Bounded Bureaucracy and the Budgetary Process in the United States

Jay Ryu

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781412842891
• eBook ISBN: 9781351530910
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Bureaucracies have been criticized from various perspectives and blamed for a variety of failings. Critics have claimed that bureaucracies are too focused on conforming to rules rather than achieving an organization's core mission. Bureaucracies are said to oppress human freedom because of their orientation toward hierarchical control. Bureaucratic organizations are also said to be unable to deal effectively with public problems that span multiple administrative jurisdictions; they do not reach beyond their own organizational boundaries. This book provides solid data on how bureaucracies can expedite information processing and reduce organizational conflicts. Jay Eungha Ryu finds that the functions of bureaucracies are highly dependent upon external political conditions. Whether the executive and legislative branches are dominated by the same party significantly influences the ability of bureaucracies to function effectively. Ryu notes that the merits of bureaucratic centralization are worth close attention. Numerous attempts, including performance budgeting systems, have been made to improve bureaucratic malfunctions. However, such reform initiatives are doomed to failure, he argues, unless they employ a core feature of bureaucracy itself, centralization. Ryu defines bureaucratic centralization at its best as bounded bureaucracy. If well managed, bounded bureaucracy can substantially improve the rational behavior of organizations and reduce institutional frictions.

1
Bureaucraticization of Budget Processes: Causing or Remedying Bounded Rationality?

When policy makers make their decisions, they receive various policy inputs and process them into policy alternatives. For instance, budget decision makers receive demands from interest groups, get data on available tax revenues for upcoming fiscal years, and focus on political power transition that might affect annual budget size. However, budget decision makers, especially in governments, usually do not have enough time and resources to process all such information they obtain from their surrounding environments. In addition, they do not have cognitive and analytical capacities to review the information. This phenomenon has been described as bounded rationality.

Institutional procedures and limits further augment the bounded rationality. For example, there are numerous statutory provisions that control the size of revenue, spending, and budget deficits. The complicated legal, institutional, and organizational procedures limit the cognitive capacities of human decision makers. In particular, bureaucratic organizations have been specifically blamed for amplifying the bounded rationality. Bureaucracies typically have highly centralized and hierarchical structures, along with standardized procedures of operation. They have been blamed for various dysfunctions such as conformity to standard rules rather than achieving core missions, oppression of human freedom due to hierarchical control, and irresponsiveness to the public due to adhering to internal procedures of operation. In addition, bureaucratic organizations were criticized for their inability to efficiently and effectively deal with public problems beyond their organizational boundaries, which span multiple administrative jurisdictions. Strong collaboration among multiple organizations is recently suggested as a way to improve organizational performance of bureaucratic organizations (Bingham and O’Leary 2009).

However, bureaucratic organizations were originally invented to enhance information-processing capacities (i.e., cognitive and analytic capacities) of individual decision makers. In particular, bureaucratic centralization was suggested as a way to expedite information processing and reduce organizational conflicts. Central offices in bureaucratic organizations were supposed to function as a storage center for various information sources. They share the information sources with line units (e.g., departments and agencies) and also relieve their computational burden. Bureaucratic centralization was also expected to reduce tensions and conflicts among departments and agencies in bureaucratic organizations.

In the national and state budget processes, central budget coordination has been enhanced since the early twentieth century. This book finds that there are still substantial merits from bureaucratic centralization of the budget processes. Empirical findings in this book indicate that bureaucratic centralization does improve information processing and reduce organizational tensions and frictions. However, the benefits from bureaucratic centralization diminish beyond a certain threshold point. The impact of bureaucratic centralization is also tangential on whether its surrounding political environments are conducive to the functions of bureaucratic organizations. When the executive branch and legislatures are under the same party control, political conditions are highly compatible with the hierarchical settings of bureaucratic organizations in the executive branch. Bureaucratic centralization enhances information processing and reduces institutional conflicts in the executive branch. When the executive branch is confronted by the opposition party in legislatures or majority parties in two legislative chambers differ, political environments are likely to be featured by bipartisan confrontations. Ironically, evidence suggests that such bipartisan confrontations are the best conditions for central bureaucratic agencies in the legislatures, such as the Congressional Budget Office(CBO), to function as a politically neutral and efficient information processor. Therefore, bureaucratic centralization is observed to expedite information processing and reduce organizational conflicts to a certain threshold. In this book, this aspect of bureaucratic organizations is described as “ bounded bureaucracy .” The final conclusion in this book is that bounded bureaucracy can substantially improve bounded rationality.

This book investigates largely three topics. First, Chapter 2 discusses the theoretical background of the so-called bounded rationality of decision makers under institutional settings. Second, Chapter 3 indicates that organizational theorists and political scientists originally suggested bureaucratic organizations as a remedy to the bounded rationality of decision makers. Third, Chapters 4–6 explain bureaucratic centralization of the national and state budget processes in what is known as executive and Congressional budgeting systems. They also present empirical evidence from decades of national and state budget data that bureaucratic centralization of the budget processes expedite information processing and reduce organizational conflicts. The three overarching topics are briefly introduced below.

Bounded Rationality of Decision Makers

Incrementalism contends that the limits in cognitive and analytical capacities of human decision makers result in bounded rationality. The limits are augmented by prescribed legal, political, and institutional constraints. Under such restricting decision environments, decision makers are most likely to disregard informational cues such as interest group pressures, forecast revenues, and political party competition, etc., which they obtain from the decision environments. In actual decision making, they do not have enough time/resources and especially information-processing capacities to process all the information (Lindblom 1959, 1979). Instead, they focus primarily on pre-established reference points or the status quo (e.g., last year’s budgets in the case of budget processes). At least, last year’s budgets might have passed political consensus tests and as such, might not open up new rounds of political conflicts. Consequently, budget outcomes follow highly predictable and stabilized patterns of changes: i.e., typically 5percent changes, seldom larger than 30 percent(Wildavsky and Caiden 2004,46). The aspect is defined as budget stability in this book.

Disproportionate information-processing theory, as a more comprehensive and general theory of decision making, asserts that decision makers pay “selective” attention to a few informational cues from the decision environment. For instance, decision makers pay attention only to the demands from one specific interest group. Thus, decision making is characterized by attention-driven choice, which is also known as indicator lock. However, the disregarded facets (e.g., allall factors other than the demands from one interest group) will build up pressure in the temporal policy and budget processes in the future. Decision makers will reach a point where they can no longer ignore the disregarded factors. Th ey will give sudden attention to the facets and there will be sudden, dramatic changes in policy and budget outcomes. In addition, institutional tensions caused by institutional/legal procedures will further augment the attention-driven choice process. The result of attention-driven choice process generally leads to sudden budget changes defined as budget punctuations in this book. Both budget stability and punctuations are the symptoms of bounded rationality and institutional tensions (Jones and Baumgartner 2005a, 2005b). In Chapter 2, a detailed explanation will be given on how attention-driven choices will result in budget stability as well as punctuations. This is one of the reasons why disproportionate information-processing theory is treated as a comprehensive theory, which combines incrementalism and punctuated equilibrium theory. Since disproportionate information-processing theory is fairly complicated, its key points are explained in an easily understandable manner.

Bounded Bureaucracy as a Remedy to Bounded Rationality

Bureaucracy has frequently been blamed for magnifying bounded rationality of human decision makers. However, scholars have often been negligent of the fact that bureaucracy itself was invented as a mechanism to extend the limited information-processing capacity of human decision makers. Bureaucratic organizations were expected to augment human cognitive and analytical capabilities through functional specialization and coordination. In particular, bureaucratic centralization was originally suggested as a way to enhance the information-processing capacity of decision makers and reduce institutional frictions. An example of institutional frictions is conflicts among the subunits in bureaucratic organizations, which were expected to be controlled through centralized coordination (Fry and Raadschelders 2008, 85–107, 211–47).

There are some caveats on the potential benefits from bureaucratic centralization, however. First, excessive centralization might ignite resistance from line agencies. Too excessive centralization might restrict the discretion of frontline managers or street-level bureaucrats who might retain the best knowledge and skills to address specific public problems (Andrews et al. 2009). Chapter 3 provides more detailed theoretical framework and empirical evidence on how bureaucratic centralization might influence information processing of decision makers and reduce organizational conflicts. More specifically, the following two variables (e.g., for the executive branch of governments) will capture the curvilinear relationship between bureaucratic centralization and budget stability/punctuations. Centralization is constructed as the number of central budget office staff divided by the number of total employees in the executive branch. Centralization² is the squared value of Centralization. Centralization will expedite information processing and reduce institutional conflicts. In contrast, excessive centralization, Centralization², will detract from information processing and increase institutional tension.

Second, the impacts of bureaucratic centralization on information processing and institutional conflicts will be substantially tangential on its surrounding partisan environments. In general, bureaucratic centralization will help expedite information processing and reduce institutional tensions when surrounding partisan environments are conducive to the functions of bureaucratic centralization. Under unified governments (i.e., the executive branch and legislatures under the same party control), political backdrops are highly compatible with the hierarchical settings of bureaucratic organizations in the executive branch. Bureaucratic centralization might enhance information processing and reduce institutional frictions in the executive branch. Under divided governments (i.e., the executive branch is confronted by the opposition party in legislatures or the majority parties in two legislative chambers differ), political environments are likely to be featured by bipartisan confrontations. Ironically, evidence suggests that such bipartisan confrontations are the best conditions for central bureaucratic agencies in the legislatures, such as the CBO, to function as a politically neutral and effi cient information processor. In sum, bureaucratic centralization will probably reduce the frequency of budget punctuations or sudden budget changes that are symptoms of bounded rationality and institutional frictions. The function of bureaucratic centralization will substantially hinge on whether surrounding partisan configurations are favorable to their functioning.

Third, bureaucratic centralization might not augment information processing and reduce institutional frictions under routine, programmed decision-making (e.g., strongly standardized operating procedures) settings. The programmed decision-making settings have been associated with budget stability (e.g., 5–10 percent changes in annual budgets). Budget stability is characterized by stickiness and strong institutional tensions against changes in the status quo. However, numerous attempts to affect the budget stability have not been successful. Thus, bureaucratic centralization should not be blamed for what virtually nothing can achieve for budget stability. Chapter 2 gives detailed discussions of the differences between programmed vs. nonprogrammed decision-making settings and how bureaucratic centralization exerts different impacts on information processing and institutional frictions depending on such varying settings.

Figure 3.1 in Chapter 3 succinctly summarizes the key assumptions of this book. The first panel explains the core concepts of disproportionate information-processing theory introduced in Chapter 2. The lack of information-processing capacity of budget decision makers will increase indicator lock. The indicator lock will increase either budget punctuations or stability. Institutional frictions will augment the indicator lock as shown in Figure 3.1. Overall, bureaucratic centralization will reduce the probability of budget punctuations. However, it will not effectively change budget inertia or stability. In sum, bureaucratic centralization can help decision makers process informational cues flowing from the budget environments when surrounding partisan conditions are conducive to the functioning of the bureaucratic organizations. Although it is limited in enhancing information processing and reducing institutional frictions regarding budget stability, bureaucratic centralization has substantial strengths over budget punctuations. Therefore, the somewhat “bounded” bureaucracy can be a solution to bounded rationality, contrary to the common assertion in the literature.

Central Budget Offices: Enhancing Information Processing and Reducing Institutional Conflicts

Chapters 4–6 present empirical findings obtained from the national and state budget data. In Chapter 4, changes in U.S. budget authorities from 1961 to 2006 were used to test whether bureaucratic centralization reduces budget punctuations and stability. The centralization index, measured as the ratio of the Office of Management and Budget (OMB) employees to total employees in the national executive branch, was negatively correlated with the frequency of budget punctuations. Its squared value was positively associated with budget punctuations as hypothesized in Chapters 2 and 3. This implies that bureaucratic centralization might expedite information processing and reduce institutional frictions to a certain degree but beyond a certain threshold, it detracts from such benefits. However, this finding is obtained only under unified governments as also hypothesized. The political conditions under unified governments are compatible with and conducive to the hierarchical functions of bureaucracies. In contrast, bureaucratic centralization does not influence budget stability. It even increases the frequency of budget stability, especially under unified governments. Considering that virtually no attempts were successful to influence budget stability, bureaucratic centralization should not be criticized for its incapacity to process information processing and reduce budget inertia.

In sum, a moderate level of centralized budget coordination in the national executive budget process helps expedite information processing and reduce institutional frictions when the surrounding partisan configurations are similar to the hierarchical structures of bureaucratic organizations (i.e., unified governments). This observation is obtained only for budget punctuations. Bounded bureaucracy, unlike scholarly expectations, does improve bounded rationality of decision makers and reduce institutional frictions.

Using the same U.S. budget authority data, bureaucratic centralization in Congress is tested to investigate whether it affects information processing and reduce institutional frictions. In Chapter 5, bureaucratic centralization is measured as the ratio of the CBO employees to total Congressional employees. Almost the same observations reported in Chapter 4 were found for bureaucratic centralization in Congress. Adequate, not excessive, bureaucratic centralization seems to expedite information processing and reduce institutional frictions. However, this effect was found only under “divided” governments.

In Chapter 5, a lot of scholarly observations about Congressional politics are also reported. The CBO was the creation of the 1974 Congressional Budget Act that entailed numerous changes in Congress. The changes in Congressional committee systems, aspirations/ behaviors of committees and their members, and budget decision processes in the 1970s are discussed in Chapter 5. This chapter also discusses what happened during the 1990s and 2000s. Congress and its committee structures are described fundamentally as fragmented and decentralized coalitions of co-equal powers. Under these conditions, the CBO has been functioning as a “bipartisan” information processor and friction reducer only when one partisan power was pitted against another. This is starkly contrasted with the OMB that has been recently criticized for its deviation from politically neutral competence. Bipartisan confrontation is the best condition for the CBO to maintain its somewhat more neutral competence by ironically taking advantage of the political cross fire. In this chapter, many anecdotal cases are introduced to show how partisan divisions can nurture the best conditions where the CBO can successfully maintain its stance as a bipartisan and neutral information processor. Bureaucratic centralization in Congress through the CBO is loosely coupled with the fragmented Congressional committee structures that are starkly contrasted with the hierarchical backdrop surrounding the OMB. Bipartisan confrontation is a better match with the fragmented nature of Congressional committee structures. Thus, when partisan configurations surrounding bureaucratic centralization are more favorable to bureaucratic functioning, bureaucratic centralization will reduce budget punctuations. Here again, bureaucratic centralization does not shake loose budget stability. Under unified governments, it even increases budget stability.

In sum, when surrounding partisan configurations (in this case, divided governments) re...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Preface
• 1 Bureaucraticization of Budget Processes: Causing or Remedying Bounded Rationality?
• 2 Bounded Rationality in Policy and Budget Processes
• 3 Bureaucratic Organizations as a Remedy to Bounded Rationality
• 4 Bureaucratic Centralization and the National Executive Budget Process
• 5 Bureaucratic Centralization and the Congressional Budget Process
• 6 Bureaucratic Centralization and the State Budget Process
• 7 Conclusion: Bounded Bureaucracy to Bounded Rationality
• Bibliography
• Index