With the recent brouhaha about the IRS, the EPA (jurisdiction over all bodies of water, emission rules for power plants, etc.), the new Consumer Protection Safety Board (from the Dodd-Frank bill), the State Department’s follies, and other agencies, even at state and local levels, it seemed like a good time to raise once again the broader issue of “top-down” versus the “individualist” approaches to problems.  Here I am drawing on the work of many thinkers: Friedrich Hayek, the “Government Failure” school of public choice political economists, and a recent book by William Easterly, a development economist at New York University (The Tyranny of Experts, 2014).

The question I want to pose—one that has implications for any hierarchical organization—is: What approach solves problems better, the top-down, centralized planning, expert-driven approach or the bottom-up, individualist, competitive, “less planned” approach?  The answer is not as easy as we might believe.  But there are real solutions and we do have a good deal of evidence about which approach works best in given situations.  Moreover my question is not “pie in the sky.”  Its answer has a crucial impact on how and whether problems get solved well or at all.  And ultimately that affects us all.  And finally, our conclusions have importance both for governmental activity and for the private sector (big businesses, big universities—and small ones—and even big churches).  Let’s start.

It is a reality that most problem-solving approaches today are hierarchical or “top down.”  That type of approach involves the following elements: (1) planning, often long-term, covering almost every aspect of the organization created to solve the problem; (2) a top-down command structure created to make sure the plan is being implemented as designed; (3) rules governing all the individuals in the organization, and acting as boundaries on any and all actions/decisions and (4) some way of attempting to measure the outcomes of the implementation of the plan.  Now let’s impose this approach on some problem.

Easterly uses the example of transportation, specifically, how to get people and goods cheaply, safely, and conveniently from one place to another.  This problem could be addressed by either a top-down or a bottom-up approach.  The top-down approach requires knowledge of the most efficient kinds of transport (and requires it “now”), the best way to build (including what to include and exclude), distribute, sell and allocate resources to the project, and a way to gage demand for the solution before anything has been produced—without actual knowledge of what demand is.  Is there a chance that the outcome will be the lowest possible cost and priced vehicle at the highest possible quality, demanded by the greatest possible number of consumers?  Yes, theoretically, of course.  But not likely.  Too much long-run and comprehensive and detailed knowledge is required to make it work if it is planned.  But there is another unintended consequence of doing it this way.  Individuals, who cannot actually “buck the plan” and are discouraged from doing so, will have no incentive to think of or experiment with improvements as time passes, in order to get at an acceptable outcome—good, reliable vehicles.  You know what happens then.  The experts mandate the production of an arbitrary number of vehicles which no one really wants and which would be of low quality even if they wanted a vehicle and which might be over-priced at any rate.  And no one tries to solve the deficiencies in “the plan” because they don’t have appropriate incentives (or they don’t have any voice).

This sort of problem happens all the time.  How do you solve a problem or engage in some activity of benefit to others while implementing a truly efficient and good (in the ethical sense) method and at the same time encouraging inventiveness and innovation?  As a decision maker, you must first realize that you are not either omniscient or omnipotent.  Therefore you can’t know all the possible obstacles or alternative ways of achieving the ultimate goal.  Nor can you simply run roughshod over anything in your way, as that has and has had some quite unpleasant consequences.  Let’s say you are a political leader or public official and you want to improve health care (I know, this one has been beaten to death).  You can either impose a top-down plan that purports to have considered all the issues (or not, as the Congress did in 2010) or you could suggest some marginal but important and beneficial modifications to the present “system” that enable individuals to “make it work” at all levels better, but leaving the individuals and market institutions largely free to pursue their own solutions.

My point is to argue that the best approach is most certainly not the top-down one, especially if, as was the case, the problem is so incredibly complex that no one or even a few people could know all that is needed to coordinate and implement any plan efficiently or justly.  Rather I argue we are best served if we maximize freedom for individuals to pursue their own solutions innovatively, efficiently and justly, constrained only by the necessary rule of law that protects rights and prevents immoral behavior.  What we now have is a massively bureaucratic health care system that even well-meaning officials cannot possibly manage well if at all.  It is impossible to divine unintended consequences with omniscience.  It is only by incremental and individual change that we solve most problems.

As an unfortunate by-product of the attempt at top-down planning, we also typically get hierarchical organizations designed to make sure the plan works.  Equally unfortunately, in any but small organizations, this form does not work well in practice.  Even in small bureaucracies the same tendencies arise that one sees in the much larger relatives.   I have written on this subject before, but it is worth some repetition, since our modern tendency is to organize almost all activity as a sort of top-down solution.  Perhaps, as Easterly writes, that is partly a result of our insatiable love of leaders or “heroes.”  We think if we just have the right person in charge, with the right underlings (well-trained, educated, above all, loyal) all the potential problems will vanish.  But given human nature it just doesn’t work that way most of the time, even if the leaders and their employees  are indeed well-meaning and even upstanding.  One reason—not the only—is that everyone gets enamored with “the plan” and cannot seem to respond well when it isn’t working or when it could be improved.  Why is that?  Usually it is because as the plan is worked out (implemented) it begins to be expressed in the form of more and more rules designed to make sure everyone is following the plan to the letter.  Such rules make employees slaves to the rules.  When new problems arise, they cannot respond quickly and efficiently, if they can respond at all.  This leaves those supposedly served scratching their collective heads, wondering how people can be so, well,… bureaucratic.  It isn’t because leaders and employees are stupid (at least not usually) but because the rules have enslaved them to the point they simply have no incentive to be innovative.  They may well feel they can’t at all.

You may have experienced this at some point when you went to some office to get some service or to sign up for something and were told, “We can’t do that,” or “You will have to fill out another form first, “ or “You will need some other piece of paperwork first.”  Or “This will take one or two months to complete the process.”  You are frustrated of course.  But remember, the employees don’t really know how to exercise discretion and just let it go and help you anyway.  They have been conditioned not to do that.  The leaders don’t have much incentive to loosen the rules because they might “lose control” of the organization.  They themselves might have a rule-bound bent too, which makes it more difficult.  How many times have you heard an official, public or private, say “Those are the rules?”  I bet you already knew those were the rules.  Your frustration was with the very existence of those rules that stifled innovation and discretion.

One more point.  I am not excoriating all hierarchical of top-down solutions.  Sometimes they are both more efficient and necessary in emergencies or situations demanding quick and decisive action.  But we have grown all too fond of them as solutions to all problems or ways to “get things done.”  Remarkably we ignore the unintended consequences of lack of innovative incentives, the tendency to internal red tape and self-protection, and the serious issue of trampling on the individual for the sake of the collective.

Well, I have rambled quite long enough.  In the bigger picture, we must reconsider how we solve problems.  Do we trust individual inventiveness and innovation or do we not?  Do we believe top-down, centralized, planning will solve all our problems?  I submit that we have seen ample evidence of the failure of the top-down approach.  We need to “free” individuals to flourish and find the answers to problems or just to think up new innovations that make our lives better.  Over the holidays, give that some thought, please.

If you want to read more on this topic:

Anthony Downs, Inside Bureaucracy, 1967, still an excellent work.

James Q. Wilson, Bureaucracy, also a classic and arguably Wilson’s best work.

William Easterly, The Tyranny of Experts, 2014, just mentioned above.