The bureaucracy can fight but it can also lose. Blockbuster Video is no longer a thing that exists because of market pressure. Standard Oil was broken up because of political pressure. There have existed countries that, following the conclusion of a major war, actually disbanded the majority of their military forces, both voluntarily and due to external force. Countries have revolutions where the revolutionaries win and then exile or execute the previous ruling bureaucrats.
In theory the same thing can happen through the democratic process, although this is obviously less common because bureaucracies have a solid understanding of how to subvert electoral opposition.
If the wasteful bureaucracy will not commit suicide then help some less wasteful one to commit fratricide.
This sounds like a special case of the more general law of survival of the fittest (where 'fittest' means 'most self-sustaining').
https://en.wikipedia.org/wiki/Jerry_Pournelle#Iron_Law_of_Bu...
It's interesting that another active comment thread on the HN front page today is about evolutionary game theory & the selfish gene. I'd posit that there's a whole class of "evolutionary systems", subject to the axioms of 1.) large numbers 2.) random variation 3.) selection bias and 4.) competitive pressure. And any such system will always tend toward survival and maintenance of the status quo as its primary imperative, for the simple, tautological reason that those organizations that don't are replaced by those that do. This operates on multiple levels, from the molecule to the gene to the cell to the individual to the firm to the bureaucracy to the society as a whole. Oftentimes, behavior that makes no sense on one level seems obvious if you consider the "actor" to be the level above or below what you're looking at: the gene instead of the individual, or the firm instead of the individual, or the society instead of the firm.
In your example, for instance, the primary actor whose survival that the bureaucracy optimizes for isn't the individual: it's the bureaucracy itself. Individuals who serve their own interests instead of the bureaucracy are rejected and fired, as are individuals who serve the other individuals that the bureaucracy supposedly benefits. Why? Because bureaucracies without this incentive structure are replaced by bureaucracies with it.
And there actually are plenty of areas within U.S. society where bureaucracies are not the primary actors. The individual is still valued over the firm or bureaucracy within therapy culture, artist communities, fandom, Internet forums, dinner parties, and many other social contexts. But because there is no central bureaucracy or organization to point to, these niches fall off our radar screen; niches where individual humans remain dominant are by definition areas without enough resources to support a bureaucracy.
Baumol's cost disease is different, and IMHO a more short-term ailment that's afflicting developed economies as they transition to the information age. This phenomena of growing ever more complex systems on top of individuals is pervasive, and will continue to happen as long as the population keeps growing.