I don't know if it's so much that information technology is bad at reducing bureaucracy. I think it just hasn't been applied to the same degree. In my former life as a manufacturing engineer, every company I worked for focused on making manufacturing more efficient, but few focused on improving the efficiency of indirect labor.

The ones that were efficient with indirect labor divided labor into core product teams that handled all operations from procurement to shipping. The ones that split the responsibilities into specialized departments typically added layers of overhead and bureaucracy to the organization.

It's inherent in (human) systems to encroach. Read this and the following five chapters and gain enlightenment: http://www.draftymanor.com/bart/systems1.htm

Or tl;dr: Humans in a system resist to lose power, instead they aim for making their position permanent by expansion (rising importance).

The amount of information doesn't remain constant - technology enables bureaucrats to invent yet more bizarre and arcane legislation.

For example,the U.S. tax code was 504 pages long in 1939, 8,200 pages in 1945, 67,000 in 2008 and 75.000 pages today.

http://politicalcalculations.blogspot.com/2010/03/growing-co...

I work for an insurance company, and we spend far more time writing code to comply with regulations than we do writing code for our agents and customers.

Who do you think is in charge of those information systems? Non-bureaucrats?

A bureaucracy doesn't have to make a profit. There is no incentive to use technology to make anything redundant.