The Online Library of Liberty

A project of Liberty Fund, Inc.

• Editor’s Foreword
• Preface to the First Edition
• Preface to the 1962 Edition
• Bureaucracy
• Introduction
• 1.: The Opprobrious Connotation of the Term Bureaucracy
• 2.: The American Citizen’s Indictment of Bureaucratism
• 3.: The “progressives’” View of Bureaucratism
• 4.: Bureaucratism and Totalitarianism
• 5.: The Alternative: Profit Management Or Bureaucratic Management
• I: Profit Management
• 1.: The Operation of the Market Mechanism
• 2.: Economic Calculation
• 3.: Management Under the Profit System
• 4.: Personnel Management Under an Unhampered Labor Market
• II: Bureaucratic Management
• 1.: Bureaucracy Under Despotic Government
• 2.: Bureaucracy Within a Democracy
• 3.: The Essential Features of Bureaucratic Management
• 4.: The Crux of Bureaucratic Management
• 5.: Bureaucratic Personnel Management
• III: Bureaucratic Management of Publicly Owned Enterprises
• 1.: The Impracticability of Government All-round Control
• 2.: Public Enterprise Within a Market Economy
• IV: Bureaucratic Management of Private Enterprises
• 1.: How Government Interference and the Impairment of the Profit Motive Drive Business Toward Bureaucratization
• 2.: Interference With the Height of Profit
• 3.: Interference With the Choice of Personnel
• 4.: Unlimited Dependence On the Discretion of Government Bureaus
• V: The Social and Political Implications of Bureaucratization
• 1.: The Philosophy of Bureaucratism
• 2.: Bureaucratic Complacency
• 3.: The Bureaucrat As a Voter
• 4.: The Bureaucratization of the Mind
• 5.: Who Should Be the Master?
• VI: The Psychological Consequences of Bureaucratization
• 1.: The German Youth Movement
• 2.: The Fate of the Rising Generation Within a Bureaucratic Environment
• 3.: Authoritarian Guardianship and Progress
• 4.: The Selection of the Dictator
• 5.: The Vanishing of the Critical Sense
• VII: Is There Any Remedy Available?
• 1.: Past Failures
• 2.: Economics Versus Planning and Totalitarianism
• 3.: The Plain Citizen Versus the Professional Propagandist of Bureaucratization
• Conclusion

3.

Interference with the Choice of Personnel

Every kind of government meddling with the business of private enterprise results in the same disastrous consequences. It paralyzes initiative and breeds bureaucratism. We cannot investigate all the methods applied. It will be enough to consider one especially obnoxious instance.

Even in the nineteenth century, in the prime of European liberalism, private enterprise was never so free as it once was in this country. In continental Europe every enterprise and particularly every corporation always depended in many respects on the discretion of government agencies. Bureaus had the power of inflicting serious damage upon every firm. In order to avoid such detriments it was necessary for the management to live on good terms with those in power.

The most frequent procedure was to yield to the government’s wishes concerning the composition of the board of directors. Even in Great Britain a board of directors which did not include several peers was considered not quite respectable. In continental Europe and especially in Eastern and Southern Europe the boards were full of former cabinet ministers and generals, of politicians and of cousins, brothers-in-law, schoolmates, and other friends of such dignitaries. With these directors no commercial ability or business experience was required.

The presence of such ignoramuses on the board of directors was by and large innocuous. All they did was to collect their fees and share in the profits. But there were other relatives and friends of those in power who were not eligible for directorships. For them there were salaried positions on the staff. These men were much more a liability than an asset.

With the increasing government interference with business it became necessary to appoint executives whose main duty it was to smooth away difficulties with the authorities. First it was only one vice-president in charge of “affairs referring to government administration.” Later the main requirement for the president and for all vice-presidents was to be in good standing with the government and the political parties. Finally no corporation could afford the “luxury” of an executive unpopular with the administration, the labor unions, and the great political parties. Former government officials, assistant secretaries, and councilors of the various ministries were considered the most appropriate choice for executive positions.

Such executives did not care a whit for the company’s prosperity. They were accustomed to bureaucratic management and they accordingly altered the conduct of the corporation’s business. Why bother about bringing out better and cheaper products if one can rely on support on the part of the government? For them government contracts, more effective tariff protection, and other government favors were the main concern. And they paid for such privileges by contributions to party funds and government propaganda funds and by appointing people sympathetic to the authorities.

It is long since the staffs of the big German corporations were selected from the viewpoint of commercial and technological ability. Exmembers of smart and politically reliable students’ clubs often had a better chance of employment and advancement than efficient experts.

American conditions are very different. As in every sphere of bureaucracy, America is “backward” in the field of bureaucratization of private enterprise also. It is an open question whether Secretary Ickes* was right in saying: “Every big business is a bureaucracy.”1 But if the Secretary of the Interior is right, or as far as he is right, this is not an outcome of the evolution of private business but of the growing government interference with business.

[* ][Editor’s note: Harold L. Ickes, U.S. secretary of the interior from 1933 to 1946.]

[1. ]The New York Times Magazine, January 16, 1944, p. 9.