Can blockchain end bureaucracy?

Rage Comment : As we all know, the decentralization, transparency, disintermediation and distributed accounting functions of blockchain can bring a certain degree of fairness, thereby reducing corruption such as bureaucracy. This year, the British government believes that blockchain can simplify the government subsidy issuance process, track aid expenditures, and avoid errors. Governments around the world have begun to experiment with using software to record property ownership. Blockchain can automatically record administrative documents, and people do not need to use a central registry to access information. The UK Department of Employment and Retirement can automatically pay and update social insurance based on work status, which can reduce the cost of human management for citizen service departments.

Translation: Nicole

Ludwig von Mises defined bureaucracy in 1944 as “generally associated with negative connotations,” and those connotations—time-consuming, frustrating, and costly—have stood the test of time.

If you want to ask about your self-assessment tax return for October, you have to wait 47 minutes. In 2014-2015, the public sector wage bill was 1500 trillion euros.

But new ideas could change that.

Blockchain - a distributed ledger that can securely record transactions - is the key to changing this situation. Companies want to use blockchain technology to remove cost-consuming back-office departments. Banks think they can save $20 billion in operating costs, and governments also think blockchain technology can greatly improve efficiency.

The UK government has also voiced its support for blockchain this year. In January, the UK government’s chief scientific adviser published an article titled “Distributed Ledger Technology: Beyond Blockchain,” which showcased a range of possible applications for the software concept.

In April, Cabinet Secretary Matthew Hancock explained that blockchain could simplify the process of distributing government grants, track aid spending and prevent errors, and the government finally wants to explore more options through a “blockchain brainstorming session”.

One neglected application is that of replacing administrative work in citizen services, which alone required 170,000 employees at a cost of €3.25 billion in 2014-2015 (see chart).

Blockchain replaces some of these functions by recording transactions.

Governments around the world are beginning to experiment with using software to record property ownership, with blockchains automating administrative documents so people don’t have to use a central registry to access the information.

By using this method, the government can allocate the Land Agency's 13 million euro annual staffing costs more efficiently, which Sweden believes is feasible and can also save time on real estate transactions.

However, the real benefit comes in streamlining operations in large departments, most often administrative departments.

Citizen Services Department

This can be solved by using 'smart contracts' on the blockchain.

These smart contracts can automatically execute certain instructions, provided that pre-set conditions are met. For example, a business can set up real-time tax payments after receiving payment - and automatically get a refund. Similarly, individuals can set up automatic self-assessment payments without going through HMRS officials.

In addition, the UK Department for Work and Pensions can automatically pay and renew social insurance based on work status - this is also a reflection of Universal Credit, which pays benefits based on working time.

Paying taxes and distributing benefits on the blockchain can reduce the cost of human management for these departments. HMRC wants to become a "diamond" management, which can reduce 14,000 jobs, assuming that the number of employees at other levels remains unchanged. This alone can reduce labor costs by 275 million euros.

In 2015, DWP officials proposed cutting 30,000 staff, or 36% of the total workforce. This 36% of officials would save €290 million in labor costs - although in all likelihood, most of these staff cuts would be in management positions, as these are the most likely to be automated.

These are ambitious goals, and changes in the private sector workforce suggest that automation of low-skilled jobs is generally the way to go.

The current fiscally frugal public sector can prevent this expansion.

But to understand blockchain’s impact, governments should heed the advice of the chief technology advisor on distributed ledger technology and start implementing pilot programs.