Neoclassical Political Economy applies the concepts and techniques of Neoclassical Analysis to elucidate the interrelations between the Economy, the Polity and the State. The basic issues at hand were clearly stated by the social thinkers of the 17th, 18th and 19th Centuries, often referred to (admiringly or disparagingly) as the "Classics". The "Classics" lacked the analytic techniques of contemporary social science. They had no access to statistical data and had no knowledge of quantitative methods. They lived in a universe much simpler than ours. They often failed to distinguish between the normative and the positive approach. Yet despite such limitations (or perhaps because of them) they often had an extraordinary clarity of vision. The insights of Hobbes, Locke, Hume, Adam Smith, of Madison and of Marx, are signal posts for to-day's Political Economists.
Max Weber extolled the hierarchic-bureaucratic mode of organization: "Experience" - he claimed - "tends universally to show that the purely bureaucratic type of administrative organization. is, from a purely technical point of view, capable of attaining the highest degree of efficiency" (Weber, 1947, p. 337). Since Weber's time business and government bureaucracy has flourished. Between 1900 and 1950 the ratio of administrative personnel to production workers in U.S. industry grew from 10 per cent to 20 per cent (Bendix, 1956, p. 214)1. By 1983 it reached 48 per cent (Meyer, 1985, p. 37). The proportion of government employees (most of whom are bureaucrats) in the civilian labor force rose in the post-World War II period from 10 to 16 per cent (Meyer 1985 p. 37). A similar trend is noted throughout the industrialized world. Yet, far for being admired, bureaucrats - especially those working for the government- are looked upon as "permanently bungling and inefficient individuals or, alternately, [as] individuals who carry out only those decisions that serve their own interests, rather than those of their superiors" (Breton and Wintrobe, 1982, pp. 6-7) But, "however much people complain about the 'evils of bureaucracy' it would be sheer illusion to think for a moment that continuous administrative work can be carried out in any field except by means of officials working in offices. The whole pattern of everyday life is cut to fit this framework" (Weber, 1947, p. 337). Out of power politicians pledge that, if elected, they will curb the bureaucracy, but, when in office they seem unwilling or incapable to carry out their promise. Our goal is to reconcile Weber's claims in favor of bureaucracy with the arguments of the critics. The discussion is organized as follows. In Section 1 we present Weber's case in favor of a bureaucratic mode of organization Section 2 gives a brief description of major inquiries into the functioning of hierarchies. In Section 3 we present a simple model of an efficient Weberian bureaucracy. The Principal - Agent problem confronting profit-oriented enterprises is discussed in Section 4; section 5 discusses the additional difficulties confronting public sector Bureaus. Niskanen's hypothesis of a bureau-maximizing bureaucracy, and of bureaucracy-maximizing politicians is examined in Section 6. The seventh section is devoted to the issue of efficiency vs. loyalty of bureaucratic employees. The last section contains a brief summary of the major conclusions.
The collection of taxes, in any economic system, clearly requires the use of resources. In modern democratic states tax legislation is almost always controversial, and subject to extensive lobbying. In developing counties the wealthy often successfully avoid payment of taxes and the burden has to be borne by relatively impoverished rural classes, who are themselves not easy to tax directly because of poor record -keeping and difficulty of communications. In earlier times kings and princes often lacked the necessary means of direct taxation and were forced to rely on decentralized institutions such as feudalism. To convince the skeptical reader that the issue of tax-collection costs is neither trivial nor obvious, we pose the following question. What is the effect of greater efficiency in tax collection on the welfare of the tax-paying public? If the government is benign, taxing only to defray socially necessary public expenditure, a reduction in the costs of collecting these minimal taxes would clearly be a 'good thing'. What, however, if the state is inherently "predatory" in nature, as argued by Brennan and Buchanan (1980) and a number of others? In this case the state taxes not only to pay for public services but also to raise revenue for its own, possibly nefarious, purposes. Would an increase in the efficiency if tax-collection be undesirable under this alternative scenario?
The principle of laissez-faire, so closely associated with Adam Smith and the classical economists, should certainly not be considered an endorsement of anarchy as the ideal form of social order. Despite the theological overtones of divine providence in the imagery of the "invisible hand", Smith and his followers did not regard the market and the price mechanism as a spontaneous form of natural order that would prevail in any social group. Political organization in some form is necessary to provide the framework of law and order within which justice could be maintained and contracts enforced. Thus even one of their harshest critics, Thomas Carlyle, described their system not as anarchy, but as "anarchy plus the constable". The necessity of the "state" in the sense of the institution that claims a monopoly of the legitimate use of force over a given territory, or as Max Weber (1964, p. 154) defined it, for the proper functioning of "the market" and indeed of all forms of civilized human endeavor, can be traced back to the seminal influence of The Leviathan, the foundation of modern political thought laid by Thomas Hobbes (1651).
The Solidarity-led government which came into power in Poland in Autumn 1989 faced two enormous tasks. First, to stabilize an economy prone to hyperflation. Second, to replace a crumbling command system in favour of a market mechanism, in a country whose market institutions had been destroyed under forty years of communist rule. This book recounts the events of this period and the course taken by the new government, and analyzes the significance of this for the transition process in Poland and elsewhere
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