On Bottling Up Bad News
I have posted an article today on the scandal that is engulfing the Department of Veterans Affairs.
This scandal is the result of the standard practice of all bureaucracies, namely, withholding information that reflects badly on the lower branches of the organization. Every level of the bureaucracy is set up to restrict bad news from moving up the chain of command. It is basic to every level of the bureaucracy that nobody at the very top is made aware of the fact that there are multiple disasters taking place at the bottom.
This is not unique to bureaucracies. Every hierarchy has a built-in preference for keeping good news flowing upward and bad news bottled up in the lowest possible level. Nobody wants to put his career on the line. But in a government bureaucracy, because of civil service protection, people can get away with this at all times. Only in the rarest of instances, when the information gets out of the chain of command and into the media, do we find cases where the whistleblowers actually do create massive embarrassment for the bureaucrats.
I have talked about this with respect to Edward Snowden. Because Congress did not immediately act on Snowden's information, and because there has been no cutback in the NSA's budget, the NSA has received a free pass. It will be embarrassed from time to time, but Snowden's revelations are now old news. Even if new revelations appear, they will be written off as ancient history, because Snowden was the one who was the source of the information. The NSA now has essentially carte blanche. It got away with it.
IMMUNE TO SCANDALS
All bureaucracies get away with it. Scandals never take down a federal bureaucracy. In those rare instances where a regulatory agency is abolished, it is never because of the scandal. It is because the agency has become so obviously useless that it can no longer be justified. So, the employees within the organization are then scattered among a large group of bureaucracies which do similar tasks.
The classic case of this is the Interstate Commerce Commission, which was the first federal regulatory agency, created in 1887, and which was shut down in 1995. Nobody got fired. Everybody got reassigned. There was no scandal. It was not because of bad news that got out to the general public. What killed the ICC was the realization, which took a century to get to Congress, that the organization set up price floors, which benefited oligopolies in the transportation business. By getting rid of the regulatory agency, price competition was allowed to go to work, and the result was cheaper transportation. It took a century for Congress to figure this out, but it finally did. The same thing happened to the Civil Aeronautics Board.
By the way, just for the record, the abolition of price floor agencies comes under Democratic Presidents, not under Republicans. Reagan talked a good line, but he never actually abolished anything. Carter and Clinton actually got rid of some large regulatory agencies.
TRANSITIONS ARE NEVER SEAMLESS
In the private sector, we see the same thing. I am experiencing this at present. I use a company that provides email service. The poor guy who owns the company got seduced by somebody who was selling an upgrade to his software. All programmers tell happy stories about the ease of transition. The favorite phrase of programmers is this: seamless transition. This is about as reliable as the other phrase: "I'm from the government, and I'm here to help you." You would be wiser to believe this one: "Yes, I'll still respect you in the morning." Anybody who believes the words "seamless transition" is a sucker from day one. In any field, there will not be a seamless transition, but in the field of digits, you can count on it.
Anyway, the poor guy bought it. Four days ago, the system went down. You can't get your email. You can't get your email re-directed. You can't access on-site Webmail. It is completely dead. But, predictably, there is no admission of this on the website. There is no announcement saying that the organization has been shut down because of an ill-fated attempt to upgrade the software.
You call on the support line. There is no recorded message that tells you that the problem is with the company, not with you. You are put on hold, as we all are in almost every call that we make to a voicemail machine, and we're told that the call will be answered in the order in which it was received. Since virtually everybody in the client base is calling to find out what's wrong, this wastes a lot of the time for anybody who calls in.
The owner has an illusion. He thinks that, if he doesn't admit that he screwed the pooch, nobody's going to find out. He's wrong. A lot of us are scrambling around to find another service. His company may not survive. The site may never come back up. Meanwhile, he is risking cancellations for his stonewalling.
His response to the clients is the same as the Department of Veterans Affairs' response to Congress. Nobody knows anything. This is all news to everybody. "What? There's a problem?
The difference is clear: there is a profit-and-loss system operating in the free market. We can go shopping for alternative sources of email delivery. We are not tied to one small company that used perfectly good software, and whose owner got sucked in by the promise of some programmer that there could be a seamless transition to a really neat new system. The old system worked fine; the new system does not work at all. This is programming. Anybody who owns a company that relies on programming knows that this is the way of the world. But this guy did not figure it out. I've used the company for a decade; now I'm looking for an alternative. It's because I need email forwarding. In the free market, this kind of nonsense is taken care of by rival companies. People shift to a new company.
If your company gets hit by something like this, the best way to deal with this is to admit it up front. Tell people the problem. Don't put them on hold for an hour to speak to a service person, and then have the service person say that it's a technical glitch that will be overcome soon.
The customer support person has no idea when it is going to be overcome. It may never be overcome. The boss doesn't know. The programmer doesn't know. The client doesn't know. You have to go by trust, and if you don't get an explanation early, that trust will be lost.
The owner of the company hasn't figured this out. He still wants to pretend that everything is going to be just fine, and that his clients will stay with him forever, for old times' sake. They won't.
He bet the farm on a minor improvement that was suggested by a programmer. He trusted a programmer. He became as optimistic as the programmer. He paid good money to hire the programmer. In short, he did a really stupid thing.
Here is the rule governing wise dealings with programmers: "Don't be the first guy to try the upgrade."
CONCLUSION
A government bureaucracy is always dangerous. Bureaucracy is funded by governments, and there are no alternatives. You have to deal with the government agency. The difference between the Department of Veterans Affairs and the little company that handles my email is simple to state: nobody compels me or anybody else to deal with my email service company.
Ludwig von Mises discussed this back in 1944: Bureaucracy. There's never been a better discussion of it. You can't make government run like a business. You can, however, find businesses that are run like a government. They don't last for long after they make this transition.