enemy commerce¬† from the seas. As the novels of Patrick O’Brian [see below] and C. S. Forrester so vividly bring to life, the Royal Navy was exceedingly good at doing exactly that.¬† No small reason was that the navy gave its officers and men an enormous incentive to capture enemy warships and merchantmen: the whole value of the ships and cargoes they captured.

(NB: we also learned that this is why so many British warships of that era had french names.)

Gordon goes on to suggest that employees of bureaucracies be awarded bonuses equal to the first year’s cost savings on a dollar-for-dollar basis (the “prize” akin to the Royal Navy’s in the 18th century).¬† Furthermore, best practices could be shared and healthy competition encouraged amongst bureaucracies to be the ones who capture the savings (and “prizes”).

Now, to be sure, bureaucracies can’t sally forth, capture an enemy bureaucracy, and sell it to the highest bidder. But they can certainly find new ways of doing their jobs that are cheaper and better than the old ways, especially if they are handsomely rewarded for doing so.

In any case, it occurs to us that as government grows larger and more and bigger bureaucracies (e.g. the delivery of health care) directly affect our businesses, it would make sense to start focusing on how we at least make these institutions as efficient as possible.

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