The irreversible bloat of bureaucracy

Imagine an economy where nobody ever gets fired; the unemployment rate is always low; GDP always goes up. How wonderful – and even better – we're living in it.

And it's a disaster.

The ABC recently reported that over 8 million Australians now rely on some form of government income, up from 6m a decade ago, with mental health increasingly a route to benefits. The NDIS is growing at a fantastic 25% a year.

Australia's institutional drift isn't best understood as incompetence or corruption in the traditional sense. Institutions are drifting because they are structurally incentivised to do so.

As systems scale, the incentives that govern them change. What begins as outcome driven problem solving gradually becomes process-driven system management.

After WW2, the state was smaller with a clearer mandate. Success was measured by outcomes for example, infrastructure built, problems solved. Department heads were usually drawn from engineering, military, or domain expertise. They were technocrats. The NASA team that put man on the moon were not bureaucrats, they were engineers.

The state was a means to an end.

Now, the state is much larger and more complex. Success is measured by procedural integrity, stakeholder management, and risk management. Paths to leadership are dominated by policy, advisory, or administrative careers. Failure is diffuse, hard to define, and rarely detrimental to a career. The government is an employment bureau, as well as a service provider.

In other words, the state is the end as well as the means.

Once a programme is big and complex enough, a predictable pattern emerges. As programmes expand, so do the administrative layers. Careers and industries attach themselves to the programme. Oversight and compliance explode as risk tolerance collapses. People stop asking 'does it work' and instead want to know 'is it being administered correctly?' The latter is the safest way to protect one's job in the bureaucracy.

At that point, the system is no longer built to solve the original problem; it is optimised to sustain itself.

For example, multiple analyses from groups including the Australian Industry Group, Commonwealth Bank and the Institute of Public Affairs estimate that roughly 70–80% of net jobs created in Australia since 2023 have been in the public sector or government funded 'non-market' sectors of the economy.

Government workers rarely vote to shrink their department budgets.

Whether this is in the nation's best interest is irrelevant; it is in the government's best interest.

The National Disability Insurance Scheme is an obvious example. It has morphed from a targeted, high-trust social program, into a vast administrative and commercial ecosystem whose incentives are increasingly decoupled from participant outcomes.

The system is no longer judged purely on outcomes for participants, but also on employment creation, economic activity, stakeholder satisfaction, and political risk (hence the reluctance to prosecute fraud and misuse).

Politicians, even if they want to, are unable to aggressively curtail the system, even where fraud, leakage, price inflation, and waste are openly acknowledged. Serious reform threatens not just recipients, but an entire administrative and commercial ecosystem built around delivery, and, if one is being cynical, voting blocs that favour politicians who turn a blind eye.

This is not limited to the benefits sector. It is a feature of most sectors. For example, legal and consulting firms operate within similair incentive structures, benefitting from and reinforcing an increasingly complex system of laws they help to create. Federal/state government consultant spending has been estimated around ~$20bn+ annually.

This reinforces a broader pattern, whereby modern economies increasingly reward fluency in bureaucracy navigation as much as productive output itself. Institutional complexity is an economic growth sector.

Over time, this becomes a productivity problem, because more economic activity is tied to administration, compliance, and extracting funding rather than genuinely productive output.

Failure does not trigger contraction, in fact, it triggers expansion: more laws, more funding, more administration, more complexity, to manage the problem.

Nobody ever gets fired; the unemployment rate is always low; GDP always goes up. The corollary of course is GDP per capita – down. Prices – up. Service quality – down.

Historically, systems like this rarely reform themselves voluntarily. Meaningful contraction usually requires an external shock: recession, fiscal crisis, war, or a sharp collapse in public trust.

Absent that pressure, the path of least resistance is continuation.Australia remains wealthy enough to sustain this dynamic for now, but capital is finite. Institutional capacity is finite. Social cohesion is finite. A system that cannot contract is not truly stable.

It is simply delaying adjustment.