Senseless bureaucracy is often said to belong to the public sector. The private sector, we are told, is driven by efficiency, and such grotesquely mismanaged bureaucracy appears there only rarely, if at all. How many times have you heard that? Now consider real life.
The number of documents required by a Czech bank (almost all Czech banks are owned by global groups) as part of a mortgage application has increased roughly tenfold over the past twenty-five years. Unlike in public administration, there is no definitive list of forms and certifications that, once completed, guarantees approval. A bank officer may continue to request additional materials indefinitely—up to and including, as one satirical program jokes, your grandmother’s fifth-grade report card.
This might be understandable if there had been a wave of mortgage fraud in the interim, prompting banks to take stronger precautions. But no such wave has occurred. There is no evident reason for more stringent safeguards than in years past.
One might also argue that, in the wake of the American mortgage crisis, banks require greater assurance that clients can meet their obligations. Yet the overwhelming majority of these documents bear no meaningful relation to a borrower’s ability to repay.
Another explanation points to regulatory demands—specifically, in this case, those of Czech National Bank. But regulators typically issue only broad guidelines. Within each bank, large compliance departments are tasked with interpreting and implementing those guidelines. Responsibility for the resulting complexity therefore rests with the banks themselves.
There is, however, one important distinction from the public sector. The spread of bureaucracy in government usually provokes resistance—whether from taxpayers who fund it or from those directly burdened by new rules. That resistance rarely prevails, but it can at least slow the expansion and impose a measure of restraint.
No such resistance exists within banks. There is no constituency troubled by ever more intricate procedures. For many employees, this complexity creates opportunities: to demonstrate activity, to fill working hours, to introduce new information systems, to implement internal programs, to create managerial roles, and to justify bonuses. It is only natural, then, that bureaucratic complexity and absurdity should grow more rapidly in such an environment.
Nor is it the case that these practices are less harmful simply because they occur in “private” institutions. When people devote their time to unproductive tasks instead of productive ones, the national economy suffers. And the costs are borne by all of us, regardless of whether we formally label them as taxes or something else.