Voracity Effect

Imagine a coastal region that has been dependent on the fishing industry for decades. The oceans are considered common, international property, so the individual fishermen and businesses do not consider it their personal responsibility to worry about fish stock renewal or habitat regeneration. After all, if they do not harvest what they can, then someone from a neighbouring country surely will! Everyone believes that in order for the fishing industry to remain competitive, there ought to be no regulations or policies that prevent overfishing.

Far away, in another part of the world, another shoreline community has ratified treaties with its neighbouring countries. These bilateral agreements determine how many fish may be caught by each nation, and the boundaries in which fishing can occur. To oversee the ordinance, the countries coordinate a central enforcement agency that monitors fishing activity, and employs marine scientists to audit the life cycles of fish species and the overall health of the oceanic ecology. The highly regulated industry requires the fishermen pay taxes which, in turn, finance the whole bureaucratic machine that licenses and controls the fishing industry.

Which nation has a more efficient fishing industry?

Imagine a country governed by two or three factious militia groups. Citing deeply harboured racial and political ideologies, they regularly clash with one another along their disputed borders. In one of the regions, the remnants of a centralized government, now virtually powerless, pleas for assistance from other countries, begging for aid in order to assist thousands of displaced people suffering across the country. The international community responds, and planeloads of food and supplies are successfully flown into the capital. But the distribution channels are fragile and tedious: the aid must cross from one faction’s side to the other, and the rogue ‘power brokers’ of the day do not hold the idea of ‘sharing’ as a high priority.

Somewhere else, imagine a country that is organized into multiple levels of bureaucratic governments. Citizens are taxed on the income they earn, the property they own, and the purchases they make. This tax revenue funds an extremely complex, multi-layered chain-of-command system. The governments of the provinces/states and the governments of the cities/regions are not autonomous: their responsibilities are legislated by national/federal government, which determines the rules and parameters by which tax revenue (i.e. the national budget) will be distributed across the whole country. All this depends on a rigorous process of checks and balances, which in turn creates further levels of accountability and reporting (that the taxpayer must ultimately pay for). As a result, to maintain this massive political infrastructure, hundreds of thousands of public servants are employed, salaried, and (likely) unionized.

Which nation has a more efficient manner of governance?

We often forget that even though centralized, organized bureaucracies are often inefficient, obtuse, and ‘clunky’, they also tend to be far more efficient than most alternatives in the long run. In the absence of structured oversight, overall resource waste surges to its highest levels. Economists Aaron Tornell and Philip Lane describe this as the ‘Voracity Effect’ – it occurs when a windfall of resources is inefficiently squandered because there is no centralized authority system to effectively leverage and distribute in such a way as to benefit the economy as a whole.1

Consider what happens to the fish stock and the international aid in our above examples:
Year over year, the unregulated fishing industry will be less productive than its highly regulated counterpart. Long term, all those taxes, policies, and international treaties mean that the administrative top-heavy bureaucracy makes for a more viable and competitive fishing industry than the free-for-all, winner-takes-all approach. Simply: keeping a renewable resource renewable is an economic no-brainer.

Likewise, the guerilla-run country – the ultimate example of an unregulated, completely ‘open market’ in every possible sense – is equally inept at handling an influx of new resources. In such scenarios, international aid can be easily wasted or, even worse, be leveraged by one group to increase its domination over another. The Voracity Effect explains why some countries with massive oil reserves are also in dire economic situations: insufficient channels of authority result in newfound wealth simply being swallowed up by the power brokers, and the long-term result is worse for everyone than if the oil had never been exploited in the first place. This provides an explanation as to why a surge in a commodity export price can increase levels of poverty in a producing country, if the commodity production itself is not regulated by a central authority.

Recall the second country we discussed above – the one with multiple levels of government and red tape. Imagine that a series of devastating natural disasters wreak havoc across this country. At the community and municipal levels, neighbours do their best to aid one another, but clearly more assistance is required. Intermediate state, provincial, or territorial governments lobby federal or national levels of government for emergency assistance, who may in turn deploy specific agencies or even military personnel to the affected areas. In dire situations, the highest head of state may even appeal to other countries for further assistance. The existence of a central chain of authority means that assistance has a far better chance of being effectively distributed than if all the levels of government were autonomous (or, at worst, competitive).

In sum, bureaucracy has its benefits. At the onset of the disaster, hundreds of protocols and policies are triggered in governmental offices across the country, across all levels of government. Resilience, whether in human communities or natural ecosystems, is created essentially the same thing: multiple layers of interdependent complexity and redundancy. The next time you are tempted to complain about the inefficiency of one organizational process or another, just ask yourself what the situation would be like in the absence of any organization at all.

I reckon that, for the most part, even the most frustrating systems (tendencies toward order) are far better than anarchic bedlam (tendencies towards chaos).

Of course, there will always be room to improve the effectiveness and efficiency of our institutions. And there is great economic and social benefit in achieving this aim. But the point here is that we ought to remember that a bureaucracy is successful to the extent that it thwarts and diminishes the Voracity Effect. No system is perfect, but many systems are drastically under appreciated.

  1. Tornell, Aaron. & Lane, Philip R. (1999). The Voracity Effect. The American Economic Review, Vol. 89, No. 1 (Mar., 1999), pp. 22-46 

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