What is the True Cost of Red Tape?

Because I have travelled to a significant part of the world, I feel that I have gained a good understanding of how many different countries work.

And I have been exposed to lots of different rules and regulations both when traveling and living abroad, and I do find it quite funny that you can be treated completely differently based on what paperwork you happen to have, or what value is stored in a database on some government server.

For instance, tomorrow I need to leave Vietnam, and I’ll spend a handful of days in Luang Prabang in Laos, mostly reading and working. I’m doing this because I have to do a Visa run, because the government of Vietnam only allows tourists to stay 14 days before they have to leave if they are on the Visa Waiver programme.

I am sure this rule has lots of good reasons behind it, but it can be circumvented by a quick car trip to the Cambodian or Laotian border. Step outside of the country, and suddenly you can come back in for another 14 days. Nothing else has changed, you just had to move the atoms that make up your body outside of a specific geographically area, and suddenly you’re good to go.

Being Italian, I am no stranger to Kafkaesque situations. The bureaucracy in Italy is incredible, with a significant percentage of the population working directly for the state to keep this apparatus running.

Today I wanted to think of what the actual cost of all this regulation and bureaucracy truly is. Let’s not consider the individual waste of time that billions of people have to take each year in terms of lining up to offices, getting stamps of approval, filling in paperwork, and the rest of it.

I wonder if there is a much more significant, but perhaps more hidden cost to us all. The issue with government bureaucrats is that they hardly ever need to do a cost/benefit analysis on their decision and processes because they do not pay the costs for their decisions. They enforce costs on the rest of us, while perhaps gaining some benefits. Sometimes, for some policies, there is just cost, and no net benefit to any human being can be understood.

This is very different to people who, as Nassim Taleb likes to say, have skin in the game. Those who will actually suffer if they make a terrible decision, but stand to gain if they make a good one—career professionals in a free market, business owners, and the like.

They must consider the costs that they bear in the decision that they make, and if they do not, well, they will fail — and this is the beauty of free market economics. It is not just the profits that are important, but the losses also. They communicate clearly that an individual, or a group, are doing something that is not required by society, and they will eventually have to stop.

This is why Nokia cannot sell you the Nokia 3310 mobile phone. I am sure that they would love to keep making the same phone from the early 2000s at a high-profit margin, but nobody will buy it now, and there is no way that they can force people to buy it.

But the actual cost of red tape is not in the extra costs that individuals and businesses are burdened with but with the slowing down of human progress as a whole.

We are so distracted by the shiny phones in our hands, that we forget that we are flying in aeroplanes that were essentially built in the 1970s, and designed in the 1960s. That we cannot build a bridge in less than ten years.

We have forgotten how to be excited about the future. Why is there traffic? Why can’t we fly from New York to Tokyo in an hour? Why are we still using single-use disposable plastic for any wrapping?

I am sure this is not due to technological impossibilities but our organizational structures. If a superior alien race arrived tomorrow, held up a gun to our heads, and told us that we had a year to never use plastic for 99% of the use cases for which we currently use plastic, we would solve the issue.

We would find a way if they told us that we had to eliminate airport queues completely. If we had to distribute clean water to the entire world’s population — we would be able to do it.

Instead, we now have millions of people working as lawyers, regulators, and paper pushers instead of inviting new things and getting things done.

But, perhaps in the more advanced economies, this was always going to be the case. Once our production capabilities grew to the point where a minority of the population can grow enough food for the majority, there is not much else to be done, the rest is essentially noise.

Related Essays